Kaival Brands(KAVL) - 2024 Q3 - Quarterly Report

Financial Performance - Total revenues for the nine months ended July 31, 2024, were $6,151,701, a decrease of 32.3% compared to $9,129,813 for the same period in 2023[14] - Net loss for the nine months ended July 31, 2024, was $5,527,725, compared to a net loss of $8,802,200 for the same period in 2023, representing a 37.8% improvement[14] - Gross profit for the nine months ended July 31, 2024, was $2,066,610, a decrease of 19.5% from $2,566,760 for the same period in 2023[14] - Operating expenses for the nine months ended July 31, 2024, totaled $6,246,722, down 39.5% from $10,337,825 for the same period in 2023[14] - For the nine months ended July 31, 2023, the net loss was $8,757,200, compared to a net loss of $5,212,725 for the same period in 2024, indicating a worsening financial performance[21] - Revenues for the three months ended July 31, 2024, were approximately $0.7 million, a decrease of 80.6% compared to approximately $3.6 million for the same period in 2023[179] - Net loss for the three months ended July 31, 2024, was approximately $1.6 million, a decrease from a net loss of approximately $1.8 million for the same period in 2023[185] - The net loss for the first nine months ended July 31, 2024, was approximately $5.2 million, a decrease from a net loss of approximately $8.8 million for the same period in 2023, primarily due to increased gross profit and decreased operating expenses[191] Cash and Liabilities - Cash and cash equivalents as of July 31, 2024, were $4,524,989, a significant increase from $533,659 as of October 31, 2023[13] - Total current liabilities decreased to $3,289,959 as of July 31, 2024, down 33.7% from $4,961,788 as of October 31, 2023[13] - As of July 31, 2024, the company had working capital of $2,509,396 and total cash of $4,524,989[174] - The company will require significant additional funds to satisfy outstanding payables and fund working capital, raising substantial doubt about its ability to continue as a going concern[172] Assets and Equity - Total assets decreased to $17,540,603 as of July 31, 2024, from $19,385,006 as of October 31, 2023, reflecting a decline of 9.5%[13] - The company’s accumulated deficit increased to $(35,976,673) as of July 31, 2024, compared to $(30,763,948) as of October 31, 2023[13] - The total stockholders' equity as of July 31, 2023, was $16,010,028, an increase from $9,800,780 as of October 31, 2022[19] Stock and Options - The company reported a preferred stock dividend of $315,000 for the nine months ended July 31, 2024, compared to $45,000 for the same period in 2023[14] - The company recognized stock option expenses of $56,062 and $597,221 for the three months ended July 31, 2024, and 2023, respectively[108] - As of July 31, 2024, the Company had 267,821 stock options outstanding with an aggregate exercise price of $10,106,815[107] - The Company had $86,237 of unrecognized expenses related to stock options expected to be recognized over a weighted-average period of approximately 0.9 years[109] Regulatory and Legal Matters - Bidi received a Marketing Denial Order (MDO) for all non-tobacco flavored BIDI® Sticks, including the Arctic (menthol) variant, prompting legal challenges starting September 2021[29][31] - The U.S. Court of Appeals for the Eleventh Circuit set aside the MDO on August 23, 2022, ruling it "arbitrary and capricious" due to the FDA's failure to consider relevant evidence regarding Bidi's marketing and youth access prevention measures[33][34] - The FDA issued a new MDO for the Classic BIDI® Stick on January 22, 2024, which Bidi is currently appealing[36][49] - Bidi received a Recission of Marketing Denial letter from the FDA on July 29, 2024, formally rescinding the MDO for non-tobacco flavored BIDI® Stick PMTAs, allowing applications to return to the review process[145] Business Operations - The company has not yet launched any Kaival-branded products or white-label solutions, focusing instead on the distribution of the BIDI® Stick[25] - The company entered into a licensing agreement with Philip Morris Products S.A. for the development and distribution of ENDS products in international markets[26] - The company is dependent on Bidi for supply, and any issues with Bidi could significantly impact its operations[149] - The acquisition of GoFire's vaporizer technology in May 2023 aims to diversify the company's offerings, though immediate revenue generation is not expected[152] Internal Controls and Governance - The company is committed to remediating material weaknesses in internal controls and plans to hire additional staff to improve disclosure controls and procedures during fiscal 2024[199] - As of July 31, 2024, the company's disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting[197] - The company engaged a technical advisory firm to enhance its accounting matters during the first nine months ended July 2024, indicating progress in internal controls[199] Market Conditions - The market for ENDS products is evolving and heavily regulated, with significant competition from illicit sources affecting sales volume and brand reputation[153] - Economic conditions, including inflation, may impact consumer purchases of tobacco products, potentially reducing demand for BIDI® Sticks[158] - Regulatory changes at federal, state, and local levels pose ongoing challenges, particularly regarding non-tobacco flavored products, with several states enacting bans[156]