Kaival Brands(KAVL) - 2019 Q3 - Quarterly Report

Cautionary Note Concerning Forward-Looking Statements This section outlines the nature of forward-looking statements, their inherent risks, and the company's policy on updating such information - All statements, other than statements of historical facts, which address activities, events, or developments that are expected or anticipated to occur in the future, including future capital expenditures, commencement of business operations, and business strategy, are considered forward-looking statements[12] - These forward-looking statements are based on current expectations and assumptions, subject to numerous risks and uncertainties, many of which are beyond the company's control, and actual future results may differ materially[12] - The company undertakes no obligation to update or revise any forward-looking statements contained in the report[12] PART I Financial Information This section presents the company's unaudited financial statements and management's discussion and analysis for the period ended July 31, 2019 Item 1. Financial Statements This section presents the unaudited financial statements for Kaival Brands Innovations Group, Inc. for the period ended July 31, 2019, including balance sheets, statements of operations, cash flows, and changes in stockholders' deficit, along with explanatory notes. The statements highlight the company's lack of assets and revenue, significant accumulated deficit, and a going concern warning Unaudited Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit as of specific dates | Metric | July 31, 2019 | October 31, 2018 | | :-------------------------- | :-------------- | :--------------- | | Assets | | | | Total Assets | $ — | $ — | | Liabilities | | | | Accrued expenses | $ 30,650 | $ 3,000 | | Total current liabilities | $ 30,650 | $ 3,000 | | Total Liabilities | $ 30,650 | $ 3,000 | | Stockholders' Deficit | | | | Common stock | $ 572,365 | $ 572,365 | | Additional paid in capital | $ (553,319) | $ (570,989) | | Accumulated deficit | $ (49,696) | $ (4,376) | | Total Stockholders' deficit | $ (30,650) | $ (3,000) | | Total Liabilities & Stockholders' Deficit | $ — | $ — | Unaudited Statement of Operations This section details the company's financial performance, including operating expenses and net loss for the reported periods | Metric | Three Months Ended July 31, 2019 | Nine Months Ended July 31, 2019 | | :------------------------------------------ | :------------------------------- | :------------------------------ | | Operating expenses: General and administrative | $ 27,135 | $ 45,320 | | Total operating expenses | $ 27,135 | $ 45,320 | | Net loss | $ (27,135) | $ (45,320) | | Basic and diluted loss per share | $ (0.00) | $ (0.00) | | Weighted average number of common shares outstanding | 572,364,574 | 572,364,574 | Unaudited Statement of Cash Flows This section outlines the company's cash inflows and outflows from operating activities for the nine months ended July 31, 2019 | Metric | For the Nine Months Ended July 31, 2019 | | :------------------------------------------ | :-------------------------------------- | | Net loss | $ (45,320) | | Adjustment: Expenses contributed to capital | $ 17,670 | | Adjustment: Changes in accrued expenses | $ 27,650 | | Net cash used in operating activities | $ — | | Net change in cash | $ — | | Beginning cash balance | $ — | | Ending cash balance | $ — | Unaudited Statement of Changes in Stockholders' Deficit This section details changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit | Metric | Balances, October 31, 2018 | Balances, July 31, 2019 | | :------------------------------------------ | :------------------------- | :---------------------- | | Common Shares Outstanding | 572,364,574 | 572,364,574 | | Common Stock Par Value | $ 572,365 | $ 572,365 | | Additional Paid-in Capital | $ (570,989) | $ (553,319) | | Accumulated Deficit | $ (4,376) | $ (49,696) | | Total Stockholders' Deficit | $ (3,000) | $ (30,650) | - Expenses paid on behalf of the Company and contributed to capital totaled $7,210 (Nov-Jan), $4,950 (Feb-Apr), and $5,510 (May-Jul) during the nine months ended July 31, 2019[23] Notes to Unaudited Financial Statements These notes provide essential context to the unaudited financial statements, detailing the company's corporate history, organizational changes, going concern issues, related-party transactions, and subsequent events, all of which underscore its early-stage development and financial challenges Note 1 – Organization, Description of Business and Basis of Presentation This note describes the company's corporate history, organizational structure, and the basis for presenting its financial statements - Kaival Brands Innovations Group, Inc. (formerly Quick Start Holdings, Inc.) was incorporated on September 4, 2018, in the State of Delaware[26] - The company underwent a re-domestication merger (USSE Nevada into USSE Delaware) and a holding company reorganization in September 2018, leading to its current structure[28][31] - On February 20, 2019, Kaival Holdings, LLC (KH) became the controlling stockholder, owning 504,000,000 shares, representing approximately 88.06% of the company's issued and outstanding common stock[36][39] - As of July 31, 2019, the Company had not yet commenced any business operations[40] Note 2 – Going Concern This note addresses the company's ability to continue operations, highlighting financial challenges and reliance on future funding - The Company's financial statements are prepared under the going concern assumption, but adverse conditions such as operating loss and working capital deficiency raise substantial doubt about its ability to continue for one year[42][43] - The Company has no established source of revenue and plans to fund operating expenses through related party contributions to capital, with no assurance of success[44] Note 3 – Stockholder Equity This note details contributions made by officers and directors, impacting the company's additional paid-in capital - The Company's CEO, Mr. Nirajkumar Patel, contributed $6,000 for expenses during the nine months ended July 31, 2019, recorded as additional paid-in capital[45] - The Company's COO, Mr. Eric Mosser, contributed $4,335 for expenses during the nine months ended July 31, 2019, recorded as additional paid-in capital[46] - A former officer and director, Paul Moody, contributed $7,335 for expenses during the nine months ended July 31, 2019, recorded as additional paid-in capital[47] Note 4 – Related-Party Transactions This note discloses transactions and arrangements with related parties, including the use of management's home office space - The Company utilizes the home office space and equipment of its management at no cost[48] Note 5 – Subsequent Events This note reports significant events that occurred after the balance sheet date, impacting the company's financial position - Subsequent to July 31, 2019, the Chief Executive Officer contributed an additional $26,400 for legal fees, considered a contribution to the Company with no expectation of repayment[49] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity. It reiterates the corporate history, current lack of business operations, and ongoing search for opportunities in the e-cigarette, vaporizer, and CBD industries. The company's status as a 'blank check' and 'shell company' is highlighted, along with its reliance on related-party funding and significant going concern risks Corporate History This section traces the company's formation, corporate reorganizations, and name change up to July 2019 - The Company was incorporated on September 4, 2018, in the State of Delaware[52] - A series of corporate reorganizations, including a re-domestication merger and a holding company reorganization, occurred in September 2018, leading to the Company's current structure[54][57] - On October 22, 2018, all Convertible Series A and Series B preferred stock were converted into common stock, and these preferred stock classes were subsequently cancelled[60] - Effective July 12, 2019, the company changed its corporate name from Quick Start Holdings, Inc. to Kaival Brands Innovations Group, Inc[62][63] Business Overview This section describes the company's limited organizational efforts, exploration of new business opportunities, and reliance on officer funding - Since inception, the Company has been engaged in limited organizational efforts and is currently exploring business opportunities, potentially in the electronic cigarettes, vaporizers, and CBD industries[64] - The principal business objective for the next 12 months and beyond is to achieve long-term growth potential through a business combination or commencement of business operations, rather than immediate, short-term earnings[64] - The Company does not currently engage in any business activities that provide cash flow and is entirely reliant upon cash contributions from its officers and directors to pay for expenses[69] - Anticipated costs for filing Exchange Act reports are approximately $15,000 or more, and potential merger or acquisition expenses are estimated between $10,000 and $20,000 or more[70][71] Going Concern This section discusses the company's financial viability, highlighting negative working capital and dependence on external capital - The Company has negative working capital, a stockholder deficit, and no source of revenues, which collectively raise substantial doubt about its ability to continue as a going concern[73] - The Company's ability to continue as a going concern is dependent upon its ability to develop additional sources of capital, locate and complete a merger with another company, or otherwise commence profitable business operations[73] Liquidity and Capital Resources This section analyzes the company's financial resources, including its lack of assets, current liabilities, and funding needs - As of July 31, 2019, the Company had no assets and current liabilities totaling $30,650, consisting solely of accrued expenses[74] - The Company had no cash flows from operating activities for the nine months ended July 31, 2019, and has generated no revenues since its inception[75] - The Company is dependent upon capital investment or other financing, and continued funding from certain related parties, with no assurance that such funding will be available on reasonable terms[75] Results of Operations This section reviews the company's financial performance, noting the absence of revenue and reported net losses - The Company has not conducted any active operations or generated any revenue since its inception on September 4, 2018, through July 31, 2019[76] - The Company reported net losses of $27,135 for the three months and $45,320 for the nine months ended July 31, 2019, primarily attributable to general and administrative expenses[77] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements with material financial impact - The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[78] "Blank Check" and Shell Company This section clarifies the company's status as a 'blank check' and 'shell company' under SEC regulations - The Company is considered a 'blank check' company, defined as a development stage company issuing penny stock with no specific business plan or purpose, or intending to merge with an unidentified company[80] - The Company also qualifies as a 'shell company' under Rule 12b-2 of the Exchange Act, having no or nominal assets (other than cash) and no or nominal operations[80] Emerging Growth Company This section explains the company's designation as an 'emerging growth company' and its associated regulatory exemptions - The Company is an 'emerging growth company' under the JOBS Act, which provides exemptions from certain financial disclosure and governance requirements for up to five years[81] - The Company has elected to use the extended transition period for complying with new or revised accounting standards, which may result in its financial statements not being comparable to companies that comply with public company effective dates[81] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a 'smaller reporting company' as defined by Item 10 of Regulation S-K, Kaival Brands Innovations Group, Inc. is not required to provide quantitative and qualitative disclosures about market risk in this report - The Company is not required to provide the information regarding quantitative and qualitative disclosures about market risk due to its status as a 'smaller reporting company'[82] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were ineffective as of July 31, 2019, primarily due to a material weakness in internal control over financial reporting. No material changes in internal control over financial reporting occurred during the quarter Evaluation of Disclosure Controls and Procedures This section reports management's assessment of the company's disclosure controls and their effectiveness - Management concluded that the company's disclosure controls and procedures were not effective as of July 31, 2019[83] - The ineffectiveness was attributed to a material weakness in the company's internal control over financial reporting[83] Changes in Internal Control over Financial Reporting This section confirms no material changes in the company's internal control over financial reporting during the quarter - During the quarter ended July 31, 2019, there was no change in the company's internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[85] PART II Other Information This section covers various non-financial disclosures, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company reported no material pending legal proceedings, aside from ordinary routine litigation incidental to its business - There are no material pending legal proceedings, as defined by Item 103 of Regulation S-K, to which the company is a party or of which any of its property is the subject, other than ordinary routine litigation incidental to the Company's business[87] Item 1A. Risk Factors As a 'smaller reporting company' as defined by Item 10 of Regulation S-K, the company is exempt from providing risk factor disclosures in this report - The Company is not required to provide the information regarding risk factors due to its status as a 'smaller reporting company'[88] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period covered by this report - There were no unregistered sales of equity securities and use of proceeds to report[89] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities to report[90] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - There were no mine safety disclosures to report[91] Item 5. Other Information The company reported no other information requiring disclosure in this section - There was no other information to disclose[92] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report, including corporate organizational documents such as the Restated Certificate of Incorporation and Bylaws, as well as certifications by the Chief Executive Officer and Chief Financial Officer - Exhibits filed include the Restated Certificate of Incorporation, Bylaws, Certificate of Ownership and Merger, Certificate of Correction, and certifications by the Chief Executive Officer and Chief Financial Officer[95] Signatures This section provides the official signature and title of the authorized signatory for the report - The report was duly signed on September 10, 2019, by Nirajkumar Patel, who serves as the President, Chief Executive Officer, and Chief Financial Officer of Kaival Brands Innovations Group, Inc[99]