KAVL 10-K & 10-Q changes, risk factors and insider trading
Kaival Brands Innovations Group, Inc. · OTC · Retail-Nonstore Retailers · CIK 1762239 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “A limited trading market currently exists for our securities, and we cannot assure you that an active market will ever develop, or if developed, will be sustained.”
Removed heading “Risks Related to the Business Combination”
Removed heading “Completion of the Business Combination is subject to a number of conditions and if these conditions are not satisfied or waived, such transactions will not be completed.”
Removed heading “Failure to complete the Business Combination could negatively impact Kaival’s stock price, future business or operations.”
Removed heading “The exercise of Kaival’s boards of directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are appropriate and in Kaival’s shareholders’ best interests.”
Removed heading “The Company will incur significant transaction and transition costs in connection with the Business Combination.”
Removed heading “Legal proceedings in connection with the Business Combination, the outcomes of which are uncertain, could delay or prevent the completion of the business combination.”
Removed heading “After the Business Combination, Pubco may be exposed to unknown or contingent liabilities and may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and share price.”
Removed heading “Due to potential fluctuations in the market value of Pubco Ordinary Shares, Kaival stockholders cannot be sure of the market value of the consideration that they will receive in the Business Combination.”
Removed heading “Termination of the Merger Agreement could negatively impact Kaival.”
Removed heading “The terms of our agreements with Bidi, including our A&R Distribution Agreement, may not always be as favorable to us as the terms that may be obtained by arms’ length negotiation.”
Removed heading “We may not be successful in maintaining the consumer brand recognition and loyalty of our products and face intense competition and may fail to compete effectively.”
Removed heading “Our distribution efforts rely in part on our ability to leverage relationships with large retailers and national chains.”
Removed heading “Competition from illicit sources may have an adverse effect on our overall sales volume, restricting the ability to increase selling prices and damaging brand equity.”
Removed heading “Our products are regulated by the FDA, which has broad regulatory powers. Increases in tobacco-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.”
Removed heading “The market for ENDS products is subject to a great deal of uncertainty and is still evolving.”
Removed heading “Some of our product offerings through Bidi are subject to developing and unpredictable regulation.”
Removed heading “Our supply to our wholesalers and retailers is dependent on the demands of their customers who are sensitive to increased sales taxes and economic conditions affecting their disposable income.”
Removed heading “We may be subject to increasing international control and regulation.”
Removed heading “We are subject to fluctuations in our results that make it difficult to track trends and develop strategies in the short term.”
Removed heading “Our Common Stock is listed on the Nasdaq but there can be no assurance that we will be able to comply with the continued listing standards of Nasdaq in the future, particularly since we are presently experiencing a Nasdaq continuing listing deficiency.”
Removed heading “If securities or industry analysts fail to continue publishing research about our business, if they change their recommendations adversely or if our results of operations do not meet their expectations, our stock price and trading volume could decline.”
Largest changes
“After the Business Combination, Pubco may be exposed to unknown or contingent liabilities and may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and share price.”see in full comparison
“Competition from illicit sources may have an adverse effect on our overall sales volume, restricting the ability to increase selling prices and damaging brand equity.”see in full comparison
“We may not be successful in maintaining the consumer brand recognition and loyalty of our products and face intense competition and may fail to compete effectively.”see in full comparison
“Furthermore, factors outside of the parties’ control could arise later. As a result of these factors, Pubco may be exposed to liabilities and incur additional costs and expenses and be forced to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in losses. Even if the due diligence has identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with the parties’ preliminary risk analysis. …”see in full comparison
“Some of our product offerings through Bidi are subject to developing and unpredictable regulation.”see in full comparison
“We may be subject to increasing international control and regulation.”see in full comparison
Full comparison: every changed paragraph (77)
Risks Related to the Business Combination
Completion of the Business Combination
is subject to a number of conditions and if these conditions are not satisfied or waived, such transactions will not be completed.
Kaival’s obligation
and the obligation of Delta to complete the Business Combination are subject to satisfaction or waiver of a number of conditions, including,
among others:
● approval
of the Business Combination by Kaival’s stockholders;
● absence
of injunctions or certain legal impediments;
● approval
for the listing on NASDAQ of Pubco’s ordinary shares to be issued in the Business Combination; and
● accuracy
of the representations and warranties of each of the parties, subject to certain materiality thresholds.
There can be no assurance
that the conditions to closing set forth in the Merger Agreement will be satisfied or waived or that the Business Combination itself will
be completed.
Failure to complete the Business Combination
could negatively impact Kaival’s stock price, future business or operations.
If the Business Combination
is not completed, Kaival may be subject to a number of material risks, including the following:
● Kaival
may be required under certain circumstances to pay Delta a termination fee;
● the
price of Kaival’s common stock may decline to the extent that the relevant current market price reflects a market assumption that
the Business Combination will be completed; and
● costs
related to the Business Combination, such as legal, accounting, certain financial advisory and financial printing fees, must be paid even
if the Business Combination is not completed.
Further, if the Business Combination
is terminated and either company’s board of directors determines to seek another merger or business combination, there can be no
assurance that it will be able to find a partner on terms as attractive as those provided for in the Merger Agreement. In addition, while
the Merger Agreement is in effect and subject to very narrowly defined exceptions, Kaival is prohibited from soliciting, initiating or
encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination, other
than with Delta.
The exercise of Kaival’s boards
of directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result
in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are
appropriate and in Kaival’s shareholders’ best interests.
In the period leading up to
the closing of the Business Combination, events may occur that, pursuant to the Merger Agreement, would require Kaival and/or Delta to
agree to amend the Merger Agreement, to consent to certain actions taken by Delta or Kaival, as applicable, or to waive rights that Kaival
or Delta is entitled to under the Merger Agreement. Such events could arise because of changes in the course of Kaival’s or Delta’s
business, a request by Kaival or Delta to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement or
the occurrence of other events that would have a material adverse effect on Kaival’s or Delta’s business. In any of such circumstances,
it would be at Kaival’s or Delta’s discretion, acting through their respective board of directors, to grant consent or waive
those rights. The existence of the financial and personal interests of the directors of Kaival described in the preceding risk factors
may result in a conflict of interest on the part of one or more of the directors between what they may believe is best for Kaival and
its stockholders and what he or they may believe is best for themselves in determining whether or not to take the requested action.
The Company will incur
significant transaction and transition costs in connection with the Business Combination.
The Company has incurred and expect to incur significant,
non-recurring costs in connection with consummating the Business Combination, including legal, accounting, consulting, investment banking
and other fees, expenses and costs. In addition, PubCo will incur significant costs operating as a public company following the consummation
of the Business Combination and may also incur additional costs to retain key employees. Generally, transaction expenses incurred in connection
with the Business Combination will be paid by the party incurring those expenses, and many of those expenses might not be paid until after
the Closing. Accordingly, these expenses could result in Holdings having less money following the Closing to spend on other aspects of
its business, particularly if the actual expenses turn out to be higher than anticipated.
Legal proceedings in
connection with the Business Combination, the outcomes of which are uncertain, could delay or prevent the completion of the business combination.
In connection with business combination transactions
like the proposed Business Combination, it is not uncommon for lawsuits to be filed against the parties and/or their respective directors
and officers alleging, among other things, that the proxy statement/prospectus provided to shareholders contains false and misleading
statements and/or omits material information concerning the transaction. Although no such lawsuits have yet been filed in connection with
the Business Combination, it is possible that such actions may arise and, if they do arise, to seek, among other things, injunctive relief
and an award of attorneys’ fees and expenses. Defending such lawsuits could require us and Delta to incur significant costs and
draw the attention of our and Delta’s management teams away from the consummation of the Business Combination and the management
of their respective businesses. Further, the defense or settlement of any lawsuit or claim that remains unresolved at the time the Business
Combination is consummated may adversely affect Pubco’s business, financial condition, results of operations and cash flows. Such
legal proceedings could delay or prevent the Business Combination from being consummated within the expected timeframe.
After the Business
Combination, Pubco may be exposed to unknown or contingent liabilities and may be required to take write-downs or write-offs, restructuring
and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and share
price.
It is possible that the due diligence conducted in
relation to Kaival and Delta and their respective businesses has not identified all material issues or risks associated with Kaival and
Delta or the industries in which they compete.
Furthermore, factors outside of the parties’
control could arise later. As a result of these factors, Pubco may be exposed to liabilities and incur additional costs and expenses and
be forced to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in losses.
Even if the due diligence has identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner
not consistent with the parties’ preliminary risk analysis. If any of these risks materialize, this could have a material adverse
effect on the Pubco’s financial condition and results of operations and could contribute to negative market perceptions about Pubco’s
securities.
Due to potential fluctuations
in the market value of Pubco Ordinary Shares, Kaival stockholders cannot be sure of the market value of the consideration that they will
receive in the Business Combination.
The current shareholders of Delta (the “Delta
Shareholders”) and the Kaival stockholders are expected to own, immediately following consummation of the Business Combination,
approximately 90% (inclusive of shares to be distributed to advisors) and 10% of Holdings, respectively.
Prior to the Closing, there has not been and will
not be an established public trading market for Pubco Ordinary Shares. The market value of Pubco Ordinary Shares will reflect the combination
of Kaival and Delta under the terms of the Business Combination. Further, the merger consideration to be received by Kaival stockholders
will not be adjusted to reflect any changes in the number of shares of Kaival common stock outstanding, the market value of Kaival common
stock or currency exchange rates.
Changes in the price of our common stock may result
from a variety of factors, including, among others, changes in our business, operations or prospects, regulatory considerations, governmental
actions, legal proceedings and general business, market, industry, political or economic conditions. Many of these factors are beyond
our control. As a result, the aggregate market value of the Pubco Ordinary Shares that a Kaival stockholder is entitled to receive at
the Closing could vary significantly from the value of the equivalent shares of our common stock on the date of the Merger Agreement,
the date of this report or at other times, and Kaival stockholders will neither know nor be able to calculate the value of the merger
consideration they would receive upon the Closing. Kaival stockholders are urged to obtain current market quotations for our common stock.
Termination of the
Merger Agreement could negatively impact Kaival.
If the Business Combination is not completed for any
reason, including as a result of Kaival stockholders declining to adopt the Merger Agreement or declining to approve the proposals required
to effect the Business Combination, the ongoing business of Kaival may be adversely impacted and, without realizing any of the anticipated
benefits of completing the Business Combination, Kaival would be subject to a number of risks, including the following:
If the claims against the Company and Bidi that
have been filed with the International Trade Commission are successful, the Company and Bidi could be prohibited from importing and selling
the Bidi Stick in tointo the United States.
On June 11, 2024, RAI Strategic
Holdings, Inc., R.J. Reynolds Vapor Company,
R.J. Reynolds Tobacco Company, and RAI Services Company (collectively, the “RJ Reynolds
Entities”) filed a patent infringement
complaint with the International Trade Commission (the “ITC”) against Bidi, us,
and forty (40) other respondents (the “ITC
Complaint”) pursuant to Section 337 of the Tariff Act of 1930, as amended. Specifically,
the ITC Complaint alleges that one or more
components or elements of the Bidi Stick infringe U.S. Patent No. 11,925,202, which is owned
by one of the RJ Reynolds Entities. The ITC
Complaint requests the ITC grant: (a) temporary and permanent limited exclusion orders pursuant
to Section 337(e) of the Tariff Act of
1930, as amended, which would prohibit the importation of the Bidi Stick in the United States;
and (b) issue temporary and permanent cease
and desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended, which would prohibit
the sale and distribution of the Bidi
Stick in the United States. On July 17, 2024, the Company was dismissed from the ITC proceeding
and is no longer a defendant in the ITC
proceeding. No damages are recoverable in the proceedings before the ITC. On November 1,
2024, Bidi stipulated to a consent order
prohibiting Bidi from selling for import, importing, or selling after importation the Bidi Stick.
The ITC entered the consent order
on December 6, 2024.2024, agreeing to cease all importation and distribution
of the Bidi Stick until the RJ Reynolds Entities’ patent expires in October 2026. In November 2024, the ITC Administrative Law Judge
(ALJ) denied temporary relief to the Reynolds Entities and the case proceeded on the merits. A trial was held in April 2025. The initial
determination (ID) from the ALJ was issued on August 29, 2025. The ALJ found that violation of §337 based on infringement of U.S.
Patent No. 11,925,202 by the respondents, and that both the technical and economic prongs of domestic industry were satisfied. The ID
will now be reviewed by the Commission for final approval, with respondents and complainants expected to file additional briefs. The Commission
target deadline was November 24, 2025 , subject to potential extensions. The asserted patent expires in October 2026 as
would any exclusion order that the ITC enters as a result of the ITC Complaint, as well as the Bidi consent order.
Moreover, we will need significant
additional funds to satisfy our outstanding payables, fund our working capital, and fully implement our business plan as we seek to grow
our revenues and ultimately achieve positive cash flow and profitability. In addition, our ability to continue as a going concern is adversely
affected by the uncertaintydenial surroundingof Bidi’s PMTA processfor withits FDA and outcome offlavored Bidi petitionSticks withand the 11th CircuitCircuit’s Courtdenial of Bidi’s
Appealspetition regardingchallenging the FDA’s January 2024 MDO relating to Classic Bidi® StickStick, as well as our negative cash flows
from from
operations, significant recurring losses and present need for additional funding. All of these factors raise substantial doubt regarding
our ability to continue as a going concern.
The terms of our agreements with Bidi, including
our A&R Distribution Agreement, may not always be as favorable to us as the terms that may be obtained by arms’ length negotiation.
We currently are, and we anticipate that we will continue
to be, substantially dependent on our relationships with our affiliated entities, including Bidi. We believe that our current arrangement
with Bidi provides our business with stability and transparency. Although we believe that the terms of the A&R Distribution Agreement
are as favorable to us as what we could have obtained in an arm’s length transaction, there can be no assurance that this arrangement
or any future agreements that we enter with Bidi, or any other affiliated entity, will be as favorable to us as we may be able to negotiate
with unaffiliated parties.
We currently have no intellectual property
rights rights
other than the intellectual property assets we acquired in May 2023 from GoFire and our trademarks KAIVAL BRANDS and KAIVAL
LABS. We rely
on the intellectual property rights, including logos, trademarks, and trade names, of Bidi that were granted to us pursuant to the A&R
Distribution Agreement to be used in connection with the marketing, advertisement, and sale of the Bidi products. We also indirectly rely
on Bidi’s intellectual property rights related to the Bidi products, such as patents. We have
from time to time considered, and
discussed with Bidi, potential alterations to this arrangement, including a potential acquisition
by us of all or a portion of the intellectual
property owned by Bidi and related to Bidi products. Should we pursue such a
transaction, it would be a “related party transaction,”
as defined by the listing rules of Nasdaq and, thus, subject to
the review of the Audit Committee of our Board (or, if deemed appropriate,
a special Board committee comprised of disinterested
directors). Further, should we undertake such a transaction, then we would become
responsible to respond if a third-party challenged
Bidi’s patents, or infringed upon such rights, in which case our business could
be materially adversely affected.
Our business is rapidly evolving and is particularly
at risk given the FDA’s January 2024 MDO for Classic BIDI® Stick orand inFDA’s November 2025 denial of Bidi’s PMTA
for the eventnon-tobacco that Bidi’s pending PMTA for non-tobacco
flavored BIDI® Sticks is denied or delayed.Sticks.
However, there is a risk that Bidi’s PMTA for non-tobacco flavored BIDI® Sticks will be
denied, which would have a significant adverse effect on our business and could lead to our bankruptcy or the failure of our business
entirely.
Separately, on or about May 13, 2022, FDA placed the
tobacco-flavored Classic BIDI® Stick into the final Phase III scientific review. In March 2023, FDA issued a deficiency letter regarding
the Classic BIDI® Stick PMTA, to which Bidi submitted a timely response in June 2023. Subsequently, on January 22, 2024, FDA issued
a MDO for the Classic BIDI® Stick. On January 26, 2024, Bidi filed a petition for review of the MDO with the 11th Circuit
Court of Appeals, followed by a motion to stay the MDO. Bidi is arguing, among other things, that the MDO was arbitrary and capricious
in violation of the Administrative Procedure Act. On February 2, 2024, Bidi filed a Time Sensitive Motion for a Stay Pending Review, which
the court denied on February 18, 2024. The case is now proceeding on the merits, with Bidi’s opening merits brief filed on April
15, 2024. FDA filed its response brief on June 7, 2024, and Bidi filed its reply brief on July 29, 2024. TheOral arguments were held before
a three-judge panel on the 11th Circuit has
indicated that the oral argument will be held inon April 2, 2025. The CompanyCourt cannotissued providea anydecision assuranceson asApril to24, the2025 timingupholding orFDA’s
denial outcome.order. Unless
theAccordingly, MDOat isthis ultimately remanded by the 11th Circuit,time, the Classic BIDI® Stick is considered an adulterated tobacco product
product, the continued marketing
and distribution of which is prohibited.
On November 4, 2025, FDA issued a MDO for the PMTA for the non-tobacco flavored Bidi Sticks. FDA’s basis for this MDO is that Bidi Vapor’s PMTAs for non-tobacco flavored BIDI Stick did not include sufficient, robust evidence showing that marketing the flavored products would be “appropriate for the protection of the public health” (APPH)—i.e., that adult-smoker benefits (complete switching or significant cigarette reduction) would be large enough to outweigh the well-established youth-appeal and youth-initiation risks of flavored ENDS. In particular, FDA said the submission lacked the kind of comparative evidence (e.g., RCT/longitudinal cohort comparing flavored vs tobacco-flavored ENDS) needed to demonstrate an added adult benefit. FDA therefore concluded the applications were insufficient and stopped further scientific review of other sections.
We may not be successful in maintaining the
consumer brand recognition and loyalty of our products and face intense competition and may fail to compete effectively.
We compete in a market that relies on innovation and
the ability to react to evolving consumer preferences and, thus, are subject to significant competition in the ENDS market, and larger
tobacco industry and compete against companies in such market and industry that have access to significant resources in terms of technology,
relationships with suppliers and distributors and access to cash flow and financial markets.
Consumer perceptions of the overall safety of tobacco,
nicotine, cannabis, and hemp/CBD-related products is likely to continue to shift, and our success depends, in part, on our ability to
anticipate these shifting tastes and the rapidity with which the markets in which we compete will evolve in response to these changes
on a timely and affordable basis. If we are unable to respond effectively and efficiently to changing consumer preferences, the demand
for our products may decline, which could have a material adverse effect on our business, results of operations, and financial condition.
Regulations may be enacted in the future, particularly
considering increasing restrictions on the form and content of marketing of tobacco products, that would make it more difficult to appeal
to our consumers or to leverage existing recognition of the Bidi brand, or other brands that we own or license in the future. Furthermore,
even if we can continue to distinguish our products, there can be no assurance that the sales, marketing, and distribution efforts of
our competitors will not be successful in persuading consumers of our products to switch to their products. Many of our competitors have
greater access to resources than we do, which better positions them to conduct market research in relation to branding strategies or to
launch costly marketing campaigns. Any loss of consumer brand loyalty to our products or reduction of our ability to effectively brand
our products in a recognizable way will have a material effect on our ability to continue to sell our products and maintain our market
share, which could have a material adverse effect on our business, results of operations, and financial condition.
The competitive environment and our competitive position
are also significantly influenced by economic conditions, the state of consumer confidence, competitors’ introduction of low-priced
products or innovative products, higher taxes, higher absolute prices, and larger gaps between price categories and product regulation
that diminishes the consumer’s ability to differentiate tobacco products. Due to the impact of these factors, as well as higher
state and local excise taxes and the market share of deep discount brands, the tobacco industry has become increasingly price competitive.
As we seek to adapt to the price competitive environment, our competitors that are better capitalized may be able to sustain price discounts
for long periods of time by spreading the loss across their expansive portfolios, with which we are not positioned to compete.
“Big tobacco” has also established its
presence in the ENDS market and has begun to make investments in the alternative space. There can be no assurance that our products will
be able to compete successfully against these companies or any of our other competitors, some of which have far greater resources, capital,
experience, market penetration, sales and distribution channels than do we.
Our distribution efforts rely in part on our
ability to leverage relationships with large retailers and national chains.
Our distribution efforts rely in part on our ability
to leverage relationships with large retailers and national chains to sell and promote our products, which is dependent upon the strength
of the Bidi brand name and, in the future, any brand names that we may own or license, and our salesforce effectiveness. To maintain these
relationships, we must continue to supply products that will bring steady business to these retailers and national chains. We may not
be able to sustain these relationships or establish other relationships with such entities, which could have a material adverse effect
on our ability to execute our branding strategies, our ability to access the end-user markets with our products, or our ability to maintain
our relationships with the manufacturer and sub-distributors of our products. For example, if we are unable to meet benchmarking provisions
in certain of our contracts or if we are unable to maintain and leverage our retail relationships on a scale sufficient to make us an
attractive distributor, it would have a material adverse effect on our ability to act as sole distributor for Bidi, and on our business,
results of operations and financial condition.
In addition, there are factors beyond our control
that may prevent us from leveraging existing relationships, such as industry consolidation. If we are unable to develop and sustain relationships
with large retailers and national chains or are unable to leverage those relationships due to factors such as a decline in the role of
brick-and-mortar retailers in the North American economy, our capacity to maintain and grow brand and product recognition and increase
sales volume will be significantly undermined. In such an event, we may ultimately be forced to pursue and rely on local and more fragmented
sales channels, which will have a material adverse effect on our business, results of operations and financial condition.
Competition from illicit sources may have an
adverse effect on our overall sales volume, restricting the ability to increase selling prices and damaging brand equity.
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 and significant, and unfair, competition that
we are faced with. Moreover, factors such as increasing tax regimes, regulatory restrictions, and compliance requirements are encouraging
more consumers to switch to illegal, cheaper tobacco-related products, and providing greater rewards for smugglers. All of these factors
based on illicit trade have had and may continue to have an adverse effect on our overall sales volume, may restrict the ability to increase
selling prices, damage our brand equity, and may lead to commoditization of our products. If we are unable to manage the risks posed by
illicit competition, our results of operation and overall business may suffer.
Our products are regulated by the FDA, which has broad regulatory
powers. Increases in tobacco-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous
jurisdictions.
Tobacco products, premium cigarette papers, and tubes
have long been subject to substantial federal, state, and local excise taxes. Such taxes have frequently been increased or proposed to
be increased, in some cases significantly, to fund various legislative initiatives or further disincentivize tobacco usage. Since 1986,
smokeless products have been subject to federal excise tax. Federally, smokeless products are taxed by weight (in pounds or fractional
parts thereof) manufactured or imported. Any increases in tobacco-related taxes may materially adversely affect the demand for our products.
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. The demand and market acceptance for 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.
For example, 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 a PMTA for flavored ENDS. To date, at least nine states, including the District of Columbia, have banned the
sale of flavored ENDS (e.g., California, Massachusetts, Illinois, New Jersey, New York, Rhode Island, and Utah), with several more considering
similar bans (e.g., Maryland and Connecticut). As the September 9, 2021, PMTA review deadline has now passed, the FDA has implemented
a de facto ban of non-tobacco flavored ENDS by denying over 99% of pending applications, while issuing marketing authorizations for only
two non-tobacco flavored (menthol) ENDS.
If flavors are ultimately prohibited to be sold by
Bidi in the United States, the use of ENDS products may decline significantly, which may materially and adversely affect our business,
financial condition, and results of operations. Continued evolution, uncertainty, and the resulting increased risk of failure of our new
and existing product offerings in this market could have a material adverse effect on our ability to build and maintain market share and
on our business, results of operations and financial condition.
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. These regulations include or could include restrictions including
prohibitions on certain form factors, such as smokable hemp products, or age restrictions. 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. Accordingly, we cannot give
any assurance that such actions would not have a material adverse effect on this emerging business.
Significant increases in state and local regulation
of our products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions. The Prevent
All Cigarette Trafficking (or PACT) Act, which went into effect in June 2010, amended the Jenkins Act and initially only applied to the
sales of cigarettes, roll-your-own tobacco, and smokeless tobacco. Specifically, the PACT Act regulates the sale, transfer, or shipment
of these products for both business-to-business transactions as well as “delivery sales,” which are defined as any sale of
cigarettes, roll-your-own tobacco, or smokeless tobacco where the consumer orders the product remotely and prohibits such deliveries through
the U.S. Postal Service (or USPS), except in certain circumstances (e.g., business-to-business deliveries).
Under the enactment of the Preventing Online Sales
of E-Cigarettes to Children Act (part of the larger 2021 Consolidated Appropriations Act), effective March 27, 2021, the definition of
“cigarettes” in the PACT Act was amended to include ENDS, which is defined as “any electronic device that, through an
aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device,” including “an
e-cigarette; an e-hookah; an e-cigar; a vape pen; an advanced refillable personal vaporizer; an electronic pipe; and any component, liquid,
part, or accessory of a device described above, without regard to whether the component, liquid, part, or accessory is sold separately
from the device.” As such, delivery sales of the BIDI® Stick are subject to the PACT Act.
Management's Discussion & Analysis (MD&A)
Removed heading “Nature of our Products and Regulation”
Removed heading “Counterfeit Products”
Removed heading “Ability to Meet Demand for our Products”
Largest changes
“The spread of COVID-19 throughout the world as well as increasing tensions with China over the past several years 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 material adverse effect on our results of operations.”see in full comparison
On June 11, 2024, the RJ Reynolds Entities filed the ITC Complaint. The ITC Complaint requests the ITC grant: (a) temporary and permanent limited exclusion orders pursuant to Section 337(e) of the Tariff Act of 1930, as amended, which would prohibit the importation of the Bidi Stick in the United States; and (b) issue temporary and permanent cease and desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended, which would prohibit the sale and distribution of the Bidi Stick in the United States. No damages are recoverable in the proceedings before the ITC. If the Company or Bidi is prohibited from importing the Bidi Stick, then our business, operations, financial results, and reputation would be significantly adversely impacted. Although Bidi disputes the patent infringement claims set forth in the ITC Complaint by the RJ Reynoldssee in full comparisonEntitiesEntities, in December 2024 Bidi entered into a consent order agreeing to cease all importation andplansdistributiontoofvigorouslythedefendBidi Stick until the RJ Reynolds Entities’ patent expires in October 2026. In November 2024, the ITCInvestigation.AdministrativeALawCommissionJudgedetermination(ALJ)regardingdenied temporary reliefisto the Reynolds Entities and the case proceeded on the merits. A trial was held in April 2025. The initial determination (ID) from the ALJ was issued on August 29, 2025. The ALJ found that violation of §337 based on infringement of U.S. Patent No. 11,925,202 by the respondents, and that both the technical and economic prongs of domestic industry were satisfied. The ID will now be reviewed by the Commission for final approval, with respondents and complainants expectedintoOctoberfileoradditionalDecemberbriefs.2024. A finalThe Commission target deadline was November 24, 2025,determinationsubjectontopermanentpotentialrelief is not expected until late 2025 or early 2026.extensions. The asserted patent expires in October 2026 as would any exclusion order that the ITC enters as a result of the ITC Complaint, as well as the Bidi consent order As a result of the ITCComplaint.Complaint and other factors, we do not expect any revenue from the sale of Bidi Sticks in the foreseeable future. Our primary source of revenue is from KBI from royalties from PMI under the PMI License Agreement.
Total operating expenses were approximatelysee in full comparison$8.3$17.1 million for fiscal year ended2024,2025, compared to approximately$13.2$8.3 million for fiscal year ended2023.2024. For the fiscal year ended 2025, operating expenses consisted primarily of professional fees of approximately $4.6 million, gain on termination of operating lease of $0.06 million , salaries and wages of $0.6 million, loss on impairment of intangible assets of $9.9 million, and all other general and administrative expenses of approximately $2.0 million. For the fiscal year ended 2024, operating expenses consisted primarily of advertising and promotion fees of approximately $0.7 million, stock option compensation expense of approximately $0.1 million, professional fees of approximately $2.9 million, salaries and wages of $1.8million, and all other general and administrative expenses of approximately $2.8 million. In fiscal year ended 2023, operating expenses consisted primarily of advertising and promotion fees of approximately $2.5 million, stock option compensation expense of approximately $3.2 million, professional fees of approximately $2.7 million, salaries and wages of $2.0million, and all other general and administrative expenses of approximately $2.8 million.
“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. …”see in full comparison
Full comparison: every changed paragraph (41)
We
are engaged in the sale, marketing
and distribution of electronic nicotine delivery system (“ENDS”) products, also known
as “e-cigarettes”, in a
variety of favors. Until October of 2024, our primary source of revenue has been the Bidi Stick as
we sold our inventory on hand. However,
on June 11, 2024, RAI Strategic Holdings, Inc., R.J. Reynolds Vapor Company, R.J. Reynolds Tobacco
Company, and RAI Services Company (collectively,
the “RJ Reynolds Entities”) filed a patent infringement complaint with the
International Trade Commission (the “ITC”)
against Bidi, us, and forty (40) other respondents (the “ITC Complaint”)
pursuant to Section 337 of the Tariff Act of 1930,
as amended. Specifically, the ITC Complaint alleges that one or more components or
elements of the Bidi Stick infringe U.S. Patent No.
11,925,202, which is owned by one of the RJ Reynolds Entities. The ITC Complaint
requests the ITC grant: (a) temporary and permanent limited
exclusion orders pursuant to Section 337(e) of the Tariff Act of 1930, as
amended, which would prohibit the importation of the Bidi Stick
in the United States; and (b) issue temporary and permanent cease and
desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended,
which would prohibit the sale and distribution of the Bidi Stick
in the United States. No damages are recoverable in the proceedings before
the ITC. Since the initiation of the ITC Complaint,
we have not imported any Bidi Sticks and currently do not generate any revenue from
the sale of Bidi Sticks. Our
current primary source of revenue is through an international licensing agreement with Philip Morris Products
S.A. (“PMPSA”),
a wholly owned affiliate of Philip Morris International Inc. (“PMI”). See “Item 1 Business--Philip
Morris Deed of
Licensing Agreement” We
have also entered into
a Merger and Share Exchange Agreement (the “Merger Agreement”) with Delta Corp Holdings Limited, a
company incorporated in
England and Wales (together with its successors and assigns, “Delta”), Delta Corp Holdings Limited,
a Cayman Islands exempted
company (“Pubco”), KAVL Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of
Pubco (“Merger Sub”)
and Delta Corp Cayman Limited (the “Sellers”). If the Merger Agreement is consummated, Pubco
will become our parent and all new officers and directors will be appointed by Pubco, except that pursuant to the Merger Agreement we
have the right to appoint one director to the Pubco board of directors and we have agreed to appoint any family member of Ankitaben Patel
(the widow of our former CEO, Nirajkumar Patel) and/or Nirajkumar Patel who is qualified and identified by Bidi for this role prior to
the closing of the Merger Agreement. While we expect the transactions contemplated by the Merger Agreement to close (the “Closing”)
in March or April of this year, no assurances can be made that such transactions will close by then or ever. The transactions contemplated
by the Merger Agreement are described in further detail below under “Item 1 Business--The Merger and Share Exchange Agreement.”
On September 11, 2025, Kaival Brands Innovations Group, Inc., (the “Company”) and Delta Corp Holdings Limited, a company incorporated in England and Wales (together with its successors and assigns, “Delta”) entered into a Business Combination Termination and Release Agreement (the “Termination Agreement”) pursuant to Section 10.1(a) of the Merger Agreement (the “Merger Agreement’) among the Company, Delta, Delta Corp Holdings Limited, a Cayman Islands exempted company, KAVL Merger Sub Inc. and Delta Corp Cayman Limited.
Pursuant to the Termination Agreement, the Company and Delta mutually terminated the Merger Agreement and all agreements between the parties that are ancillary thereto and Delta waived any and all claims against the other party that in any way directly and/or indirectly arise out of, are based upon, or are in connection with the Merger Agreement and any agreements ancillary thereto.
On June 11, 2024, the RJ Reynolds Entities filed the
ITC Complaint. The ITC Complaint requests the ITC grant: (a) temporary and permanent limited exclusion orders pursuant to Section 337(e)
of the Tariff Act of 1930, as amended, which would prohibit the importation of the Bidi Stick in the United States; and (b) issue temporary
and permanent cease and desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended, which would prohibit the sale and distribution
of the Bidi Stick in the United States. No damages are recoverable in the proceedings before the ITC. If the Company or Bidi is prohibited
from importing the Bidi Stick, then our business, operations, financial results, and reputation would be significantly adversely impacted.
Although Bidi disputes the patent infringement claims set forth in the ITC Complaint by the RJ Reynolds EntitiesEntities, in December 2024 Bidi
entered into a consent order agreeing to cease all importation and plansdistribution toof vigorouslythe defendBidi Stick until the RJ Reynolds Entities’
patent expires in October 2026. In November 2024, the ITC Investigation.Administrative ALaw CommissionJudge determination(ALJ) regardingdenied temporary relief isto the Reynolds Entities
and the case proceeded on the merits. A trial was held in April 2025. The initial determination (ID) from the ALJ was issued on August
29, 2025. The ALJ found that violation of §337 based on infringement of U.S. Patent No. 11,925,202 by the respondents, and that both
the technical and economic prongs of domestic industry were satisfied. The ID will now be reviewed by the Commission for final approval,
with respondents and complainants expected into Octoberfile oradditional Decemberbriefs. 2024. A finalThe Commission target deadline was November 24, 2025,
determinationsubject onto permanentpotential relief is not expected until late 2025 or early 2026.extensions. The asserted patent expires in October 2026 as would
any exclusion order that the ITC enters as a result
of the ITC Complaint, as well as the Bidi consent order As a result of the ITC Complaint.Complaint and other
factors, we do not expect any revenue from the sale of Bidi Sticks in the foreseeable future. Our primary source of revenue is from
KBI from royalties from PMI under the PMI License Agreement.
As a result of the ITC Complaint and other factors
we do not expect any significant revenue from the sale of Bidi Sticks in the foreseeable future. Our primary source of revenue is from
KBI from royalties from PMI under the PMI License Agreement.
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 Washington, D.C., New York (and New York City), New Jersey, Rhode Island, Illinois (and Chicago), Utah and Massachusetts,
with several more considering similar bans (e.g., Maryland and Connecticut).
Ability
to Meet Demand for our Products
We believe that the
matters described under “FDA PMTA Determinations, 11th Circuit Decision and Impact on Our Business” could have
decreased demand for our Products and would likely have negative opportunities to distribution channels for us through which we could
sell our Products. However, an unlikely increase in demand for the Products would require us to raise 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.
Supply
Chain
The spread of COVID-19 throughout
the world as well as increasing tensions with China over the past several years 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 material
adverse effect on our results of operations.
Our accompanying consolidated 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 (or FASB), Accounting Standards Update (or 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, we have incurred recurring
losses and negative cash flows from operations.operations
for the year ended October 31, 2025. We will need significant additional funds to satisfy our outstanding payables, fund our working
working capital, and fully implement our business plan. In addition,
our ability to continue as a going concern is adversely affected by the
FDA’s uncertaintydenial surroundingof Bidi’s PMTA process withfor FDAits and
outcomenon-tobacco offlavored Bidi’s petition with the 11th Circuit Court of Appeals regarding the FDA’s January 2024 MDO relating to Classic
Bidi® Stick as well as the uncertainty in the Company’sour ability to continue
to sell the Bidi Stick given the patent
infringements claim filed by RJ Reynolds. Likewise, in April 2025, the 11th Circuit upheld FDA’s
MDO for the Classic BIDI® Stick. Finally, on November 4, 2025, FDA issued a MDO for the PMTA for the non-tobacco flavored Bidi Sticks.
All of these factors raise substantial doubt regarding our ability to continue as a going
concern.
Our management plans
to continue developing strategies on
for similar or expanded operations of our business to help our ability to determine where our business
will be viable going forward. Until
such time, if ever,
we can generate substantial product revenues, management plans to finance our cash needs through public or private
equity offerings or
debt financing.
We believe we will not generate sufficient revenue
to support our operations for at least twelve months. As of October 31, 2024,2025, we had working capital of approximately
$100 $3.0 millionthousand and
total cash of approximately $3.9$0.5 million. As discussed above, thisthese conditionconditions and other factors raise substantial
doubt regarding our ability
to continue as a going concern.
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 several factors that could
result in the need to raise additional funds, including a decline in revenue, a lack of anticipated sales
growth, and increased costs.
Our efforts are directed
toward generating positive cash flow and, ultimately, profitability. As our efforts during our fiscal 20242025 and
since have not generated
positive cash flows, we will need to raise additional capital. Should capital not be available to us at reasonable
terms, other actions
will become necessary, including implementing cost control measures and additional efforts to generate sales. We
We may also be required to take more strategic actions such as exploring strategic options for the sale of our company, the creation
of joint
ventures or strategic alliances under which we will pursue business opportunities, or other alternatives. We believe we have,
or have
access to, the financial resources to weather the impacts of the FDA’s PMTA process and Bidi’s receipt of MDOs from
the FDA
in 20212021, 2024 and 2024, which are subject to additional FDA action and ongoing court proceedings, respectively. However, we will require
further financing for the next twelve months, given our operating results.2025.
Net cash flows used in operations was approximately
$2.8 million for fiscal year ended 2025, compared to net cash flows used in operations of approximately $0.7 million for fiscal year ended 2024, compared to cash flow used in operations of approximately $3.0 million for fiscal year ended
2023.2024. The decreaseincrease in cash flows used in operations for the fiscal year ended 20242025 compared to the fiscal year ended 20232024 was primarily
due to changeslower in Other receivable – related party, Accounts receivable, Income tax receivable, and Accounts
payable – related party (such related party being our affiliate, Bidi, as described further below under Results of Operations).revenue.
Net cash flows used in investing activities was zero
for the fiscal year ended 2024, compared to approximately $0.3 million cash flow used in investing activities for the fiscal year ended
2023. The cash used in investing activities for the fiscal year ended 2023 consisted of cash used for the purchase of warehouse equipment
and used for the transaction acquisition costs associated with the purchase of the GoFire, intellectual property.
Net cash flows providedused byin financing activities was approximately
approximately $4.1$0.6 million for the fiscal year ended 2024,2025, compared to approximately $0.1$4.0 million provided by financing activities for the fiscal year
ended 2024. The cash used in financing activities for the fiscal year ended2025 2023.consisted primarily of payments on preferred dividends and
payments on loans payables. The cash provided by financing activities for the fiscal year ended 2024 consisted primarily from the issuance
of common shares, warrants, pre-funded warrants, and proceeds from short-term financing.
Revenues for fiscal
year ended 20242025 were approximately $6.9
$0.5 million, compared to approximately $13.1$6.9 million in fiscal year ended 2023.2024. Revenues decreased
in fiscal year ended 2024,2025, primarily
due to a decrease in product sales to customers and also due to sales pressure related to the MDO receiveddecrease in Januaryroyalty 2024, which resulted in the decrease
in the number of sticks sold to customers.revenue.
Cost of Revenue, Net and Gross Profit (Loss):
Gross profit in fiscal year ended 20242025 was approximately
$2.6$0.5 million, compared to approximately $2.6 million for fiscal year ended 2023.2024. Total cost of revenuerevenue, net was approximatelyzero $4.3for million
forthe fiscal year
ended 2024,2025, compared to approximately $10.5$4.3 million for fiscal year ended 2023.2024. The slight increasedecrease in gross profit volume
is primarilydue driven byto the decrease in costreduction of
product revenue.sales to customers during the fiscal year ended 2025.
Total operating expenses were approximately $8.3$17.1 million
for fiscal
year ended 2024,2025, compared to approximately $13.2$8.3 million for fiscal year ended 2023.2024. For the fiscal year ended 2025, operating expenses
consisted primarily of professional fees of approximately $4.6 million, gain on termination of operating lease of $0.06 million , salaries and
wages of $0.6 million, loss on impairment of intangible assets of $9.9 million, and all other general and administrative expenses of approximately
$2.0 million. For the fiscal year ended 2024, operating
expenses consisted primarily of advertising and promotion fees of approximately
$0.7 million, stock option compensation expense of approximately
$0.1 million, professional fees of approximately $2.9 million, salaries
and wages of $1.8 million, and all other general and administrative
expenses of approximately $2.8 million. In fiscal year ended 2023, operating expenses consisted primarily of advertising and
promotion fees of approximately $2.5 million, stock option compensation expense of approximately $3.2 million, professional fees of approximately
$2.7 million, salaries and wages of $2.0 million, and all other general and administrative expenses of approximately $2.8 million.
We have Federal net operating loss (“NOL”)
carryforwards of approximately $29.8$34.2 million and state NOL carryforwards of approximately $0.4 million. With the changes instituted by
the CARESCAREES Act, the Federal NOLs have an indefinite life and will not expire. Our federal and state tax returns for the 20222023 and 20232024
tax tax
years generally remain subject to examination by U.S. and various state authorities. A valuation allowance is recorded to reduce the
deferred deferred
tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all the deferred tax assets
will not
be realized. Management determined that a valuation allowance of approximately $8.7$10.1 million for the year ended on
October 31, 2024,2025, was
necessary to reduce the deferred tax asset to the amount that will more likely than not be realized.
Net loss for fiscal year ended 20242025 was approximately
$(6.716.7) million, or $(1.621.51) basic and diluted net loss per share, compared to a net loss of approximately $(11.16.7)
million, or $(4.131.62) basic
and diluted net loss per share, for fiscal year 2023.2024. The decreaseincrease in net loss for the fiscal year 2024, 2025,
as compared to net loss in fiscal
year 2023,2024, is attributable to the revenues and expenses factors noted above. Weighted-average Common
Stock outstanding were 4,313,900
11,032,569 on October 31, 2024,2025, as compared to 2,721,0804,313,900 on October 31, 2023.2024. The increase in the weighted-average
shares in fiscal year 20242025 was
primarily attributable to the issuance of 5,723,9163,076,100 shares of Common Stock.
Financial instruments, which potentially subject us
us to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and revenue.
For
the year ended October 31, 2025, the Company had
no inventory on hand. As of October 31, 2024, 100% of the inventories of products, consisting solely of
the BIDI® Stick,
were purchased from Bidi, a related party, in the amount
of $0.3 million, as compared to $12.8 million for the year ended October 31, 2023.million.
As of October 31, 2025, we had no related party receivable balance. As of October 31, 2025, there was $50,000 of related party accounts payable.
As of October 31, 2024, there was $131,683 of related party accounts payable.
As of October 31, 2024, we had no related party receivable
balance. As of October 31, 2024, there was $131,683 of related party accounts payable. On October 31, 2023, a credit of $3.0 million
was applied from the related-party receivable balance to the related party accounts payable balance. After this was applied, we had no
related party receivable balance as of October 31, 2023. As of October 31, 2023, the related party accounts payable balance related to
purchases of inventories was $1.5 million.
No revenue concentration from the sale of Products existed for the fiscal year ended 2025.
For the fiscal year 2024, (i) approximately 21% of
the revenue from the sale
of Products, solely consisting of the BIDI® Stick, was generated from QuikTrip Corporation in
the amount of approximately
$1.2 million, (ii) approximately 12% from GPM Investments in the amount of $0.7 million, and (iii) approximately
11% from FAVS Business,
LLC in the amount of $0.7 million. For the fiscal year 2023, (i) approximately 16% of the revenue from the sale of Products, solely consisting
of the BIDI® Stick, was generated from GPM Investments, LLC in the amount of approximately $2.0 million, (ii) approximately
15% from H.T. Hackney Co in the amount of $1.8 million, (iii) approximately 15% from FAVS Business, LLC in the amount of $1.8 million,
(iv) approximately 14% from C Store Master in the amount of $1.8 million, and (v) approximately 12% from QuikTrip Corporation in the amount
of $1.5$0.7 million.
No accounts receivable concentration from the sale of Products existed as of October 31, 2025.
QuikTrip Corporation with an outstanding balance of approximately $205 accounted for 100% of the total accounts receivable from customers, as of October 31, 2024.
QuikTrip
Corporation with an outstanding balance of approximately $205 accounted for 100% of the
total accounts receivable from customers, as of October 31, 2024. FAVS Business
LLC with an outstanding balance of approximately $302,000, C Store Master with an outstanding
balance of approximately $301,000, and QuikTrip Corporation with an outstanding balance of
approximately $165,000 accounted for approximately 35%, 35%, and 19% of the total accounts
receivable from customers, respectively, as of October 31, 2023.
We consider all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents onas of October 31, 2024,2025,
or or
October 31, 2023.2024. Cash as of October 31, 2024,2025, and October 31, 2023,2024, waswere $3.9approximately $0.5 million and $0.5$3.9 million, respectively.
What changed in the latest 10-Q
Risk Factors
As a smaller reporting company, we are not required to provide the information required by this item.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Cost of Revenue and Gross Profit:”
Largest changes
see in full comparisonSixNine months endedAprilJuly30,31, 2026, compared tosixnine months endedAprilJuly30,31, 2025
“Gross profit for the nine months ended July 31, 2026, was approximately $0.2 million, compared to gross profit of approximately $0.4 million for the nine months ended July 31, 2025. Total cost of revenue was zero million for the nine months ended July 31, 2026, compared to zero million for the nine months ended July 31, 2025. The decrease in gross profit for the nine months ended July 31, 2026 compared to the nine months ended July 31, 2025, is due to the decrease in royalty sales during the nine months ended July 31, 2026.”see in full comparison
“Net cash flows used in investing activities was approximately $100 thousand for the first six months of fiscal year 2026, compared to cash flows used in financing activities of approximately zero for the first six months of fiscal year 2025. The cash used in investing activities for the six months of fiscal year 2026 consisted primarily of investing activities in notes receivable.”see in full comparison
Total operating expenses were approximatelysee in full comparison$1.3$1.6 million for thesixnine months endedAprilJuly30,31, 2026, compared to approximately$6.3$7.0 million for thesixnine months endedAprilJuly30,31, 2025.The decrease in operating expenses primarily related to consulting fees and legal fees.For thesixnine months endedAprilJuly30,31, 2026, operating expenses consisted primarily of stock option expense of$13$49 thousand, professional fees totaling approximately$0.1$0.7 million, and all other general and administrative expenses of approximately$1.2$0.8 million. General and administrative expenses during thesixnine months endedApril 30,July 31, 2026, consisted primarily of salaries and wages, insurance,lease expense,project expenses, banking fees, business fees and state and franchise taxes.
The net loss for thesee in full comparisonfirst sixnine months endedAprilJuly30,31, 2026, was approximately$1.2$1.4 million, or$0.08$0.10 basic and diluted net loss per share, compared to net loss for thesixnine months endedendedJulyApril 30,31, 2025, which was approximately$6.1$6.6 million, or$0.58$0.61 basic and diluted net loss per share. The decrease in the net loss for thesixnine months endedAprilJuly30,31, 2026, as compared to thesixnine months endedAprilJuly30,31, 2025, is primarily attributable tothereduceddecrease in the loss on ROU asset and lower sales revenue.expenses.
Full comparison: every changed paragraph (24)
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 sixnine months ended AprilJuly 30,31, 2026 ,2026, included under Item 1 – Financial Statements in
in this Report and our audited financial statements and notes thereto for the year ended October 31, 2025 ,2025, contained in the 2025
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.
We were previously engaged
in the sale, marketing and distribution of electronic
nicotine delivery system (“ENDS”) products, also known as “e-cigarettes”,
in a variety of favors.flavors. Until October
of 2024, our primary source of revenue has been the Bidi Stick as we sold our inventory on hand.
However, on June 11, 2024, RAI Strategic
Holdings, Inc., R.J. Reynolds Vapor Company, R.J. Reynolds Tobacco Company, and RAI Services
Company (collectively, the “RJ Reynolds
Entities”) filed a patent infringement complaint with the International Trade Commission
(the “ITC”) against Bidi, us,
and forty (40) other respondents (the “ITC Complaint”) pursuant to Section 337 of
the Tariff Act of 1930, as amended. Specifically,
the ITC Complaint alleges that one or more components or elements of the Bidi Stick
infringe U.S. Patent No. 11,925,202, which is owned
by one of the RJ Reynolds Entities. The ITC Complaint requests the ITC grant: (a)
temporary and permanent limited exclusion orders pursuant
to Section 337(e) of the Tariff Act of 1930, as amended, which would prohibit
the importation of the Bidi Stick in the United States;
and (b) issue temporary and permanent cease and desist orders pursuant to 337(f)
of the Tariff Act of 1930, as amended, which would prohibit
the sale and distribution of the Bidi Stick in the United States. No damages
are recoverable in the proceedings before the ITC. Since
the initiation of the ITC Complaint, we have not imported any Bidi Sticks and
currently do not generate any revenue from the sale of Bidi
Sticks. Our current primary source of revenue is through an international
licensing agreement with Philip Morris Products S.A. (“PMPSA”),
a wholly owned affiliate of Philip Morris International Inc.
(“PMI”).
On September 11, 2025, Kaival Brands Innovations Group,
Inc., (the “Company”) and Delta Corp Holdings Limited, a company incorporated in England and Wales (together with its successors
and assigns, “Delta”) entered into a Business Combination Termination and Release Agreement (the “Termination Agreement”)
pursuant to Section 10.1(a) of the Merger Agreement (the “Merger Agreement’Agreement") among the Company, Delta, Delta Corp Holdings
Limited, a Cayman Islands exempted company, KAVL Merger Sub Inc. and Delta Corp Cayman Limited.
In accordance with Financial Accounting Standards
Board (or FASB), ASCAccounting 205Standards ,Update (or 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.
We believe we will not have sufficient cash on
hand to support our operations
for the next twelve months from the date of filing this report. As of AprilJuly 30,31, 2026, we had a working
capital deficit of $20,662$265,407 and
total cash of $277,951.$133,221. As discussed above, this condition and other factors raise
substantial doubt regarding our ability to continue
as a going concern.
Net cash flows used in operations was approximately
$1.2$1.3 million for the first sixnine months of fiscal year 2026, compared to $1.5$2.0 million cash flows used inby operations for the first nine
six months of fiscal year 2025. The decrease in cash flows used in operations for the first sixnine months of fiscal year 2026 compared
to the
first sixnine months of fiscal year 2025 was primarily due to the decrease of accrued expenses.expenses, depreciation and amortization, and stock-
based compensation.
Net cash flows used in investing activities
was approximately $100 thousand for the first six months of fiscal year 2026, compared to cash flows used in financing activities
of approximately zero for the first six months of fiscal year 2025. The cash used in investing activities for the six months of
fiscal year 2026 consisted primarily of investing activities in notes receivable.
Net cash flows provided by financing activities was
approximately $1.0 million for the first sixnine months of fiscal year 2026, compared to cash flows used in financing activities of approximately
$0.6 million for the first sixnine months of fiscal year 2025. The cash provided by financing activities for the first sixnine months of fiscal
year 2026
consisted primarily of proceedsproceed from the issuance of Common Stock.
Three months ended AprilJuly 30,31, 2026, compared to three
three months ended AprilJuly 30,31, 2025
Revenues for the secondthird quarter of fiscal year 2026
were approximately $38$55 thousand, compared to approximately $47$142 thousand in the same period of the prior fiscal year. Revenues decreased
in the secondthird quarter of 2026, primarily due to a decrease in royalty revenue.
Gross profit in the secondthird quarter of fiscal year 2026
2026 was approximately $38$55 thousand, or approximately 100.0% of revenues, net, compared to approximately $47$142 thousand or approximately 100%,
100%, of revenues, net, for the secondthird quarter of fiscal year 2025. Total cost of revenue, net was zero for the secondthird quarter of fiscal year
2026, compared to zero for the third quarter of fiscal year 2026 and 2025.
Total operating expenses were approximately $0.6
$0.3 million for
the secondthird quarter of fiscal year 2026, compared to approximately $2.0$0.7 million for the secondthird quarter of fiscal year
2025. The decrease
is primarily from amortizationdecrease expense,in legal feesGeneral and theadministrative lossexpenses. onFor the ROU asset in 2025. For
the secondthird quarter of fiscal year 2026, operating expenses
consisted primarily of professional fees of approximately $0.3$0.1 million, and
all other general and administrative expenses of approximately $0.3
$0.2 million. General and administrative expenses in the secondthird quarter
of fiscal year 2026 consisted primarily of salaries and wages,
insurance, banking fees, and business fees and state and franchise taxes.fees.
For the secondthird quarter of fiscal year 2025, operating
expenses consisted primarily of a loss on ROU asset of $0.7 million, professional fees of approximately $0.7$0.2 million, and all other
general and administrative expenses of
approximately $0.6$0.5 million. General and administrative expenses in the secondthird quarter of fiscal
year 2025 consisted primarily of salaries
and wages, insurance, lease expense, project expenses, banking fees, business fees and state
and franchise taxes.
During the secondthird quarter of fiscal year 2026, we did
not accrue a provision for income taxes, due to the pre-tax loss of approximately $0.2 million. Similarly, we
did not accrue a provision for income taxes, due to the pre-tax loss of approximately $0.6 million. Similarly, we did not
accrue a provision for income taxes, due to the pre-tax loss of approximately $2.0 million for the secondthird quarter of fiscal year
2025.
As a result of the items noted above, the net loss
for the secondthird quarter of fiscal year 2026 was approximately $0.6$0.2 million, or $0.04$0.02 basic and diluted net loss per share,
compared to a
net loss of approximately $2.0$0.6 million, or $0.17$0.05 basic and diluted net loss per share, for the secondthird quarter of fiscal
year 2025.
The decrease in the net loss for the secondthird quarter of fiscal year 2026, as compared to the secondthird quarter of fiscal year
2025, is
primarily attributable to the decrease of loss on ROU asset and decrease in general and administrative expenses.
SixNine months ended AprilJuly 30,31, 2026, compared to sixnine
months ended AprilJuly 30,31, 2025
Revenues for the sixnine months ended AprilJuly 30,31, 2026,
were approximately $0.1$0.2 million, compared to $0.2$0.4 million for the sixnine months ended AprilJuly 30,31, 2025. Revenues decreased during the sixnine
months months
ended AprilJuly 30,31, 2026, compared to the sixnine months ended AprilJuly 30,31, 2025, primarily due to a decrease in royalty sales.
Cost of Revenue and Gross Profit:
Gross profit for the nine months ended July 31, 2026, was approximately $0.2 million, compared to gross profit of approximately $0.4 million for the nine months ended July 31, 2025. Total cost of revenue was zero million for the nine months ended July 31, 2026, compared to zero million for the nine months ended July 31, 2025. The decrease in gross profit for the nine months ended July 31, 2026 compared to the nine months ended July 31, 2025, is due to the decrease in royalty sales during the nine months ended July 31, 2026.
Total operating expenses were approximately $1.3$1.6 million
for the sixnine months ended AprilJuly 30,31, 2026, compared to approximately $6.3$7.0 million for the sixnine months ended AprilJuly 30,31, 2025. The
decrease in operating expenses primarily related to consulting fees and legal fees. For the six nine
months ended AprilJuly 30,31, 2026, operating
expenses consisted primarily of stock option expense of $13$49 thousand, professional fees totaling
approximately $0.1$0.7 million, and all other
general and administrative expenses of approximately $1.2$0.8 million. General and administrative
expenses during the sixnine months ended April
30,July 31, 2026, consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees,
business fees and state
and franchise taxes.
For the sixnine months ended AprilJuly 30,31, 2025, operating
expenses consisted primarily of stock option expense of $34$36 thousand, professional fees totaling approximately $4.1$4.3 million, loss on ROU
asset of $0.7 million, and all other general and administrative expenses of approximately $1.5$2.0 million. General and administrative expenses
during the sixnine months ended AprilJuly 30,31, 2025, consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking
fees, business fees and state and franchise taxes.
During the sixnine months ended AprilJuly 30,31, 2026, we did
not accrue a tax provision for income taxes, due to the pre-tax loss of approximately $1.2$1.4 million for the sixnine months ended AprilJuly
30,31, 2026. Similarly, we did not accrue a tax provision for income taxes during the sixnine months ended AprilJuly 30,31, 2025, due to the pre-tax
loss of approximately $6.1$6.6 million for the sixnine months ended AprilJuly 30,31, 2025.
The net loss for the first sixnine months ended AprilJuly
30,31, 2026, was approximately $1.2$1.4 million, or $0.08$0.10 basic and diluted net loss per share, compared to net loss for the sixnine months ended
endedJuly April 30,31, 2025, which was approximately $6.1$6.6 million, or $0.58$0.61 basic and diluted net loss per share. The decrease in the net loss
for the six
nine months ended AprilJuly 30,31, 2026, as compared to the sixnine months ended AprilJuly 30,31, 2025, is primarily attributable to thereduced decrease
in the loss on ROU asset and lower sales revenue.expenses.
The preparation of financial statements in conformity
with GAAP requires management to make certain estimates and assumptions that affect reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. These estimates are based on information available as of the date of the financial statements; therefore actual
results could differ from those estimates. There have been no material changes to our critical accounting policies and estimates during
the sixnine months ended AprilJuly 30,31, 2026 from those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations, of our 2025 Annual Report for the year ended October 31, 2025.
KAVL insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
No Form 4 stock transactions in this period.
Well-known investors holding KAVL (13F)
None of the 59 investors we track reported a position in their latest 13F.