Kaival Brands(KAVL) - 2020 Q4 - Annual Report

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].