PART I [Business](index=5&type=section&id=Item%201.%20Business) Kaival Brands distributes BIDI Stick ENDS products globally, navigating FDA regulations and expanding internationally through a licensing agreement with Philip Morris International - The company's core business is the exclusive worldwide distribution of BIDI Stick ENDS products, manufactured by its affiliate Bidi Vapor, LLC[16](index=16&type=chunk) - A key legal development in August 2022 saw the 11th Circuit Court of Appeals vacate the FDA's Marketing Denial Order (MDO) for Bidi's non-tobacco flavored products, allowing continued sales pending further FDA review[28](index=28&type=chunk)[31](index=31&type=chunk) - Through its subsidiary KBI, the company entered into a major international licensing agreement with Philip Morris Products S.A. (an affiliate of PMI) to manufacture and sell BIDI Stick-based technology in international markets[44](index=44&type=chunk)[47](index=47&type=chunk) Customer Revenue Concentration (Fiscal Year 2022) | Customer | Percentage of Revenue | | :--- | :--- | | Favs Business, LLC | ~31% | | H.T. Hackney Co. | ~15% | | GPM | ~12% | - The company is **100%** reliant on its affiliate, Bidi Vapor, for the purchase of all its inventory; in FY2022, purchases from Bidi amounted to approximately **$1.5 million**, a significant decrease from **$61.9 million** in FY2021[54](index=54&type=chunk) - According to a Goldman Sachs report using Nielsen data, the BIDI® Stick was the top disposable ENDS product by retail sales for the 52-week period ending December 17, 2022, but its market share decreased significantly to **3.2%** from **24.2%** in the prior year period[77](index=77&type=chunk) [Risk Factors](index=20&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including sole supplier dependence, regulatory uncertainty, intense competition, and identified material weaknesses in internal controls - The company relies exclusively on its affiliate, Bidi Vapor, as the sole supplier of the products it distributes; any disruption would severely harm the business[92](index=92&type=chunk)[93](index=93&type=chunk) - Key sales, marketing, and other support functions are outsourced to a single consultant, QuikfillRx; the loss of this relationship would significantly damage the company's ability to operate[97](index=97&type=chunk) - Despite the 11th Circuit vacating the FDA's Marketing Denial Order (MDO), the ultimate outcome of the FDA's scientific review of Bidi's Premarket Tobacco Product Application (PMTA) remains uncertain, posing a significant ongoing regulatory risk[99](index=99&type=chunk)[102](index=102&type=chunk) - The company faces intense competition from 'big tobacco' companies that have substantially greater financial resources, experience, and market penetration[113](index=113&type=chunk) - Ownership is highly concentrated, with officers, directors, and principal stockholders beneficially owning approximately **77.1%** of the outstanding common stock, allowing them to exert significant influence over corporate decisions[150](index=150&type=chunk) - Management has identified material weaknesses in the company's internal controls over financial reporting, including insufficient resources for segregation of duties and an underdeveloped formal review process[160](index=160&type=chunk)[397](index=397&type=chunk) [Unresolved Staff Comments](index=34&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[169](index=169&type=chunk) [Properties](index=34&type=section&id=Item%202.%20Properties) The company leases its 21,332 sq ft main office and warehouse in Grant, Florida, from a related party, with prior satellite storage leases terminated in 2022 - On June 10, 2022, the company entered into a new lease for its main office and warehouse (**21,332 sq. ft.**) in Grant, Florida[173](index=173&type=chunk) - The lessor is Just Pick, LLC, a related party owned by Nirajkumar Patel, the company's Chief Science and Regulatory Officer and director[173](index=173&type=chunk) - The initial base rent is **$17,776.67** per month, with annual increases[173](index=173&type=chunk) [Legal Proceedings](index=34&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business - The company is not currently involved in any material legal proceedings[174](index=174&type=chunk) - The company notes that its business could be materially affected by the outcome of legal or regulatory proceedings involving its affiliate and sole supplier, Bidi Vapor[175](index=175&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's business - Not applicable[176](index=176&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) KAVL common stock trades on Nasdaq, with **56.17 million** shares outstanding as of January 27, 2023, no dividends paid, and significant equity changes in FY2022 including preferred stock conversion - The company's common stock began trading on the Nasdaq Capital Market on July 20, 2021, under the symbol 'KAVL'[178](index=178&type=chunk) - As of January 27, 2023, there were **56,169,090** shares of common stock issued and outstanding[179](index=179&type=chunk) - The company has never paid dividends and does not intend to pay any in the foreseeable future[180](index=180&type=chunk) - During fiscal year 2022, all **3,000,000** shares of Series A Preferred Stock were converted into **25,000,000** shares of common stock by a related party, Kaival Holdings, LLC[187](index=187&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2022 saw a sharp revenue decline to **$12.8 million** and a **$14.4 million** net loss due to competition and regulatory impacts, though management believes going concern issues are alleviated Fiscal Year Financial Performance Comparison | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Total Revenues, net | **$12.8 million** | **$58.8 million** | | Gross Profit | **$1.2 million** | **$11.9 million** | | Operating Expenses | **$15.6 million** | **$22.4 million** | | Net Loss | **$(14.4) million** | **$(9.0) million** | | Basic & Diluted EPS | **$(0.36)** | **$(0.38)** | - The decrease in revenue was primarily due to increased competition from illegally marketed products and the impact of Bidi's MDO, which limited sales of flavored BIDI Sticks for most of the fiscal year[213](index=213&type=chunk) - Management believes that substantial doubt about the company's ability to continue as a going concern has been alleviated due to positive working capital (**$7.5 million**), the favorable 11th Circuit court ruling, and the ongoing scientific review of Bidi's PMTAs[201](index=201&type=chunk)[202](index=202&type=chunk) - Cash used in operations decreased to **($5.7) million** in FY2022 from **($9.3) million** in FY2021, primarily due to a significant reduction in inventory purchases[211](index=211&type=chunk) - As of October 31, 2022, the company had a related-party receivable balance of **$3.7 million** due from its supplier, Bidi, resulting from a canceled inventory order and other credits[225](index=225&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=44&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, Kaival Brands is not required to provide the information for this item - The company qualifies as a smaller reporting company and is not required to provide this information[234](index=234&type=chunk) [Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for FY2022 and FY2021, highlighting key changes in balance sheet items and the alleviation of going concern doubts - The independent registered public accounting firm, MaloneBailey, LLP, issued an unqualified audit opinion on the consolidated financial statements[238](index=238&type=chunk) Consolidated Balance Sheet Highlights | Metric | October 31, 2022 | October 31, 2021 | | :--- | :--- | :--- | | Cash | **$3,685,893** | **$7,760,228** | | Inventories | **$1,239,725** | **$15,326,370** | | Total Assets | **$12,437,034** | **$30,190,520** | | Accounts payable- related party | **$0** | **$12,667,769** | | Total Liabilities | **$2,636,254** | **$13,866,207** | | Total Stockholders' Equity | **$9,800,780** | **$16,324,313** | Consolidated Statement of Operations Highlights | Metric | Year Ended Oct 31, 2022 | Year Ended Oct 31, 2021 | | :--- | :--- | :--- | | Total revenues, net | **$12,761,457** | **$58,776,430** | | Gross profit | **$1,241,025** | **$11,933,880** | | Net loss | **$(14,370,335)** | **$(9,033,438)** | - Note 3 (Going Concern) states that while recurring losses raised substantial doubt, management's plans, including the favorable court ruling on the MDO, are believed to alleviate this doubt[314](index=314&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk) - Note 5 (Stockholders' Equity) confirms that on June 24, 2022, all **3,000,000** shares of Series A Preferred Stock were converted into **25,000,000** shares of Common Stock[331](index=331&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=79&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[392](index=392&type=chunk) [Controls and Procedures](index=79&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were ineffective as of October 31, 2022, due to material weaknesses, and remediation measures are underway - Management's evaluation concluded that disclosure controls and procedures were not effective as of October 31, 2022[394](index=394&type=chunk) - Management also concluded that internal control over financial reporting was ineffective due to material weaknesses[397](index=397&type=chunk) - The identified material weaknesses include a lack of resources for segregation of duties, insufficient real-time communication, and the lack of a fully developed formal review process for financial reporting[397](index=397&type=chunk) - The company is undertaking remediation measures, including implementing procedures to ensure proper segregation of duties and hiring additional resources[398](index=398&type=chunk) [Other Information](index=80&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[402](index=402&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=80&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This section is not applicable to the company - Not Applicable[403](index=403&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=81&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details the company's executive officers and five-member board, noting three independent directors and the establishment of Audit, Compensation, and Governance committees Executive Officers and Directors | Name | Position(s) | | :--- | :--- | | Nirajkumar Patel | Chief Science & Regulatory Officer, Treasurer, and Director | | Eric Mosser | President & Chief Operating Officer, Secretary, and Director | | Mark Thoenes | Interim Chief Financial Officer | | Paul Reuter | Director | | Roger Brooks | Director | | George Chuang | Director | - The Board of Directors has determined that Paul Reuter, Roger Brooks, and George Chuang are independent directors[469](index=469&type=chunk) - The company has an Audit Committee, Compensation Committee, and Governance and Nominating Committee, each composed entirely of independent directors[417](index=417&type=chunk)[418](index=418&type=chunk)[420](index=420&type=chunk) - The company adopted a Code of Ethics and Business Conduct on March 17, 2021[416](index=416&type=chunk) [Executive Compensation](index=85&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation for FY2022, significantly influenced by stock option awards, is detailed, with Nirajkumar Patel receiving **$2.5 million** and Eric Mosser **$2.2 million** Summary Compensation Table (Fiscal Year 2022) | Name and Principal Position | Salary ($) | Bonus ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Nirajkumar Patel, Chief Science & Regulatory Officer | **244,000** | **30,000** | **2,139,989** | **2,514,282** | | Eric Mosser, President & COO | **226,577** | **20,000** | **1,854,991** | **2,196,984** | | Mark Thoenes, Interim CFO | **347,201** | **0** | **310,998** | **658,189** | - On June 24, 2022, the Board approved annual base salary increases to **$300,000** for Eric Mosser and **$276,000** for Nirajkumar Patel[425](index=425&type=chunk) - In March 2022, the company granted significant stock option awards to Nirajkumar Patel (**600,000 shares**) and Eric Mosser (**500,000 shares**)[426](index=426&type=chunk)[427](index=427&type=chunk) - The company does not have formal written employment agreements with its principal executive officers, Mr. Patel and Mr. Mosser[444](index=444&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=90&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of January 27, 2023, company ownership is highly concentrated, with Kaival Holdings, LLC (controlled by executives) owning **74.77%** and the executive officers and directors as a group owning **78.14%** - As of January 27, 2023, Kaival Holdings, LLC, controlled by Nirajkumar Patel and Eric Mosser, beneficially owned **42,000,000 shares**, representing **74.77%** of the outstanding common stock[455](index=455&type=chunk)[463](index=463&type=chunk) - The current executive officers and directors as a group beneficially own **43,891,630 shares**, representing **78.14%** of the class[455](index=455&type=chunk) - All **3,000,000** shares of Series A Preferred Stock were converted into common stock on June 24, 2022, leaving no preferred stock issued or outstanding[464](index=464&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=93&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company's most significant related-party transaction is its complete reliance on Bidi Vapor, LLC for all product inventory, and the Board has determined that three of its five members are independent - For the year ended October 31, 2022, **100%** of product inventories were purchased from Bidi Vapor, LLC, a company owned by director and officer Nirajkumar Patel[467](index=467&type=chunk) - The Board has determined that directors Paul Reuter, Roger Brooks, and George Chuang are independent[469](index=469&type=chunk) [Principal Accounting Fees and Services](index=94&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) This section details the fees paid to the company's independent auditor, MaloneBailey, LLP, totaling **$205,000** in FY2022, all pre-approved by the Audit Committee Auditor Fees (MaloneBailey, LLP) | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit and review fees | **$195,000** | **$252,500** | | Audit-related fees | **$10,000** | **$3,820** | | All other fees | **$0** | **$55,000** | | **Total** | **$205,000** | **$311,320** | - All audit and non-audit services provided by the independent auditors were pre-approved by the Audit Committee[473](index=473&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=95&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section provides an index of all financial statements and exhibits filed with the annual report, including key agreements and certifications - This item provides an index of all financial statements and exhibits filed with the annual report[476](index=476&type=chunk)[477](index=477&type=chunk) [Form 10-K Summary](index=98&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no summary for this item - None[482](index=482&type=chunk)

Financial Position - As of July 31, 2022, the company reported working capital of approximately $11.1 million and total cash of approximately $3.4 million[162]. - The company has sufficient cash on hand to support operations for at least 12 months, relying on cash from operations and potential equity and debt offerings for liquidity needs[163]. - The company completed a firm commitment underwritten offering in September 2021, selling 4,700,000 shares and receiving net proceeds of approximately $8.3 million[164]. Revenue and Profitability - Revenues for the third quarter of fiscal year 2022 were approximately $3.8 million, an increase of 18.8% compared to approximately $3.2 million in the same period of the prior fiscal year[168]. - Gross profit for the third quarter of fiscal year 2022 was approximately $442,100, representing a gross margin of approximately 11.5%, compared to a gross loss of approximately ($84,300) for the same period in fiscal year 2021[170]. - Revenues for the first nine months of fiscal year 2022 were approximately $9.7 million, a significant decrease from $59.0 million in the same period of the prior fiscal year[174]. - Gross profit for the first nine months of fiscal year 2022 was approximately $138,800, compared to approximately $11.0 million for the first nine months of fiscal year 2021[175]. - Net loss for the third quarter of fiscal year 2022 was approximately $3.9 million, or $0.09 basic and diluted loss per share, compared to a net loss of approximately $3.4 million, or $0.15 basic and diluted loss per share, for the third quarter of fiscal year 2021[173]. - Net loss for the first nine months of fiscal year 2022 was approximately $11.7 million, or $0.34 basic and diluted loss per share, compared to a net loss of approximately $7.4 million, or $0.32 basic and diluted loss per share, for the first nine months of fiscal year 2021[178]. Operating Expenses - Total operating expenses for the third quarter of fiscal year 2022 were approximately $4.3 million, an increase from approximately $3.3 million in the third quarter of fiscal year 2021[171]. - Total operating expenses for the first nine months of fiscal year 2022 were approximately $11.8 million, down from approximately $18.1 million in the same period of fiscal year 2021[176]. Cash Flow - Cash flow used in operations for the first nine months of fiscal year 2022 was approximately $6.0 million, a slight decrease from $6.3 million used in operations for the same period in fiscal year 2021[165]. - The net cash flow provided by financing activities was approximately $1.5 million for the first nine months of fiscal year 2022, compared to cash flow used in financing activities of approximately $202,000 for the same period in fiscal year 2021[166]. Market and Regulatory Environment - The company anticipates revenues from the PMI Licensing Agreement beginning in the fiscal fourth quarter of 2022, following the launch of PMPSA's custom-branded self-contained e-vapor product, VEEBA, in Canada[157]. - The FDA's PMTA process has been set aside and remanded by the 11th Circuit, allowing the company to continue marketing and selling non-tobacco flavored BIDI® Sticks during the review process[145]. - The company has ceased all retail/direct-to-consumer sales since February 2021 to comply with the Prevent All Cigarette Trafficking Act and to prevent youth access[151]. - The company submitted a comprehensive 285,000-page PMTA application, which includes various studies, and anticipates that the FDA's scientific review process could take 1-2 years or longer[144]. Product Development and Supply Chain - The company has not launched any Kaival-branded products or white label solutions as of the date of the report, despite plans announced in July 2021[155]. - The company is wholly dependent on Bidi for the supply of BIDI® Sticks, and any supply issues impacting Bidi will indirectly affect the company's operations[153].

OR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission file number 000-56016 KAIVAL BRANDS INNOVATIONS GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 8 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission file number 000-56016 KAIVAL BRANDS INNOVATIONS GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE ...

Business Operations and Agreements - The company commenced business operations on March 9, 2020, through an exclusive distribution agreement with Bidi, which was amended to extend the initial term to ten years[26][27]. - The A&R Distribution Agreement provides the company with a right of first refusal for future products related to ENDS and tobacco-derived nicotine[27]. - The company has formed a wholly-owned subsidiary, Kaival Labs, Inc., to support its business operations[23]. Regulatory Challenges and Compliance - The FDA issued Marketing Denial Orders (MDOs) for over 1,167,000 flavored ENDS products, impacting the company's sales, which were historically derived from flavored BIDI® Sticks, constituting approximately 18.4% and 12.9% of total sales for the twelve months ended October 31, 2021, and October 31, 2020, respectively[30][33]. - The company is dependent on the outcomes of the FDA's decision regarding Bidi's Arctic BIDI® Stick and the Eleventh Circuit Court of Appeals ruling on the MDO challenge[34]. - The company has ceased all retail/direct-to-consumer sales since February 2021 to comply with the Prevent All Cigarette Trafficking (PACT) Act[29]. - Bidi is subject to various FDA regulations and compliance measures, which could impact its ability to operate if not adhered to[59]. - The PACT Act requires all sellers to register with the ATF and comply with various delivery and reporting requirements, impacting the distribution of the BIDI Stick[115]. - At least four states have banned the sale of flavored ENDS, with more considering similar bans, posing a threat to Bidi's product offerings[116]. - The company anticipates increasing state and local regulations on its products, which could have a material adverse effect on its emerging business[112]. - The FDA denied nearly all pending PMTAs for flavored ENDS products, affecting the company's ability to market flavored products, which historically accounted for approximately 18.4% of total sales in fiscal year 2021[177][185]. Financial Performance and Projections - Revenues for fiscal year 2021 were approximately $58.7 million, a decrease from approximately $64.3 million in fiscal year 2020, primarily due to increased competition and the FDA's marketing denial order (MDO) affecting flavored BIDI Sticks[203]. - Gross profit for fiscal year 2021 was approximately $11.9 million, compared to approximately $10.0 million for fiscal year 2020, with total cost of revenue at approximately $46.8 million for fiscal year 2021[204]. - Net loss for fiscal year 2021 was approximately ($9.0) million, or $(0.38) basic and diluted net loss per share, compared to net income of approximately $3.8 million in fiscal year 2020[209]. - Cash flow used in operations was approximately ($9.3) million for fiscal year 2021, a decline from cash flow provided by operations of approximately $7.6 million for fiscal year 2020[201]. - The company completed a public offering in September 2021, raising approximately $8.3 million in net proceeds from the sale of 4,700,000 shares of Common Stock and warrants[200]. - The company anticipates an upturn in sales of BIDI Sticks due to a recent court ruling granting a judicial stay on the FDA's MDO, with expectations for improved sales starting in the second quarter of fiscal year 2022[203]. Supply Chain and Product Development - The company relies entirely on Bidi for the supply of BIDI® Sticks, meaning any supply issues with Bidi directly affect its operations[37]. - Bidi plans to launch the BIDI Pouch but has delayed the rollout due to COVID-19 and FDA regulatory concerns regarding synthetic nicotine products[38]. - Bidi intends to produce CBD products in compliance with the 2018 Farm Bill, utilizing its patented BIDI Stick delivery mechanism for a premium experience[40]. - The company has modified the nicotine formulation in the Bidi Stick to a 2% level to meet distribution criteria in the United Kingdom and Europe[187]. Market Competition and Risks - Competition in the ENDS industry is primarily with "big tobacco" companies, which have substantially greater resources and customer loyalty[72]. - The ENDS market is highly competitive, with significant pressure from larger companies that have greater resources, which could impact the company's market position[95]. - Illicit trade and counterfeit products represent a significant threat to the legitimate tobacco industry, potentially damaging brand equity and sales volume[102]. - Economic conditions, including changes in employment and disposable income, could negatively impact consumer purchases of Bidi's products[117]. - Adverse global economic conditions, including inflation and recession, may lead to reduced consumer spending on Bidi's products[127]. Corporate Governance and Shareholder Matters - The company has a combined total of approximately 72.3% of its outstanding Common Stock owned by officers, directors, and principal stockholders, which may limit other stockholders' influence on corporate decisions[142]. - The company has been notified by Nasdaq of non-compliance with the minimum closing bid price requirement of $1.00 per share, with a compliance period until July 25, 2022[139]. - The company does not currently pay dividends and has no intention to do so in the foreseeable future, relying on stock price appreciation for shareholder returns[145]. - The company may issue debt or equity securities in the future, which could rank senior to its Common Stock, potentially diluting existing stockholders' value[134]. Internal Controls and Compliance Costs - Material weaknesses in the company's internal control over financial reporting were identified, which could adversely affect investor confidence and the value of its Common Stock[150]. - The company has disclosed material weaknesses in its internal control over financial reporting, which it is working to remediate[152]. - The company has incurred significant legal, accounting, and compliance costs as a public company, which may increase further after transitioning from an "emerging growth company" status[158]. - The company is subject to increased scrutiny and compliance costs due to regulatory requirements, which may hinder its ability to attract qualified board members and executives[159].

Part I - Financial Information [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents Kaival Brands' unaudited consolidated financial statements, showing asset and liability growth, a sharp Q3 revenue decline, and a nine-month net loss [Unaudited Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) Total assets increased to $23.9 million from $8.9 million, driven by receivables and inventories, while liabilities rose to $17.5 million, primarily due to related-party payables Consolidated Balance Sheet Highlights (Unaudited) | Account | July 31, 2021 | October 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $938,435 | $7,421,701 | | Accounts receivable | $7,724,414 | $1,401,562 | | Inventories | $14,947,200 | $6,383 | | **Total Current Assets** | **$23,839,216** | **$8,845,006** | | **Total Assets** | **$23,898,462** | **$8,915,139** | | **Liabilities & Equity** | | | | Accounts payable- related party | $16,813,962 | $1,409,561 | | **Total Current Liabilities** | **$17,479,243** | **$4,438,327** | | **Total Liabilities** | **$17,528,918** | **$4,497,531** | | **Total Stockholders' Equity** | **$6,369,544** | **$4,417,608** | [Unaudited Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) Q3 2021 revenues sharply declined to $3.4 million, resulting in a $3.4 million net loss, while nine-month revenues grew slightly to $59.0 million but led to a $7.4 million net loss due to surging operating expenses Statement of Operations Summary (Unaudited) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $3,442,978 | $32,375,309 | $58,953,576 | $54,881,463 | | Gross (Loss) Profit | ($84,290) | $4,399,296 | $10,998,587 | $6,936,804 | | Total Operating Expenses | $3,353,032 | $1,473,871 | $18,090,567 | $1,944,894 | | Net Income (Loss) | ($3,437,006) | $2,605,015 | ($7,384,432) | $3,721,069 | | Net Income (Loss) per Share | ($0.15) | $0.05 | ($0.32) | $0.08 | [Unaudited Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased from $4.4 million to $6.4 million, primarily due to a $9.3 million rise in additional paid-in capital, offsetting a $7.4 million net loss - Stockholders' equity increased from **$4,417,608** at October 31, 2020, to **$6,369,544** at July 31, 2021[18](index=18&type=chunk) - The increase was driven by a rise in Additional Paid-in Capital to **$9,954,779**, despite a retained deficit of **($3,611,835)** resulting from a net loss for the period[18](index=18&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=9&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities was $6.3 million, a reversal from the prior year, driven by net loss and increased inventories, leading to a cash balance decrease from $7.4 million to $938,435 Cash Flow Summary (Unaudited) | Cash Flow Activity | Nine Months Ended July 31, 2021 | Nine Months Ended July 31, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($6,281,578) | $2,669,450 | | Cash flows used in financing activities | ($201,688) | $0 | | **Net change in cash** | **($6,483,266)** | **$2,669,450** | | **Ending cash balance** | **$938,435** | **$2,669,450** | [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes detail the company's business, accounting policies, and key financial components, including its exclusive distribution agreement with related party Bidi Vapor, a 1-for-12 reverse stock split, and significant related-party transactions - The company is the exclusive worldwide distributor of electronic nicotine delivery systems (ENDS) manufactured by Bidi Vapor, LLC, a related party owned by the company's CEO, Nirajkumar Patel[27](index=27&type=chunk)[28](index=28&type=chunk) - A **1-for-12 reverse stock split** of the company's common stock became effective on July 20, 2021, to support its application to list on Nasdaq[31](index=31&type=chunk)[47](index=47&type=chunk) - For the nine months ended July 31, 2021, **100% of inventory purchases ($62.4 million)** were from the related party, Bidi, and four major customers accounted for approximately **67% of total revenue**[61](index=61&type=chunk)[62](index=62&type=chunk) - A Patent Contribution Agreement with Next Generation Labs was terminated after the company did not meet the filing deadline for a securities offering, and the patents reverted to Next Generation[65](index=65&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the severe impact of FDA PMTA decisions on Q3 revenue, leading to a net loss, and outlines strategies for recovery through legal product focus and international expansion [Impact of FDA PMTA Decision](index=20&type=section&id=Impact%20of%20FDA%20PMTA%20Decision) The FDA's PMTA deadline severely impacted Q3 sales, leading to a Marketing Denial Order for flavored products, but the company plans to focus on legal tobacco and menthol variants for recovery - Bidi Vapor received a Marketing Denial Order (MDO) for its flavored ENDS products, which historically constituted substantially all of the company's revenues[91](index=91&type=chunk)[92](index=92&type=chunk) - The company believes its Classic (tobacco) and Arctic (menthol) BIDI Sticks are not subject to the MDO and will continue to be distributed, with Arctic (menthol) sales constituting approximately **15.2% of total BIDI Stick sales in Q3 2021**[91](index=91&type=chunk)[92](index=92&type=chunk) - Management believes that with the elimination of most flavored products, consumers will shift to available tobacco and menthol options, potentially restoring lost revenue[93](index=93&type=chunk) [Future Strategic Opportunities](index=21&type=section&id=Future%20Strategic%20Opportunities) The company anticipates market consolidation post-FDA actions, focusing on international expansion into 11 approved markets and launching a Kaival-branded Hemp CBD product for future growth - The company believes Bidi will be one of only a few remaining players in the disposable ENDS market, as many competitors who only sold flavored products are eliminated[99](index=99&type=chunk) - International markets, with an estimated total addressable market of **$36.7 billion**, are a key growth opportunity, with Bidi approved to market all products, including flavors, in **11 international markets**[100](index=100&type=chunk)[101](index=101&type=chunk) - The company announced plans to launch its first Kaival-branded product, a Hemp CBD product, utilizing Bidi's delivery mechanism[110](index=110&type=chunk)[111](index=111&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) As of July 31, 2021, the company had $6.4 million in working capital and $938,000 cash, with $6.3 million cash used in operations, and plans to fund needs via operations or offerings Liquidity and Cash Flow | Metric | As of/For the Nine Months Ended July 31, 2021 | | :--- | :--- | | Working Capital | ~$6.4 million | | Total Cash | ~$938,000 | | Cash Flow from Operations | ~($6.3 million) | [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Q3 2021 revenues plummeted to $3.4 million, resulting in a $3.4 million net loss, while nine-month revenues grew to $59.0 million but led to a $7.4 million net loss due to surging operating expenses Q3 2021 vs Q3 2020 Performance | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Revenues | ~$3.4 million | ~$32.4 million | | Gross (Loss) Profit | ~($84,000) | ~$4.4 million | | Net (Loss) Income | ~($3.4 million) | ~$2.6 million | Nine Months 2021 vs 2020 Performance | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Revenues | ~$59.0 million | ~$54.9 million | | Gross Profit | ~$11.0 million | ~$6.9 million | | Operating Expenses | ~$18.1 million | ~$1.9 million | | Net (Loss) Income | ~($7.4 million) | ~$3.7 million | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from providing market risk disclosures as it qualifies as a "smaller reporting company" - The Company is not required to provide the information required by this Item as it qualifies as a "smaller reporting company"[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of July 31, 2021, due to a material weakness in internal control over financial reporting, with remediation plans underway - Management concluded that as of July 31, 2021, the company's disclosure controls and procedures were not effective[134](index=134&type=chunk) - The ineffectiveness was attributed to a material weakness in internal control over financial reporting, with the company intending to hire additional staff to address the issue[134](index=134&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material pending legal proceedings beyond routine litigation incidental to its business - There are no material pending legal proceedings to which the company is a party[138](index=138&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) The company is exempt from providing risk factor disclosures as it qualifies as a "smaller reporting company" - The Company is not required to provide the information required by this Item as it qualifies as a "smaller reporting company"[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) On August 8, 2021, the company issued 56,250 common shares to employees under RSU agreements, resulting in $352,137 in share-based compensation and $179,412 withheld for taxes - On August 8, 2021, the Company issued **56,250 shares of Common Stock** to employees pursuant to RSU agreements, recognizing **$352,137 of share-based compensation**[140](index=140&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, material contracts, and officer certifications

Financial Performance - Revenues for Q2 FY2021 were approximately $18.1 million, a decrease from $22.5 million in Q2 FY2020[98] - Net loss for Q2 FY2021 was approximately $4.3 million, or $(0.02) per share, compared to a net income of approximately $2.8 million in Q2 FY2020[102] - Revenues for the second quarter of fiscal year 2021 were approximately $18.1 million, a decrease of 19.56% compared to $22.5 million in the same period of the prior fiscal year[104] - Net loss for the first six months of fiscal year 2021 was approximately $3.9 million, compared to a net income of approximately $2.8 million for the same period in fiscal year 2020, reflecting a significant decline in financial performance[108] Profitability - Gross profit for Q2 FY2021 was approximately $6.3 million, compared to $4.2 million in Q2 FY2020, driven by a decrease in the cost of products sold[99] - Gross profit for the first six months of fiscal year 2021 was approximately $11.1 million, significantly up from approximately $4.2 million for the same period in fiscal year 2020, indicating a strong improvement in profitability[105] Operating Expenses - Total operating expenses for Q2 FY2021 were approximately $10.4 million, significantly higher than $458,000 in Q2 FY2020, primarily due to increased general and administrative expenses[100] - Total operating expenses for the first six months of fiscal year 2021 were approximately $14.7 million, a substantial increase from approximately $471,000 in the same period of fiscal year 2020[106] - General and administrative expenses for the first six months of fiscal year 2021 were approximately $13.0 million, primarily consisting of legal fees, salaries, and other professional fees[106] Cash Flow and Working Capital - Cash flow used in operations was approximately $5.2 million for the first six months of FY2021, compared to $1.9 million provided by operations in the same period of FY2020[97] - As of April 30, 2021, the company had working capital of approximately $9.2 million and total cash of approximately $2.1 million[95] - The company anticipates improvement in cash flows based on minimum purchase obligations in A&R Sub-Distribution Agreements, despite potential increases in costs[97] Distribution Agreements - The company has entered into multiple A&R Sub-Distribution Agreements to enhance product distribution, which is expected to increase revenues in the current fiscal year[98] - The company has continued to enter into additional A&R Sub-Distribution Agreements, which is expected to increase revenue in the remainder of the current fiscal year[104] Stock Information - Weighted-average common stock shares outstanding were 282,143,504 in Q2 FY2021, down from 572,364,574 in Q2 FY2020[103] - Weighted-average common stock shares outstanding decreased to 280,242,288 in the first six months of fiscal year 2021 from 572,364,574 in the same period of fiscal year 2020[109] Cost of Revenue - The total cost of revenue for the first six months of fiscal year 2021 was approximately $44.4 million, compared to $18.3 million for the same period in fiscal year 2020, indicating increased costs associated with revenue generation[105] Tax Expenses - The company expensed approximately $293,100 for prior year income taxes during the first six months of fiscal year 2021, a decrease from approximately $950,400 in the same period of fiscal year 2020[107] COVID-19 Impact - The company is actively monitoring the impact of COVID-19 on its operations and financial condition, although it has not seen significant negative effects to date[78] Off-Balance Sheet Arrangements - The company does not have any off-balance sheet arrangements that could materially affect its financial condition or results of operations[110]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission file number 000-56016 KAIVAL BRANDS INNOVATIONS GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE ...

Company Overview - USSE Corp. was incorporated on September 4, 2018, in Delaware, following a merger with USSE Delaware, which was the surviving entity[18]. - The company changed its corporate name from Quick Start Holdings, Inc. to Kaival Brands Innovations Group, Inc. on July 12, 2019[28]. - The company formed a wholly-owned subsidiary, Kaival Labs, Inc., on August 31, 2020, to support its business operations[178]. Share Structure - As of the merger, USSE Delaware was authorized to issue up to 1,005,000,000 shares, including 1,000,000,000 shares of common stock, of which 66,397,574 shares were issued and outstanding[19]. - On October 19, 2018, the company issued 500,000,000 shares of restricted common stock and 400,000 shares of Convertible Series B preferred stock to GMRZ Holdings LLC for services rendered[25]. - As of October 22, 2018, all Convertible Series A preferred stock was converted into 1.25 shares of common stock, while Convertible Series B preferred stock was converted into ten shares of common stock[26]. - As of October 31, 2020, the company had 277,282,630 shares of common stock issued and outstanding, with 204,000,000 shares held by Kaival Holdings, LLC, constituting approximately 73.57% of the total[173]. Product Offerings - The primary product offerings include the "Bidi Stick" and "Bidi Pouch," with the Bidi Stick being a disposable ENDS product available in various flavors[41]. - Bidi launched a recycling program, Bidi Cares, rewarding customers with a free Bidi Stick for recycling ten used Bidi Sticks[43]. - The company markets its products through national distribution channels and focuses on ground-level marketing to prevent underage access to its products[46]. Financial Performance - For the fiscal year 2020, the company achieved revenues of approximately $64.3 million, compared to $0 in the prior fiscal year[115]. - The net income for the fiscal year 2020 was approximately $3.8 million, or $0.01 basic and diluted net income per share, compared to a net loss of approximately $68,849 for the fiscal year 2019[120]. - Gross profit for the fiscal year 2020 was approximately $10.0 million, with total cost of revenue at approximately $54.3 million[117]. - Total revenues for the year ended October 31, 2020, were $64,314,379, with a gross profit of $10,059,143[146]. - The company reported a net income of $3,845,822 for the year ended October 31, 2020, compared to a net loss of $68,849 in the previous year[146]. Cash Flow and Working Capital - The company had a positive working capital of approximately $4.4 million and total cash of approximately $7.4 million as of October 31, 2020[112]. - Cash flow provided by operations was approximately $7.6 million for the fiscal year 2020, compared to $0 for the fiscal year 2019[114]. - Cash and cash equivalents increased to $7,421,701 as of October 31, 2020, compared to $0 in the previous year[130]. - Net cash provided by operating activities for the year was $7,601,623, indicating strong operational cash flow generation[152]. Market Position and Competition - Bidi Stick's market share in the disposable ENDS market increased from 7.4% to 24.2% during the 52-week period ending on November 28, 2020, with total dollar sales growth surging to 1,845%[75]. - The distribution footprint expanded to over 30,000 retail stores, including Circle K and 7-Eleven locations, with plans to launch distribution in Europe in the third or fourth quarter of fiscal 2021[49][50]. - The company operates in a competitive environment dominated by larger "big tobacco" companies, which poses challenges for market positioning[73][74]. Regulatory Environment - The company is subject to various federal, state, and international regulations regarding the distribution of ENDS products, which could impact operations if not complied with[52][60]. - Approximately 28 states currently impose excise taxes on vapor products, with potential for future tax increases that could affect consumption and revenue[62]. Corporate Governance and Future Plans - The company is committed to enhancing corporate governance and aims to up-list to Nasdaq in the near term[68]. - The company plans to continue operations with increased marketing efforts to drive revenue growth, although future success is uncertain due to the current economic climate[107]. - The company plans to increase marketing efforts to boost revenue and net income, addressing liquidity needs for the next twelve months[207]. COVID-19 Impact - The company has not recorded any impairments related to the COVID-19 pandemic as of October 31, 2020, and operations have not been significantly impacted[180]. - The company is actively monitoring the ongoing COVID-19 situation, assessing its potential impact on financial condition and operations[180].

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission file number 000-56016 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2020 OR KAIVAL BRANDS INNOVATIONS GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 83 ...