[Filing Information](index=1&type=section&id=Filing%20Information) This document is a Quarterly Report on Form 10-Q for the period ended July 31, 2025, filed by KAIVAL BRANDS INNOVATIONS GROUP, INC - The document is a Quarterly Report on Form 10-Q for the period ended July 31, 2025, filed by **KAIVAL BRANDS INNOVATIONS GROUP, INC.**[2](index=2&type=chunk) Company Filing Details | Metric | Value | | :--- | :--- | | Trading Symbol | KAVL | | Exchange | The Nasdaq Stock Market, LLC | | Filer Status | Non-accelerated filer, Smaller reporting company, Emerging growth company | | Common Stock Outstanding (as of Sep 16, 2025) | 11,542,302 shares | [Cautionary Note Concerning Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20Concerning%20Forward-Looking%20Statements) This report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially - The report contains forward-looking statements reflecting current expectations about future events and results, identified by words such as 'may,' 'should,' 'believe,' 'expect,' and 'intend'[9](index=9&type=chunk) - These statements involve significant risks, uncertainties, and other factors, some beyond the company's control, which may cause actual results to differ materially from those anticipated[10](index=10&type=chunk) - Key risks include substantial reliance on Bidi Vapor, inability to import/sell Bidi Stick due to patent infringement claims, challenges in raising funding, integration of acquired intellectual property from GoFire, impact of FDA marketing denial orders (MDOs), reliance on royalty payments from Philip Morris International, and the effects of government regulation[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Kaival Brands Innovations Group, Inc., including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes [Unaudited Consolidated Balance Sheets](index=6&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Summary | Metric | July 31, 2025 | October 31, 2024 | Change | | :-------------------------- | :-------------- | :--------------- | :----- | | Total Current Assets | $1,411,009 | $4,510,183 | -68.7% | | Total Assets | $11,503,114 | $16,004,276 | -28.1% | | Total Current Liabilities | $864,590 | $1,526,333 | -43.3% | | Total Liabilities | $1,418,088 | $2,188,604 | -35.2% | | Total Stockholders' Equity | $10,085,026 | $13,815,672 | -27.0% | [Unaudited Consolidated Statements of Operations](index=7&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) Statements of Operations (Three Months Ended July 31) | Metric (3 Months Ended July 31) | 2025 | 2024 | Change | | :------------------------------ | :--- | :--- | :----- | | Total revenues, net | $142,425 | $713,814 | -80.0% | | Gross profit | $142,425 | $368,816 | -61.4% | | Total operating expenses | $700,944 | $1,786,594 | -60.8% | | Net loss | $(559,355) | $(1,571,861) | -64.4% | | Net loss per common share - basic and diluted | $(0.05) | $(0.39) | -87.2% | Statements of Operations (Nine Months Ended July 31) | Metric (9 Months Ended July 31) | 2025 | 2024 | Change | | :------------------------------ | :--- | :--- | :----- | | Total revenues, net | $392,073 | $6,151,701 | -93.6% | | Gross profit | $392,073 | $2,066,610 | -81.0% | | Total operating expenses | $7,018,286 | $6,454,722 | +8.7% | | Net loss | $(6,618,088) | $(5,212,725) | +26.9% | | Net loss per common share - basic and diluted | $(0.61) | $(1.62) | -62.4% | [Unaudited Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Changes in Stockholders' Equity | Metric | October 31, 2024 | July 31, 2025 | Change | | :-------------------------------- | :--------------- | :-------------- | :----- | | Common Shares Outstanding | 8,517,302 | 11,542,302 | +35.5% | | Additional Paid-in Capital | $51,269,485 | $54,153,902 | +5.6% | | Accumulated Deficit | $(37,463,230) | $(44,081,318) | +17.7% | | Total Stockholders' Equity | $13,815,672 | $10,085,026 | -27.0% | - Common shares issued for services totaled **3,025,000 shares**, contributing **$2,870,725** to additional paid-in capital during the nine months ended July 31, 2025[24](index=24&type=chunk)[110](index=110&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (Nine Months Ended July 31) | Cash Flow Activity (9 Months Ended July 31) | 2025 | 2024 | Change | | :------------------------------------------ | :--- | :--- | :----- | | Net cash (used in) provided by operating activities | $(2,020,758) | $120,821 | -1772.0% | | Net cash used in investing activities | $0 | $0 | 0% | | Net cash (used in) provided by financing activities | $(612,616) | $3,870,509 | -115.8% | | Net change in cash | $(2,633,374) | $3,991,330 | -166.0% | | Ending cash balance | $1,268,926 | $4,524,989 | -71.9% | - The significant decrease in cash flows from operating activities in 2025 was primarily due to lower sales revenue[148](index=148&type=chunk) - Cash used in financing activities for the first nine months of fiscal year 2025 primarily consisted of payments on preferred dividends (**$405,000**) and payments on loans payable (**$207,616**)[30](index=30&type=chunk)[149](index=149&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [Note 1 – Organization and Description of Business](index=12&type=section&id=Note%201%20%E2%80%93%20Organization%20and%20Description%20of%20Business) This note details the company's incorporation, primary business activities, and significant events impacting its operations - **Kaival Brands Innovations Group, Inc.** was incorporated on September 4, 2018, and primarily distributes electronic nicotine delivery systems (ENDS) and related components, specifically the 'Bidi Stick,' from Bidi Vapor, LLC[33](index=33&type=chunk)[34](index=34&type=chunk) - The company's wholly-owned subsidiary, KBI, entered into an international licensing agreement with **Philip Morris Products S.A. (PMPSA)** for the development and distribution of ENDS products in certain markets outside the United States[34](index=34&type=chunk)[35](index=35&type=chunk) - The company's primary revenue source is now royalties from PMI under the PMI License Agreement, as significant revenue from Bidi Stick sales is not expected due to an ITC patent infringement complaint and FDA Marketing Denial Orders (MDOs)[37](index=37&type=chunk)[131](index=131&type=chunk) - The **ITC Complaint** filed by RJ Reynolds Entities on June 11, 2024, seeks to prohibit the importation, sale, and distribution of the Bidi Stick in the U.S. due to alleged patent infringement[36](index=36&type=chunk)[129](index=129&type=chunk) - The FDA issued an **MDO for the Classic BIDI® Stick** in January 2024, which was upheld by the 11th Circuit Court of Appeals in April 2025, prohibiting its continued marketing and distribution[44](index=44&type=chunk) - The MDO for non-tobacco flavored BIDI® Sticks was rescinded by the FDA on July 29, 2024, allowing the company to market and sell these products subject to FDA's enforcement discretion during PMTA scientific review[43](index=43&type=chunk) - The previously announced merger agreement with **Delta Corp Holdings Limited** was mutually terminated on September 11, 2025[48](index=48&type=chunk)[49](index=49&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) [Note 2 – Basis of Presentation and Significant Accounting Policies](index=14&type=section&id=Note%202%20%E2%80%93%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) This note outlines the basis for financial statement preparation and key accounting policies, including revenue recognition and inventory valuation - The consolidated financial statements include the company's wholly-owned subsidiaries, Kaival Labs and Kaival Brands International, and are prepared in accordance with GAAP and SEC rules[50](index=50&type=chunk)[51](index=51&type=chunk) - The company had uninsured cash of **$1,018,926** as of July 31, 2025, and **$3,652,300** as of October 31, 2024[54](index=54&type=chunk) - No reserve for credit losses was required as of July 31, 2025, or October 31, 2024, based on management's assessment of accounts receivable aging and customer payment history[57](index=57&type=chunk) - A full reserve of **$313,654** was recognized for all remaining 'Classic' BIDI® Stick products on hand as of October 31, 2024, due to the FDA MDO, resulting in **zero inventory** as of July 31, 2025[61](index=61&type=chunk) - Revenue from product sales is recognized when control is transferred to the customer (typically upon shipment), while royalty revenue from the PMI License Agreement is recognized in the period the sales of the manufactured product occur[68](index=68&type=chunk)[74](index=74&type=chunk) - The PMI License Agreement was amended on August 12, 2023, to change the royalty rate to be volume-based (**$0.08 to $0.16 per sale**, increasing to **$0.10 to $0.20** upon milestones), eliminate certain potential royalty adjustments, and cancel guaranteed royalty payments in favor of quarterly payments based on actual sales[77](index=77&type=chunk)[78](index=78&type=chunk) [Note 3 – Going Concern](index=20&type=section&id=Note%203%20%E2%80%93%20Going%20Concern) This note addresses the company's ability to continue as a going concern, citing recurring losses and regulatory uncertainties - The company has incurred recurring losses and negative cash flows from operations for the nine months ended July 31, 2025, raising substantial doubt about its ability to continue as a going concern[95](index=95&type=chunk)[143](index=143&type=chunk) - Factors contributing to going concern doubt include uncertainty surrounding Bidi's PMTA process with the FDA, the inability to sell the Bidi Stick due to patent infringement claims, and the upheld FDA MDO for the Classic BIDI® Stick[95](index=95&type=chunk)[143](index=143&type=chunk) - Management plans to finance cash needs through public or private equity offerings or debt financing, but there is no assurance that the company will be able to raise additional capital, generate revenues, or achieve profitability[96](index=96&type=chunk)[97](index=97&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) [Note 4 – Intangible Assets](index=21&type=section&id=Note%204%20%E2%80%93%20Intangible%20Assets) This note provides details on the company's intangible assets, primarily patents and technology, and their amortization - Intangible assets, primarily patents and technology acquired pursuant to the GoFire Asset Purchase Agreement, had a net carrying value of **$10,092,105** as of July 31, 2025, down from **$10,681,911** as of October 31, 2024[19](index=19&type=chunk)[98](index=98&type=chunk) - Amortization expense for intangible assets was **$589,806** for the nine months ended July 31, 2025[99](index=99&type=chunk) Future Amortization Expense for Intangible Assets | Period | Amortization Expense | | :-------------------------- | :------------------- | | Remaining period in 2025 | $196,592 | | Year ending October 31, 2026 | $786,398 | | Year ending October 31, 2027 | $786,398 | | Year ending October 31, 2028 | $786,398 | | Year ending October 31, 2029 | $786,398 | | Thereafter | $6,749,921 | | **Total** | **$10,092,105** | [Note 5 – Loans Payable](index=21&type=section&id=Note%205%20%E2%80%93%20Loans%20Payable) This note details the status of the company's loans payable, including repayments and outstanding balances - The outstanding balance of insurance loans was **zero** as of July 31, 2025, down from **$207,616** as of October 31, 2024[101](index=101&type=chunk) - All loan agreements entered into on November 29, 2023, were fully repaid on June 13, 2024[102](index=102&type=chunk) - A promissory note in the principal amount of **$650,000**, issued to AJB Capital Investments, LLC, was fully repaid in advance of its maturity date on December 1, 2023, resulting in a **$98,432 loss on extinguishment of debt** recognized in the nine months ended July 31, 2024[103](index=103&type=chunk)[104](index=104&type=chunk) [Note 6 – Leases](index=22&type=section&id=Note%206%20%E2%80%93%20Leases) This note describes the company's operating lease for office and storage space, including its termination and future lease liabilities - The company has one operating lease for office space and inventory storage space with Just Pick, LLC, a related party[105](index=105&type=chunk) - On April 30, 2025, the company terminated its office lease with Just Pick, LLC, due to breach of lease terms and recorded a loss on the Right-of-Use (ROU) assets of **$707,626**[107](index=107&type=chunk) Lease Liabilities Maturity | Lease Liabilities Maturity (July 31, 2025) | Amount | | :----------------------------------------- | :----- | | Remaining period in 2025 | $121,474 | | Year ending October 31, 2026 | $253,614 | | Year ending October 31, 2027 | $274,946 | | Year ending October 31, 2028 | $175,989 | | **Total future undiscounted lease payments** | **$826,023** | | Less: Interest | $(58,573) | | **Present value of lease liabilities** | **$767,450** | [Note 7 – Stockholders' Equity](index=23&type=section&id=Note%207%20%E2%80%93%20Stockholders%27%20Equity) This note provides information on the company's stockholders' equity, including preferred stock, common shares, stock options, and warrants - The company issued **900,000 shares** of Series B Preferred Stock on May 30, 2023, as consideration for the GoFire asset purchase, with a liquidation preference of **$15 per share** and a **2% cumulative dividend**[108](index=108&type=chunk) - Accrued dividends of **$405,000** were paid to Series B shareholders on December 3, 2024, with no further dividends to be accrued or paid as of July 31, 2025[108](index=108&type=chunk) - During the nine months ended July 31, 2025, **3,025,000 fully vested common shares** were issued to directors, officers, and an employee, resulting in **$2,873,750 in stock compensation cost**[110](index=110&type=chunk) Stock Options Summary | Stock Options | October 31, 2024 | July 31, 2025 | | :-------------------------- | :--------------- | :-------------- | | Outstanding Number | 189,590 | 119,953 | | Aggregate Exercise Price | $6,847,736 | $3,353,019 | | Weighted Average Exercise Price | $36.12 | $27.95 | - Stock option expense for the nine months ended July 31, 2025, was **$36,192**, with **$18,744** of unrecognized expense remaining to be recognized over approximately **1.94 years**[111](index=111&type=chunk)[112](index=112&type=chunk) Warrants Summary | Warrants | October 31, 2024 | July 31, 2025 | | :-------------------------- | :--------------- | :-------------- | | Outstanding Number | 5,754,686 | 5,754,686 | | Aggregate Exercise Price | $19,826,116 | $19,826,116 | | Weighted Average Exercise Price | $3.45 | $3.45 | [Note 8 – Related-Party Transactions](index=24&type=section&id=Note%208%20%E2%80%93%20Related-Party%20Transactions) This note details transactions with related parties, including revenue, inventory purchases, and lease agreements - The company's business operations commenced as the exclusive distributor of ENDS products manufactured by Bidi, a related party[114](index=114&type=chunk) - Revenue from related parties decreased from **$5,950** for the nine months ended July 31, 2024, to **zero** for the same period in 2025[115](index=115&type=chunk) - No inventory purchases were made from Bidi for the nine months ended July 31, 2025, compared to **$273,060** in the prior year[116](index=116&type=chunk) - License fees paid to Bidi were **$228,215** for the nine months ended July 31, 2025, and **$130,000** for the same period in 2024[117](index=117&type=chunk)[118](index=118&type=chunk) - The company terminated its operating lease for office and storage space with Just Pick, LLC, a related party, on April 30, 2025, due to breach of lease terms[120](index=120&type=chunk) [Note 9 – Subsequent Events](index=25&type=section&id=Note%209%20%E2%80%93%20Subsequent%20Events) This note reports on significant events occurring after the balance sheet date, specifically the termination of a merger agreement - On September 11, 2025, **Kaival Brands Innovations Group, Inc.** and **Delta Corp Holdings Limited** mutually terminated their Merger and Share Exchange Agreement[121](index=121&type=chunk)[122](index=122&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a narrative report on the company's financial condition, results of operations, and liquidity for the nine months ended July 31, 2025, highlighting key business developments, financial performance, and future outlook [Overview](index=26&type=section&id=Overview) This section provides a high-level summary of the company's business, revenue sources, and recent strategic developments - The company is engaged in the sale, marketing, and distribution of electronic nicotine delivery system (ENDS) products[124](index=124&type=chunk) - The primary source of revenue has shifted from Bidi Stick sales to royalties from an international licensing agreement with **Philip Morris Products S.A. (PMPSA)** due to an ITC patent infringement complaint and FDA MDOs[124](index=124&type=chunk)[131](index=131&type=chunk) - The previously announced merger agreement with **Delta Corp Holdings Limited** was mutually terminated on September 11, 2025[126](index=126&type=chunk)[127](index=127&type=chunk) [Material Items, Trends and Risks Impacting Our Business](index=26&type=section&id=Material%20Items%2C%20Trends%20and%20Risks%20Impactin%20Our%20Business) This section discusses significant factors, trends, and risks affecting the company's business, including regulatory actions and litigation - The **ITC Complaint** filed by RJ Reynolds Entities on June 11, 2024, alleges patent infringement by the Bidi Stick, leading Bidi to agree to cease importation and distribution until October 2026[129](index=129&type=chunk) - An initial determination from the ITC Administrative Law Judge (ALJ) on August 29, 2025, found a violation of Section 337 based on patent infringement by respondents[129](index=129&type=chunk) - The company's primary revenue source is now royalties from PMI under the PMI License Agreement, and the ability of PMPSA to generate sales of its licensed products is crucial to the company's results of operations[131](index=131&type=chunk)[134](index=134&type=chunk) - The company acquired vaporizer and inhalation technology from GoFire in May 2023 to diversify its business, but there is no assurance of successful monetization or patent issuance from these assets[135](index=135&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - Inflation and economic conditions may impact discretionary consumer purchases of ENDS products, potentially leading to a decline in demand[136](index=136&type=chunk) - The company faces substantial doubt about its ability to continue as a going concern due to recurring losses, negative cash flows, and regulatory uncertainties surrounding Bidi's products[143](index=143&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's ability to meet its short-term and long-term financial obligations and its capital-raising strategies - As of July 31, 2025, the company had working capital of **$546,419** and total cash of **$1,268,926**, which is believed to be insufficient to support operations for at least twelve months, raising substantial doubt about its ability to continue as a going concern[146](index=146&type=chunk) - The company intends to rely on cash from operations and equity/debt offerings to meet liquidity needs, but there is no assurance of raising additional capital[147](index=147&type=chunk) - Net cash used in operations was approximately **$2.0 million** for the first nine months of fiscal year 2025, a significant decrease from **$0.12 million** provided by operations in the prior year, primarily due to lower sales revenue[148](index=148&type=chunk) - Net cash used in financing activities was approximately **$0.6 million** for the first nine months of fiscal year 2025, compared to **$3.9 million** provided in the prior year, mainly due to preferred dividend and loan payments[149](index=149&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, comparing current and prior period results [Three months ended July 31, 2025, compared to three months ended July 31, 2024](index=30&type=section&id=Three%20months%20ended%20July%2031%2C%202025%2C%20compared%20to%20three%20months%20ended%20July%2031%2C%202024) This section compares the company's financial performance for the three-month periods ended July 31, 2025, and 2024 Statements of Operations (Three Months Ended July 31) | Metric (3 Months Ended July 31) | 2025 | 2024 | Change | | :------------------------------ | :--- | :--- | :----- | | Total revenues, net | $142,425 | $713,814 | -80.0% | | Gross profit | $142,425 | $368,816 | -61.4% | | Total operating expenses | $700,944 | $1,786,594 | -60.8% | | Net loss | $(559,355) | $(1,571,861) | -64.4% | | Net loss per common share - basic and diluted | $(0.05) | $(0.39) | -87.2% | - The decrease in revenue was primarily due to lower product sales to customers and a decrease in royalty revenue[150](index=150&type=chunk) - Gross profit decreased significantly due to the reduction of product sales, with total cost of revenue being zero in the third quarter of fiscal year 2025[151](index=151&type=chunk) - Operating expenses decreased primarily due to a reduction in professional fees, payroll, and general and administrative expenses[152](index=152&type=chunk) [Nine months ended July 31, 2025, compared to nine months ended July 31, 2024](index=31&type=section&id=Nine%20months%20ended%20July%2031%2C%202025%2C%20compared%20to%20nine%20months%20ended%20July%2031%2C%202024) This section compares the company's financial performance for the nine-month periods ended July 31, 2025, and 2024 Statements of Operations (Nine Months Ended July 31) | Metric (9 Months Ended July 31) | 2025 | 2024 | Change | | :------------------------------ | :--- | :--- | :----- | | Total revenues, net | $392,073 | $6,151,701 | -93.6% | | Gross profit | $392,073 | $2,066,610 | -81.0% | | Total operating expenses | $7,018,286 | $6,454,722 | +8.7% | | Net loss | $(6,618,088) | $(5,212,725) | +26.9% | | Net loss per common share - basic and diluted | $(0.61) | $(1.62) | -62.4% | - The substantial decrease in revenue was primarily due to a significant reduction in product sales to customers[156](index=156&type=chunk) - Gross profit decreased significantly due to the reduction of product sales, with total cost of revenue being zero for the nine months ended July 31, 2025[157](index=157&type=chunk) - Operating expenses increased due to higher stock-based compensation and a loss on ROU assets, despite reductions in other general and administrative expenses[158](index=158&type=chunk)[161](index=161&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses the accounting policies and estimates that require significant judgment and can materially impact financial results - No material changes to critical accounting policies and estimates were reported during the nine months ended July 31, 2025, from those disclosed in the 2024 Annual Report[162](index=162&type=chunk) [Recent Accounting Pronouncements](index=32&type=section&id=Recent%20Accounting%20Pronouncements) This section outlines the impact of recently issued accounting standards on the company's financial statements - The company is currently evaluating the impact of adopting **ASU 2023-09**, 'Income Taxes (Topic 740) - Improvements to Income Tax Disclosures,' effective for fiscal years beginning after December 15, 2024[91](index=91&type=chunk)[163](index=163&type=chunk) - The company does not expect that the adoption of **ASU 2023-07**, 'Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,' will have a material impact on its financial statements[92](index=92&type=chunk)[163](index=163&type=chunk) [Emerging Growth Company](index=32&type=section&id=Emerging%20Growth%20Company) This section clarifies the company's status as an emerging growth company under the JOBS Act and its election regarding accounting standards - The company is an 'emerging growth company' under the JOBS Act but has not elected to use the extended transition period for complying with new or revised accounting standards[164](index=164&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, Kaival Brands Innovations Group, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a 'smaller reporting company' as defined by Item 10 of Regulation S-K and is therefore not required to provide the information on market risk[165](index=165&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=33&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures - Management concluded that the disclosure controls and procedures were **not effective** as of July 31, 2025, due to material weaknesses in internal control over financial reporting[168](index=168&type=chunk) [Changes in Internal Control over Financial Reporting](index=33&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section discloses any material changes in the company's internal control over financial reporting during the quarter - There have been no changes in internal control over financial reporting during the quarter ended July 31, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[169](index=169&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in legal proceedings expected to have a material adverse effect on its business, but acknowledges that the outcome of legal or regulatory proceedings involving Bidi could significantly impact its operations due to reliance on Bidi - The company is not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on its business, prospects, financial condition, or results of operations[170](index=170&type=chunk) - The outcome of legal or regulatory proceedings involving Bidi, a related party, could have a material adverse or positive impact on the company's ability to operate its business given its reliance on Bidi[171](index=171&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Kaival Brands Innovations Group, Inc. is not required to provide specific risk factors in this quarterly report - As a smaller reporting company, the company is not required to provide the information required by this item[172](index=172&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - None[173](index=173&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - None[174](index=174&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[175](index=175&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) There is no other information to report for the period - None[176](index=176&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of this Quarterly Report on Form 10-Q, including certifications and XBRL documents - The report includes certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[178](index=178&type=chunk) [Signatures](index=35&type=section&id=Signatures) This section contains the required signatures from the company's Chief Executive Officer and Interim Chief Financial Officer, certifying the report's accuracy - The report was signed on September 16, 2025, by **Mark Thoenes**, Chief Executive Officer, and **Eric Morris**, Interim Chief Financial Officer[183](index=183&type=chunk)

Financial Performance - Total revenues for the three months ended April 30, 2025, were $47,045, a decrease of 97.6% compared to $2,226,314 for the same period in 2024[19] - Net loss for the three months ended April 30, 2025, was $1,997,653, compared to a net loss of $1,527,178 for the same period in 2024, representing a 30.8% increase in losses[19] - Net loss for the six months ended April 30, 2025, was $6,058,733, compared to a net loss of $3,640,864 for the same period in 2024, representing an increase of 66.5%[28] - The company recognized revenue of zero during the six months ended April 30, 2025, compared to $3,700 for the same period in 2024 from a related party[113] Cash and Assets - Cash decreased from $3,902,300 as of October 31, 2024, to $1,805,702 as of April 30, 2025, a decline of 53.7%[17] - Total assets decreased from $16,004,276 as of October 31, 2024, to $12,229,901 as of April 30, 2025, a reduction of 23.4%[17] - Ending cash balance as of April 30, 2025, was $1,805,702, up from $488,083 at the end of the same period in 2024, reflecting a year-over-year increase of 269.5%[28] - As of April 30, 2025, the company had uninsured cash of $1,555,702, down from $3,652,300 as of October 31, 2024[49] Operating Expenses - Operating expenses for the three months ended April 30, 2025, were $2,083,809, an increase of 18.7% compared to $1,755,368 for the same period in 2024[19] - Stock-based compensation increased to $2,873,750 for the six months ended April 30, 2025, compared to $62,000 in the same period of 2024, indicating a substantial rise in compensation expenses[28] - The Company incurred operating lease expenses of $120,979 for the six months ended April 30, 2025, compared to $98,168 for the same period in 2024[117] Equity and Shares - Total stockholders' equity decreased from $13,815,672 as of October 31, 2024, to $10,641,936 as of April 30, 2025, a decline of 23.3%[17] - The number of common shares outstanding increased from 8,517,302 as of October 31, 2024, to 11,542,302 as of April 30, 2025, reflecting an increase of 35.4%[17] Revenue Sources and Future Outlook - The company does not expect significant revenue from the sale of Bidi Sticks in the foreseeable future due to ongoing legal challenges and regulatory issues[34] - The primary source of revenue is expected to come from royalties from PMI under the PMI License Agreement, following the recent rescission of the Marketing Denial Order for non-tobacco flavored BIDI® Sticks[40] - The Company plans to finance its cash needs through public or private equity offerings or debt financing due to the uncertainty in generating substantial product revenues[92] Legal and Regulatory Challenges - The FDA has prioritized enforcement against unauthorized ENDS products, which poses ongoing risks to the company's operations and market presence[42] Inventory and Reserves - The company recognized a full reserve for all remaining "Classic" products on hand amounting to $313,654 as of October 31, 2024, with zero inventory as of April 30, 2025[56] - The company determined that no reserve for credit losses is required as of April 30, 2025, and October 31, 2024[52] Agreements and Amendments - A merger and share exchange agreement was entered into with Delta Corp Holdings Limited on September 23, 2024, which will result in both companies becoming wholly owned subsidiaries of a new entity[43] - The company has executed a Deed of Amendment to the PMI License Agreement, effective June 30, 2023, modifying the royalty structure[72] Intangible Assets and Amortization - The Company's intangible assets amounted to $11,795,975 as of April 30, 2025, with accumulated amortization of $1,507,268[94] - Amortization expenses for the six months ended April 30, 2025, were $393,204, consistent with the previous year[95] - Future amortization expense of intangible assets is projected to total $10,288,707 over the remaining useful life[96] Credit and Lease Liabilities - The company performs periodic credit evaluations of its customers and has historically not experienced significant credit losses[54] - The company recognizes lease liabilities at the present value of future lease payments, with no financing leases reported[58]

Financial Performance - Total revenues for the three months ended January 31, 2025, were $202,603, a decrease of 93.7% compared to $3,211,573 for the same period in 2024[20] - The net loss for the three months ended January 31, 2025, was $4,061,080, compared to a net loss of $2,113,686 for the same period in 2024, representing an increase in loss of 92.2%[20] - Operating expenses for the three months ended January 31, 2025, were $4,278,533, an increase of 46.3% compared to $2,912,760 for the same period in 2024[20] - The company reported a gross profit of $202,603 for the three months ended January 31, 2025, compared to $1,198,138 for the same period in 2024, indicating a significant decline[20] Cash and Assets - Cash and cash equivalents decreased to $2,427,612 as of January 31, 2025, down from $3,902,300 as of October 31, 2024, reflecting a decline of 37.7%[18] - Total assets decreased to $14,070,741 as of January 31, 2025, from $16,004,276 as of October 31, 2024, a reduction of 12.1%[18] - Total stockholders' equity decreased to $12,637,144 as of January 31, 2025, down from $13,815,672 as of October 31, 2024, a decline of 8.5%[18] Regulatory and Market Challenges - The FDA issued a Marketing Denial Order (MDO) for the Classic BIDI® Stick on January 22, 2024, which is considered an adulterated tobacco product, prohibiting its continued marketing and distribution[42] - The Company does not expect any significant revenue from the sale of Bidi Sticks in the foreseeable future due to the ITC Complaint and other factors[35] Business Developments - The Company formed Kaival Brands International, LLC for the purpose of entering into an international licensing agreement with Philip Morris Products S.A. for the development and distribution of ENDS products[33] - The Company entered into a Merger and Share Exchange Agreement with Delta Corp Holdings Limited on September 23, 2024, to effect a business combination[44] Revenue Sources and Agreements - The Company’s primary source of revenue is from KBI from royalties from PMI under the PMI License Agreement[35] - The PMI License Agreement has an initial term of five years, automatically renewing for an additional five years unless performance indicators are not met[70] - The royalty paid by PMPSA to KBI will now be based on the volume of liquid contained within the Product, on a sliding scale of $0.08 to $0.16 per sale[74] - The company executed a Deed of Amendment to the PMI License Agreement, which included the elimination of guaranteed royalty payments and adjustments to the royalty structure[75] Stock and Equity - The Company issued 900,000 shares of Series B Preferred Stock on May 30, 2023, as consideration for the GoFire asset purchase, with a redemption price of $15 per share[107] - The Series B Preferred Stock holders are entitled to a cumulative dividend equal to 2% of the Liquidation Preference, accruing from the Closing Date[107] - The Company issued 3,025,000 fully vested shares of common stock during the three months ended January 31, 2025, recognizing stock compensation cost of $2,873,750[109] Financial Health and Projections - The Company incurred recurring losses and negative cash flows from operations for the three months ended January 31, 2025, raising substantial doubt about its ability to continue as a going concern[95] - The Company has determined that no reserve for credit losses is required as of January 31, 2025, and October 31, 2024[52] - Future amortization expense of intangible assets is projected to total $10,485,309 over the coming years[100] Miscellaneous - The Company had no cash used in investing activities for the three months ended January 31, 2025, consistent with the same period in 2024[29] - The Company recognized a full reserve for all remaining "Classic" products on hand amounting to $313,654 as of January 31, 2025, and October 31, 2024, due to the FDA's MDO on Bidi Vapor's "Classic" BIDI® Stick PMTA[56] - The Company recognized amortization expenses of $196,602 for the three months ended January 31, 2025, compared to $196,599 for the same period in 2024[99]

Revenue Sources and Business Operations - The primary source of revenue has shifted from Bidi Stick to an international licensing agreement with Philip Morris Products S.A. due to a patent infringement complaint filed by RJ Reynolds Entities[17]. - The company has not generated any revenue from Bidi Sticks since the initiation of the ITC Complaint[17]. - The company does not foresee significant revenue from Bidi Sticks sales due to ITC Complaint and FDA PMTA Determinations[37]. - The company plans to explore strategic acquisition and collaboration arrangements starting in 2025 to generate revenue and positive cash flows[45]. - For the year ended October 31, 2024, substantial revenue concentrations included QuikTrip Corporation at approximately 21%, GPM Investments at approximately 12%, and FAVS Business, LLC at approximately 11%[72]. - The company has experienced a decline in revenues due to the inability to sell the Bidi Stick following the ITC Complaint, raising concerns about future financial recovery[128]. - The company is at risk of not generating sufficient revenues to cover expenses, raising doubts about its ability to continue as a going concern[130]. Merger and Acquisition Details - The Merger Agreement with Delta Corp Holdings Limited values Pubco at an equity valuation of $301 million upon closing[22]. - Post-merger, holders of Delta Shares will be entitled to an earnout of an additional $30 million in Pubco Ordinary Shares based on performance metrics for the fiscal year ended December 31, 2025[23]. - The holders of Common Stock will hold approximately 10% of Pubco Ordinary Shares after the Business Combination, while holders of Delta Shares will hold approximately 90%[22]. - The Merger Agreement includes customary representations and warranties, with certain covenants surviving until fully performed[24]. - The Closing of the Merger is subject to various conditions, including stockholder approval and the absence of any Material Adverse Effect[25]. - The Merger Agreement allows for termination under specific conditions, including breaches of representations or failure to obtain stockholder approval[30]. - The board of directors of Pubco will include one individual designated by the company and up to six individuals designated by Delta prior to Closing[29]. - The company has entered into a Merger Agreement, which is expected to result in it becoming a wholly owned subsidiary of Pubco[37]. - The company is currently prohibited from soliciting other business combinations while the Merger Agreement is in effect, which may limit strategic options[114]. - The completion of the Business Combination is subject to various conditions, including stockholder approval and the absence of legal impediments[116]. - The company may incur significant non-recurring costs related to the Business Combination, which could limit available funds for other business aspects[117]. - The current shareholders of Delta are expected to own approximately 90% of Holdings post-transaction, while Kaival stockholders will own about 10%[121]. - The company may face unknown liabilities post-Business Combination, which could negatively impact financial condition and share price[119]. Licensing and Intellectual Property - The PMI License Agreement grants PMPSA an exclusive irrevocable license to use the company's technology for disposable nicotine e-cigarette products in certain international markets[45]. - PMPSA will pay a royalty for each product sold, with a sliding scale of $0.08 to $0.16 per sale based on liquid volume, increasing upon meeting sales milestones[49]. - The guaranteed royalty payment has been eliminated, with royalties now paid quarterly based on actual sales[50]. - A pilot project with PMPSA to manufacture Bidi Sticks with PMI's e-liquid for commercialization in Canada has been initiated, though its material impact is uncertain[54]. - KBI and Bidi received a letter from PMPSA indicating the intention to discontinue the licensing agreement for 2ml products due to lack of profitability[55]. - The initial term of the PMI License Agreement is five years, automatically renewing unless PMPSA fails to meet key performance indicators[46]. - The company acquired vaporization and inhalation-related intellectual property from GoFire, Inc. for equity securities and contingent cash consideration, aiming to diversify product offerings[43]. - The company purchased intellectual property assets from GoFire, consisting of 19 existing patents and 47 pending patents related to vaporization and inhalation technologies[89]. Financial Condition and Risks - As of October 31, 2024, the company had cash and cash equivalents of approximately $3.9 million, which is expected to be insufficient for ongoing operations without additional funding[130]. - The company is facing significant risks related to the Business Combination, including the potential decline in stock price and substantial transaction costs, regardless of completion[116]. - The company relies on Bidi for access to key intellectual property rights, with potential adverse effects if the relationship changes[136]. - The company has a limited operating history, making it difficult to predict future performance and revenue generation[137]. - The FDA's January 2024 Marketing Denial Order (MDO) for Classic BIDI® Stick poses significant risks to the company's business operations[138]. - Bidi's PMTA for non-tobacco flavored BIDI® Sticks may be denied, which could lead to bankruptcy or business failure[141]. - The company does not expect immediate revenue generation from the assets acquired from GoFire in May 2023, which may hinder diversification efforts[146]. - The ENDS market is rapidly evolving and subject to significant regulatory scrutiny, impacting business operations[157]. - The company faces intense competition from larger tobacco companies and illicit trade, which may adversely affect sales volume and brand equity[155][152]. - Increased tobacco-related taxes may adversely affect product demand and overall financial performance[156]. - The company's distribution relies on relationships with large retailers, which may be jeopardized if product supply does not meet expectations[153]. - The company faces significant risks due to potential prohibition of flavored ENDS products in the U.S., which could materially affect its market share and financial condition[159]. - The FDA has indicated a need for a new regulatory pathway for CBD products, which may impact the company's emerging business in this area[160]. - Economic conditions, including inflation and recession, could lead to a decline in consumer spending on discretionary products like the BIDI Stick[165]. - The company is subject to increasing international regulations under the Framework Convention on Tobacco Control (FCTC), which may affect its operations[166]. - The company’s growth may be hindered by its inability to manage resources effectively, impacting distribution and profit margins[170]. - Adverse global economic conditions, including the effects of the COVID-19 pandemic, could materially affect the company's financial condition and operations[172]. - The departure of key management personnel could adversely impact the company's operations and financial performance[173]. Corporate Governance and Compliance - The company has identified material weaknesses in internal controls over financial reporting as of October 31, 2024, which may affect investor confidence[200]. - The company does not currently pay dividends on Common Stock and has no intention of doing so in the foreseeable future[194]. - Future offerings of debt or equity securities may rank senior to Common Stock, potentially diluting existing shareholders[183]. - The market price of Common Stock is volatile and may fluctuate significantly due to various external factors[185]. - The company is currently experiencing a Nasdaq listing deficiency, which could lead to delisting if standards are not met[186]. - The company intends to take advantage of reduced disclosure requirements as an "emerging growth company," which may affect investor attractiveness[195]. - Future sales of shares by controlling shareholders may negatively impact the market price of Common Stock[189]. - The company has incurred significant legal, accounting, and compliance costs as a public entity, which may increase further after transitioning from "emerging growth company" status[206]. Cybersecurity and Risk Management - Cybersecurity risk management programs have been established to address internal and external threats, although the company cannot guarantee complete immunity from future incidents[209]. - Continuous monitoring and updating of cybersecurity incident response plans are in place to align with evolving threats[211]. - The company evaluates the materiality of cybersecurity incidents based on scope, nature, operational impact, and other factors[212]. - Third-party engagement processes include risk evaluations related to cybersecurity and data privacy, ensuring transparency in disclosing material incidents[214].

Transaction Overview - Kaival Brands Innovations Group Inc and Delta Corp Holdings Limited have jointly announced the public filing of a registration statement on Form F-4 with the SEC by Delta Corp Holdings Limited, a newly created holding company organized under the laws of the Cayman Islands [2] - The proposed transaction will result in Kaival and Delta becoming wholly-owned subsidiaries of Pubco, which will be a new public company whose ordinary shares trade on the Nasdaq Capital Market [8] - The business combination is valued at $301 million and is expected to close in February 2025, subject to the registration statement being declared effective by the SEC, the approval of both companies' shareholders, certain regulatory approvals, as well as the satisfaction or waiver of other closing conditions [11] Company Information Kaival Brands Innovations Group Inc - Kaival Brands is a company focused on incubating and commercializing innovative products into mature and dominant brands, with a current focus on the distribution of electronic nicotine delivery systems (ENDS) also known as "e-cigarettes" for use by customers 21 years and older [9] - The company plans to diversify into distributing other nicotine and non-nicotine delivery system products, including those related to hemp-derived cannabidiol (CBD) products [9] - Kaival Brands and Philip Morris Products S A are the exclusive global distributors of all products manufactured by Bidi Vapor LLC [9] Delta Corp Holdings Limited - Delta Corp Holdings Limited is a fully integrated global enterprise engaged in logistics, fuel supply, and asset management services, primarily supporting the international supply chains of commodity, energy, and capital goods producers [12] - The company operates through three main segments: Bulk Logistics, Energy Logistics, and Asset Management [12] - Delta maintains executive offices in Dubai and New York, and has a significant commercial presence in Singapore, Rotterdam, New Delhi, and Mumbai [12] Transaction Details - The registration statement on Form F-4 includes a preliminary prospectus with respect to the securities to be issued to holders of securities of Kaival and Delta in connection with the proposed business combination, and a preliminary proxy statement relating to the special shareholders meeting of Kaival at which shareholders of Kaival will vote on whether to approve the transactions [11] - Investors and security holders are urged to read the proxy statement/prospectus and the other relevant materials before making any voting or investment decision with respect to the proposed merger [3][5] - A copy of the registration statement is available for review on the SEC's website [4]

Core Points - Kaival Brands Innovations Group, Inc. and Delta Corp Holdings Limited announced a business combination that will create a new public company, Pubco, expected to close in February 2025 [1][2][3] - The business combination is valued at $301 million and will result in both Kaival and Delta becoming wholly-owned subsidiaries of Pubco [3] Company Overview - Kaival Brands, based in Grant-Valkaria, Florida, focuses on incubating and commercializing innovative products, particularly in the electronic nicotine delivery systems market [5] - Delta Corp Holdings Limited is a global enterprise engaged in logistics, fuel supply, and asset management, operating through three main segments: Bulk Logistics, Energy Logistics, and Asset Management [6]

Core Points - Kaival Brands Innovations Group, Inc. and Delta Corp Holdings Limited announced a merger agreement to create a new publicly listed holding company [2] - The merger will result in Kaival and Delta becoming wholly owned subsidiaries of the newly formed company, referred to as Pubco [2] - A draft registration statement has been submitted to the SEC for the proposed business combination [1][4] Company Overview - Kaival is the exclusive U.S. distributor of the Bidi® Stick and other products manufactured by Bidi Vapor, LLC [1] - Delta is a privately held holding company engaged in bulk and energy logistics, fuel supply, commodities, and asset management [1] Merger Details - The merger agreement includes conditions such as approval from Kaival's stockholders and Nasdaq's approval for listing Pubco's ordinary shares [2] - The Registration Statement submitted to the SEC includes a preliminary prospectus and proxy statement for Kaival's stockholders [4] - The definitive proxy statement/prospectus will be mailed to Kaival's stockholders once the Registration Statement is declared effective by the SEC [4] Participants in the Solicitation - Kaival's directors, executive officers, and certain management members may be deemed participants in the proxy solicitation related to the merger [5] - Information regarding Kaival's directors and executive officers, including their share ownership, is available in the company's Annual Report [5]

Group 1 - Rowley Law PLLC is investigating potential securities law violations by Kaival Brands Innovations Group, Inc. and its board of directors regarding the proposed acquisition by Delta Corp Holdings Limited [1] - Stockholders of Kaival Brands are expected to own approximately 10.30% of the combined company post-acquisition [1] - The transaction is anticipated to close in the fourth quarter of 2024 [1]

Core Insights - The proposed business combination between Kaival Brands and Delta Corp Holdings Limited aims to create a public company focused on Bulk & Energy logistics, fuel supply, commodities, and asset management services, utilizing an asset-light business model [1][3] - Delta has a strong multinational presence, facilitating global trade in energy, raw materials, and agricultural products, with reported revenue exceeding $619 million for the fiscal year ending December 31, 2023 [1][4] - The transaction is set to occur at a 359% premium to Kaival Brands' current stock price, resulting in an implied share price of $2.66 [1][7] Company Overview - Delta operates as a fully integrated global business engaged in logistics, fuel supply, and asset management, primarily serving international supply chains for commodity, energy, and capital goods producers [4][15] - The company has been operational since 2019 and employs over 400 personnel across 16 countries, establishing a significant global footprint [4][15] - Delta's business model is asset-light, relying on technology, customer relationships, and differentiated service offerings to drive growth and profitability [5][6] Management and Leadership - The combined company will continue under Delta's management team, led by CEO Mudit Paliwal, Non-Executive Chairman Peter Shaerf, and CFO Joseph Nelson, with Kaival Brands as a wholly owned subsidiary [2][3] - Delta's leadership emphasizes a commitment to innovation and customer solutions, positioning the company for robust growth in public markets [3][5] Transaction Details - The business combination will be structured through a holding company, with Kaival Brands and Delta becoming wholly-owned subsidiaries of the newly formed Pubco [7][10] - Kaival Brands shareholders will receive one ordinary share of Pubco for each share they own, while Delta shareholders will exchange their shares for $270 million in ordinary shares of Pubco at the implied value of $2.66 per share [7][10] - Following the transaction, Kaival Brands shareholders are expected to own approximately 10.30% of Pubco, while Delta shareholders will hold about 89.70% [7][10] Financial Provisions - The definitive agreement includes an earnout provision for Delta shareholders, potentially granting an additional $30 million in ordinary shares of Pubco if the combined company achieves specified revenue and EBITDA or net income targets for the fiscal year ending December 31, 2025 [8][9]

Core Viewpoint - Kaival Brands Innovations Group, Inc. has successfully closed a public offering of 3,921,500 units at a price of $1.53 per unit, generating approximately $6.0 million in gross proceeds before expenses [1][2]. Group 1: Offering Details - The offering consisted of one share of common stock (or a pre-funded warrant) and one and one-half common warrants per unit, with an exercise price of $1.53 per share [1]. - The common warrants are immediately exercisable and will expire five years from the issuance date [1]. Group 2: Use of Proceeds - The net proceeds from the offering will be utilized for general corporate and working capital purposes, as well as to support ongoing operations and business expansion [2]. Group 3: Regulatory Information - A registration statement on Form S-1 related to the sale of these securities was declared effective by the SEC on June 21, 2024 [3]. - The offering was conducted solely through a prospectus, which has been filed with the SEC and is accessible on their website [3]. Group 4: Company Overview - Kaival Brands is based in Grant-Valkaria, Florida, and focuses on distributing electronic nicotine delivery systems (ENDS) for customers aged 21 and older [5]. - The company is the exclusive U.S. distributor for products manufactured by Bidi Vapor, LLC, which is committed to responsible marketing and sustainability [5]. - The BIDI® Stick is highlighted as a premium product distributed by Kaival Brands, designed for a consistent vaping experience [5].