Kaival Brands(KAVL) - 2025 Q1 - Quarterly Report

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]