KAVL 10-Q
Kaival Brands Innovations Group, Inc. (KAVL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ___________ to ____________
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Indicate by check mark whether the registrant (1) has filed all reports
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period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Emerging growth company |
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As of September 10, 2026, there were shares of common stock, $0.001 par value, outstanding.
KAIVAL BRANDS INNOVATIONS GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
| Item | Page | |
| Cautionary Note Concerning Forward-Looking Statements | ii | |
| PART I | Financial Information | F-1 |
| Item 1. | Financial Statements | F-1 |
| Unaudited Consolidated Balance Sheets | F-1 | |
| Unaudited Consolidated Statements of Operations | F-2 | |
| Unaudited Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | F-3 | |
| Unaudited Consolidated Statements of Cash Flows | F-5 | |
| Notes to Unaudited Consolidated Financial Statements | F-6 | |
| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 |
| Liquidity and Capital Resources | 3 | |
| Results of Operations | 3 | |
| Emerging Growth Company | ||
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 5 |
| Item 4 | Controls and Procedures | 5 |
| PART II | Other Information | 6 |
| Item 1. | Legal Proceedings | 6 |
| Item 1A. | Risk Factors | 6 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 6 |
| Item 3 | Defaults Upon Senior Securities | 6 |
| Item 4 | Mine Safety Disclosures | 6 |
| Item 5 | Other Information | 6 |
| Item 6 | Exhibits | 7 |
| Signatures | 8 | |
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information included in this Quarterly Report on Form 10-Q for the quarter ended July 31, 2026 (this “Report”) contain or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. We generally use the words “may,” “should,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “likely,” “estimate,” “potential,” “continue,” “will,” and similar expressions to identify forward-looking statements. Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results, including, without limitation, statements related to:
| ● | our substantial reliance on, and efforts to diversify our business from, the business of our affiliate Bidi Vapor, LLC (“Bidi”); | |
| ● | our inability to import and sell the Bidi Stick due to a patent infringement claim filed by R.J. Reynolds Vapor Company, R.J. Reynolds Tobacco Company, and RAI Services Company with the International Trade Commission (the “ITC”) against Bidi, us, and forty (40) other respondents (the “ITC Complaint”) and the ongoing investigation of the ITC in connection with the ITC Complaint; | |
| ● | our ability to raise required funding in the form of debt or equity both in the near and longer term; | |
| ● | whether we will realize any value or benefit from the intellectual property assets we acquired from GoFire, Inc. on May 30, 2023; | |
| ● | the impact of the FDA’s marketing denial order (“MDO”) in January 2024 regarding the Classic BIDI® Stick tobacco-flavored ENDS product, and the November 2025 MDO for the non-tobacco flavored BIDI® Sticks, which has the potential to have a substantial adverse impact on our company; | |
| ● | the denial of Bidi Vapor’s petition with the 11th Circuit Court of Appeals regarding the January 2024 MDO related to Classic BIDI® Stick; | |
| ● | our substantial reliance on our relationship with, and the results of marketing and sales activity by, Philip Morris International, to whom we have licensed international rights to distribute Bidi products and from whom we are entitled to receive royalty payments, which are currently our primary source of revenue; | |
| ● | the impact of government regulation, laws or consumer preferences generally, or changes thereto, that could affect our business; and circumstances or developments that may make us unable to implement or realize the anticipated benefits, or that may increase the costs of, our current and planned business initiatives, including matters over which we have little or no control. |
ii
Forward-looking statements, including those concerning our expectations, involve significant risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance, or achievements, or industry results to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” section contained in this Report and the section “Risk Factors” in our Annual Report on Form 10-K for the year ended October 31, 2025, for a listing of some of the factors that could cause the results anticipated by our forward-looking statements to differ from actual future results. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Report.
Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report on Form 10-Q. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.
Potential investors should not make an investment decision based solely on our projections, estimates or expectations.
iii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Kaival Brands Innovations Group, Inc.
Consolidated Balance Sheets
(Unaudited)
| July 31, 2026 | October 31, 2025 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Equity investment | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Preferred stock; 5,000,000 shares authorized | ||||||||
| Series A Convertible Preferred stock ($ par value, shares authorized, issued and outstanding as of July 31, 2026 and October 31, 2025) | ||||||||
| Series B Convertible Preferred stock ($ par value, shares authorized, issued and outstanding as of July 31, 2026 and October 31, 2025) | ||||||||
| Common stock ($ par value, shares authorized, and shares issued and outstanding as of July 31, 2026 and October 31, 2025, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-1
Kaival Brands Innovations Group, Inc.
Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended July 31, | For the Nine Months Ended July 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenues | ||||||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Royalty revenue | ||||||||||||||||
| Total revenues, net | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Loss on ROU asset | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Other income (expense) | ||||||||||||||||
| Loss on disposal of furniture and equipment | ( |
) | ||||||||||||||
| Interest income (expense), net | ( |
) | ( |
) | ||||||||||||
| Total other income (expense) | ( |
) | ( |
) | ||||||||||||
| Loss before income taxes provision | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Benefit from (provision for) income taxes | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Preferred stock dividend | ( |
) | ||||||||||||||
| Net loss attributable to common shareholder | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-2
Kaival Brands Innovations Group, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Nine Months Ended July 31, 2026
(Unaudited)
| Convertible Preferred Shares (Series B) |
Par Value Convertible Preferred Shares (Series B) |
Common Shares |
Par Value Common Shares | Additional Paid-in Capital | Accumulated Deficit |
Total | ||||||||||||||||||||||
| Balances, October 31, 2025 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Common shares canceled for services | — | ( |
) | ( |
) | |||||||||||||||||||||||
| Issuance of common stock | — | |||||||||||||||||||||||||||
| Stock option expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balances, January 31, 2026 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Common shares issued for services | — | |||||||||||||||||||||||||||
| Stock option expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balances, April 30, 2026 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Vesting of restricted stock | — | — | ||||||||||||||||||||||||||
| Stock option expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balances, July 31, 2026 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-3
Kaival Brands Innovations Group, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
For the Nine Months Ended July 31, 2025
(Unaudited)
| Par Value | ||||||||||||||||||||||||||||
| Convertible | Convertible | |||||||||||||||||||||||||||
| Preferred | Preferred | Par Value | Additional | |||||||||||||||||||||||||
| Shares | Shares | Common | Common | Paid-in | Accumulated | |||||||||||||||||||||||
| (Series B) | (Series B) | Shares | Shares | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances, October 31, 2024 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Common shares issued for services | — | |||||||||||||||||||||||||||
| Preferred stock dividend | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock option expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balances, January 31, 2025 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock option expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balances, April 30, 2025 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock option expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balances, July 31, 2025 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-4
Kaival Brands Innovations Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended | For the Nine Months Ended | |||||||
| July 31, 2026 | July 31, 2025 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Credit loss expense | ||||||||
| Stock based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Make-whole provision | ||||||||
| Loss on ROU Asset | ||||||||
| Loss on disposal of furniture and equipment | ||||||||
| Stock options expense | ||||||||
| ROU operating lease expense | ||||||||
| Changes in current assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Prepaid expenses | ||||||||
| Accounts payable | ||||||||
| Accounts payable - related party | ( |
) | ||||||
| Accrued expenses | ( |
) | ( |
) | ||||
| Accretion of discount on note receivable | ( |
) | ||||||
| Operating lease obligations | ( |
) | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Notes receivable | ( |
) | ||||||
| Net cash used in investing activities | ( |
) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Payments on loans payable | ( |
) | ||||||
| Payment on preferred dividends | ( |
) | ||||||
| Net cash provided by (used in) financing activities | ( |
) | ||||||
| Net change in cash | ( |
) | ( |
) | ||||
| Beginning cash balance | ||||||||
| Ending cash balance | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| NON-CASH TRANSACTIONS | ||||||||
| Common shares canceled | $ | $ | ||||||
| Equity securities received as consideration on note receivable | $ | |||||||
| Preferred stock dividend | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-5
KAIVAL BRANDS INNOVATIONS GROUP, INC.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Organization and Description of Business
Kaival Brands Innovations Group, Inc. (the “Company,” the “Registrant,” “we,” “us,” or “our”), formerly known as Quick Start Holdings, Inc., was incorporated on September 4, 2018, in the State of Delaware.
Kaival Holdings, LLC is a minority common stockholder of the Company. Holdings is not a party to the distribution agreement with Bidi, the KBI License Agreement, the PMI License Agreement, or any other operating contract with the Company.
Description of Business
On March 11, 2022, the Company formed Kaival Brands International, LLC, a Delaware limited liability company (herein referred to as “KBI”), as a wholly owned subsidiary of the Company, for the purpose of entering into an international licensing agreement with Philip Morris Products S.A. (“PMPSA”), a wholly owned affiliate of Philip Morris International Inc. (“PMI”).
On June 13, 2022, the Company’s wholly owned subsidiary, KBI, entered into the PMI License Agreement with PMPSA, a wholly owned affiliate of PMI, for the development and distribution of ENDS products in certain markets outside of the United States, subject to market (or regulatory) assessment. The PMI License Agreement grants to PMPSA a license of certain intellectual property rights relating to Bidi’s ENDS device, known as the BIDI® Stick in the United States, as well as potentially newly developed devices, to permit PMPSA to manufacture, promote, sell, and distribute such ENDS device and newly developed devices, in international markets, outside of the United States. Our primary source of revenue is from KBI royalties from PMI under the PMI License Agreement.
Historically, the Company’s business focused on the sale, marketing and distribution of ENDS products, primarily the BIDI® Stick disposable e-cigarette product manufactured by Bidi. Under an exclusive distribution agreement with Bidi, the Company distributed BIDI® Stick products to wholesalers and retailers within the United States and generated revenue primarily from the resale of these products. Beginning in 2024, the Company significantly reduced and ultimately ceased its ENDS distribution activities due to regulatory developments affecting ENDS products in the United States, including FDA marketing denial orders and patent litigation involving Bidi products. As a result, the Company no longer generates revenue from the distribution of ENDS products and has transitioned its focus toward royalty revenue generated under its international licensing agreement with Philip Morris Products S.A. and the development and monetization of intellectual property assets.
Note 2 – Basis of Presentation and Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company’s wholly-owned subsidiaries, Kaival Labs and Kaival Brands International. Intercompany transactions are eliminated.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent audited financial statements contained within the Company’s Annual Report on Form 10-K, filed with the SEC on January 29, 2026 (the “2025 Annual Report”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full fiscal year. Notes to the consolidated financial statements, which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period as reported in the 2025 Annual Report, have been omitted.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
F-6
Cash
The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash equivalents. There were
The Federal Deposit Insurance Corporation (“FDIC”)
insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit
insurance coverage limit is $
Advertising and Promotion
All advertising, promotion and marketing expenses, including commissions, are expensed when incurred.
Accounts Receivable and Reserve for Credit Loss
Accounts receivable pertain to contracts with customers who are granted credit by the Company in the ordinary course of business and are recorded at the invoiced amount. Accounts receivable does not bear interest. Accounts receivable presented on the consolidated balance sheet are adjusted for any write-offs and net of allowance for credit losses. The Company’s reserve for credit losses is developed by using relevant available information including historical collection and loss experience, current economic conditions, prevailing economic conditions, supportable forecasted economic conditions and evaluations of customer balances. Once a receivable is deemed uncollectible after collection efforts have been exhausted, it is written off against the reserve for credit losses. The Company closely monitors the credit quality of its customers and does not generally require collateral or other security on receivables. The reserve for credit losses is measured on a collective basis when similar risk characteristics exist.
Based upon management’s assessment of the accounts
receivable aging and the customers’ payment history, the Company has determined that
Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and revenue. The Company performs periodic credit evaluations of its customers and generally does not require collateral on trade receivables. Historically, the Company has not experienced significant credit losses.
Leases
The Company determines if a contract contains a lease at commencement of the arrangement based on whether it has the right to obtain substantially all of the economic benefits from the use of an identified asset and whether it has the right to direct the use of an identified asset in exchange for consideration, which relates to an asset which the Company does not own. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company recognizes lease liabilities at the present value of the future lease payments and a corresponding ROU asset at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the rate implicit in the lease unless that rate cannot be readily determined. When the interest rate implicit in the lease is not readily determinable, the interest rate used to determine the present value of the future lease payments is the Company’s Incremental Borrowing Rate (“IBR”). The IBR is a hypothetical rate based on the Company’s understanding of what its credit rating would be to borrow and resulting interest the Company would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized basis. Periods covered by the Company’s option to extend or terminate the lease are included in the lease term when it is reasonably certain that the Company will exercise its option to extend or not exercise its option to terminate, as applicable.
F-7
Lease payments may be fixed or variable; however, only fixed payments or in-substance fixed payments are included in the Company’s lease liability calculation. Variable lease payments may include costs such as common area maintenance, utilities, real estate taxes or other costs. Variable lease payments are recognized in operating expenses in the period in which the obligations for those payments are incurred. The Company records rent expense for its operating lease, which has escalating rent payments, on a straight-line basis over the lease term. The Company does not have any financing leases.
The Company made a policy election not to separate non-lease components from lease components for all its leases; therefore, it accounts for lease and non-lease components as a single lease component. The Company also elected the short-term lease recognition exemption for all leases that qualify, such that leases with a term of 12 months or less are not recognized on the balance sheet.
During the fiscal year ended October 31, 2025, the Company determined that it would no longer be using the leased office space in its business operations and wrote off the related right-of-use assets and liability accounts.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, which includes definite-lived intangibles, long-lived fixed assets and lease right-of-use assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the long-lived asset may be impaired, the Company makes an assessment of the recoverability of the net carrying value of the asset over its remaining useful life. If this assessment indicates that the long-lived asset is not recoverable, based on the estimated undiscounted future cash flows of the technology over the remaining useful life, the Company reduces the net carrying value of the related asset to fair value and may adjust the remaining useful life. An impairment analysis is subjective and assumptions regarding future growth rates and operating expense levels can have a significant impact on the expected future cash flows and impairment analysis.
The Company evaluated its intangible assets for impairment
and recognized an impairment loss of $
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company recognizes revenue when a customer obtains control of promised goods, in an amount that reflects the consideration that the Company expects to receive in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to the customer. Under ASC 606, disaggregated revenue from contracts with customers depicts the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors.
F-8
Royalty Revenue
On June 13, 2022, KBI entered into the PMI License Agreement with PMPSA, effective as of May 13, 2022 (the “PMI Commencement Date”). Pursuant to the PMI License Agreement, KBI granted PMPSA an exclusive irrevocable license to use its technology, documentation, and intellectual property to make, distribute, and sell disposable nicotine e-cigarettes Products based on the intellectual property in certain international markets set forth in the PMI License Agreement (the “PMI Markets”). The Company has the exclusive international distribution rights to the Products and, in order to allow KBI to fulfill its obligations set forth in the PMI License Agreement, has contributed the international distribution rights for the PMI Markets to KBI as set forth in a Capital Contribution Agreement, dated June 10, 2022. The sublicense granted to PMPSA is exclusive in the PMI Markets and neither KBI nor any of its affiliates can sell, promote, use, or distribute any competing products in the PMI Markets for the duration of the term of the PMI License Agreement and any Sell-Out Period (as defined in the PMI License Agreement). PMPSA will be responsible for any regulatory filings necessary to sell the Products in the PMI Markets. Both KBI and PMPSA agree to work together in the registration and maintenance of the Intellectual Property, but KBI will bear all cost and expense to implement the registration strategy. Finally, PMPSA has agreed to potential future development services with KBI in the PMI Markets and has been granted certain rights with respect to potential future products.
The initial term of the PMI License Agreement is five (5) years and automatically renews for an additional five-year period unless PMPSA has failed to meet the agreed upon minimum key performance indicators set forth in the PMI License Agreement, in which case the PMI License Agreement will automatically terminate at the end of the initial license term.
F-9
In consideration for the grant of the licensed rights, PMPSA agreed to pay to KBI a royalty equal to a percentage of the base price of the first sale of each unit of Product manufactured. In addition, before the launch of the first product in a market and each anniversary of such launch, PMPSA agrees to pre-pay to KBI a guaranteed minimum royalty based on the estimated royalties payable by PMPSA to KBI in relation to all markets in the twelve (12)-month period following the first launch or each successive anniversary of the first launch, subject to an aggregate maximum guaranteed royalty payment for all markets for each applicable twelve (12)-month period. PMPSA may require modification of certain products to be sold under the PMI Licensing Agreement to be modified for a PMI Market. Pursuant to the PMI Licensing Agreement, PMPSA has absolute discretion over sales, marketing, product branding and packaging pertaining to sales in the PMI Markets, as well as the right to select the specific PMI Markets in which to launch commercialization and determine what product types are to be promoted in each market, subject to sales and marketing plans and annual business plans set by PMPSA and certain expansion criteria agreed between PMPSA and KBI. Royalty revenue earned from the PMI License Agreement is recognized in the period the sales of the Product manufactured occurs.
The PMI License Agreement contains customary representations, warranties, covenants, and indemnification provisions; however, KBI’s liability under the PMI License Agreement is capped at the greater of: (i) Ten Million Dollars ($10,000,000); or (ii) an amount equal to the total of the royalties due to KBI (but not yet paid) plus the royalties (including the guaranteed royalty payment) paid to KBI pursuant to the PMI License Agreement during the immediately preceding twelve (12) consecutive months, provided that such amount shall not exceed Thirty Million Dollars ($30,000,000).
On June 10, 2022, Bidi entered into a License Agreement (the “KBI License Agreement”) with KBI, pursuant to which KBI has the exclusive irrevocable license to use Bidi’s licensed intellectual property to the extent necessary for KBI to fulfill its obligations set forth in the PMI Licensing Agreement. Such irrevocable license includes: (i) the right of KBI to grant sub-licenses to PMPSA under the PMI License Agreement for the express purposes set forth in the PMI License Agreement, but for no other purpose; (ii) the right of KBI to grant to PMPSA the right to grant sub-sub-licenses in the manner set forth in the PMI License Agreement, but for no other purpose; and (iii) certain branding rights to the extent (but only to the extent) necessary to permit KBI to perform its obligations to PMPSA as set forth in the PMI License Agreement.
On August 12, 2023, the Company executed and entered into a Deed of Amendment No. 1 (the “PMI License Amendment”) with PMPSA, Bidi and KBI. Pursuant to the PMI License Amendment (which has an effective date of June 30, 2023), the following material changes have been made to the PMI License Agreement:
1.
2. Elimination of Certain Potential Royalty Adjustments. Certain potential adjustments to the royalties receivable by KBI as provided for in the PMI License Agreement have been eliminated.
3. Guaranteed Royalty. The guaranteed royalty payment owed to KBI under the PMI License Agreement has been eliminated. Instead, royalties will be paid on a quarterly basis going-forward based on actual sales. Any unpaid guaranteed royalty has been cancelled.
4. Insurance Tail Requirements. KBI’s requirement to keep certain tail insurance after the expiration or termination of the PMI Licensing Agreement was reduced from 6 years to 2 years.
5. Markets. The identification of the PMI Markets that PMI may enter has been expanded to cover certain additional territories.
F-10
6. Net Reconciliation Payment to KBI. As a result of the changes to the PMI License Agreement described in paragraphs 1 through 3 above, the value of such changes was calculated and reconciled as of the date of commencement of the PMI Licensing Agreement through June 30, 2023.
The KBI License Agreement provides that KBI
shall pay Bidi license fees equivalent to 50% of the adjusted earned royalty payments, after any offsets due to jointly agreed costs
such development costs incurred for entry to specific international markets. The Company paid license fees to Bidi of $
As of July 31, 2026 and October 31, 2025,
amounts receivable from PMPSA in connection with the PMI License Agreement totaled $
Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, without consideration of potential common stock equivalents.
Diluted net loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common stock outstanding plus common share equivalents from conversion of dilutive stock options and warrants using the treasury method and preferred stock using the if-converted method, except when antidilutive. In the event of a net loss, the effects of all potentially dilutive shares are excluded from the diluted net loss per share calculation as their inclusion would be antidilutive.
The Company measures the cost of services received in exchange for an award of equity instruments (share-based payments, referred to herein as “SBP”) based on the grant-date fair value of the award. That cost is recognized over the period during which a recipient is required to provide service in exchange for the SBP award—the requisite service period (vesting period). For SBP awards subject to performance conditions, compensation is not recognized until the performance condition is probable of occurrence. The grant-date fair value of share options is estimated using the Black-Scholes-Merton option-pricing model.
F-11
Fair Value of Financial Instruments
The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| ● | Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| ● | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| ● | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. |
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of July 31, 2026 and October 31, 2025. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, accounts receivable, accounts payable, accrued expenses and loans payable. As of July 31, 2026 and October 31, 2025, the Company did not have any financial assets or liabilities measured and recorded at fair value on a recurring basis.
Recent Accounting Pronouncements – Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires additional disclosures reconciling the rates of different categories of income tax (i.e. federal, state, foreign, etc.) and a disaggregation of taxes paid and refunded. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and for interim periods in fiscal years beginning after December 15, 2025, although early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its income tax disclosures.
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Note 3 – Going Concern
Our accompanying consolidated financial statements are prepared in accordance with U.S. GAAP applicable to a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued.
In accordance with Financial Accounting Standards Board (or FASB), Accounting Standards Update (or ASU) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying financial statements are issued.
As shown in the accompanying consolidated financial statements, we have incurred recurring losses and negative cash flows from operations for the nine months ended July 31, 2026. We will need significant additional funds to satisfy our outstanding payables, fund our working capital, and fully implement our business plan. U.S. distribution of BIDI® Stick products has ceased. Our ability to continue as a going concern depends on royalty receipts under the PMI License Agreement and our ability to raise additional capital. FDA marketing-denial orders applicable to Bidi’s products and the ITC patent proceeding involving those products may continue to affect royalty receipts. All of these factors raise substantial doubt regarding our ability to continue as a going concern.
There can be no assurance that we will be able to obtain additional capital or generate revenues sufficient to sustain operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these or other risks or uncertainties.
Note 4 – Leases
During fiscal year 2025, the Company had an operating lease for office and inventory storage space with Just Pick, LLC.
Cash flow information related to the above-mentioned lease was as follows:
| July 31, 2026 | July 31, 2025 | |||||||
| Other Lease Information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ( |
) | ||||
On April 23, 2025, the Company received a letter of
demand from Just Pick, LLC, noting that the Company was in breach of the lease as base rent and operating expenses have not been paid
since January 8, 2025. On April 30, 2025, the Company responded and provided Just Pick, LLC with a termination notice. As of April 30,
2025, the Company determined that it would no longer be using the leased office space in its business and recorded a loss on the ROU assets
of $
On January 7, 2026, the Company executed a settlement
agreement with Just Pick where both parties agreed to no further payments remaining for the office lease liability. The lease liability
was written off as of October 31, 2025 and the Company recognized a net gain of approximately $
F-13
Note 5 – Notes Receivable
On March 17, 2026, the Company issued a $
On April 9, 2026, the Company issued a $
On July 30, 2026, the Company and the OTC company
agreed to extend the maturity date of the $
Based on management’s assessment of credit risk on the two note receivables, the Company recognized a credit risk reserve of $94,300 as of July 31, 2026. The Company’s Chief Executive Officer previously served as a consultant to the obligor on that note maturing on March 11, 2027. That consulting arrangement is inactive, and he holds no equity of the obligor issued as compensation.
Note 6 – Stockholders’ Equity
Series B Convertible Preferred Stock
On May 30, 2023, the Company issued 900,000 shares
of the Series B Preferred Stock as consideration for the GoFire asset purchase. The Series B Preferred Stock carries no voting rights
except: (i) with respect to the ability of the holders of a majority of the then outstanding Series B Preferred Stock (the “Majority
Holders”), to nominate a director to the Company’s board of directors, and (ii) that the vote of the Majority Holders is necessary
for effecting any amendment to the Company’s Certificate of Incorporation or Certificate of Designation that affects the Series
B Preferred Stock. The Series B Preferred Stock is redeemable at the option of the Company at a redemption price of $ per share, subject
to potential downward adjustments based on the trading price of the Common Stock. Subject to additional limitations in the GoFire APA,
the Series B Preferred Stock holds seniority over the Common Stock and each other class of series of securities now existing or hereafter
authorized with respect to dividend rights, the distribution of assets upon liquidation, and dissolution and redemption rights. Upon a
liquidation and winding up of the Company, the holders of Series B Preferred Stock are entitled to a liquidation preference of $15 per
share (the “Liquidation Preference”), though the redemption may be adjusted downward based on the trading price of the Common
Stock at the time of liquidation. The holders of Series B Preferred Stock are entitled to receive a dividend equal to 2% of the Liquidation
Preference, accruing from the Closing Date and payable on the eighteen-month anniversary of the Closing Date. Amounts payable in respect
of the Series B Dividend shall begin to accrue on a daily basis, be cumulative from and including the Original Issue Date, whether or
not the Corporation has funds legally available for such dividends or such dividends are declared, shall compound on each six month anniversary
of the Original Issue Date and shall be payable in arrears on the 18-month anniversary of the Original Issue Date. No preemptive rights
are granted to the holders of Series B Preferred Stock. The Majority Holders have the ability to cause a voluntary conversion of the Series
B Preferred Stock into Common Stock at a conversion rate of 0.3968 shares of Common Stock per share of Series B Preferred Stock which
may only occur on or after the following dates 18-month, 24 month, 36 month, 48 month, and 60 month anniversary of the original issuance
date; and only up to 180,000 shares of Series B Preferred Stock on each of these dates. All shares of Series B Preferred Stock will automatically
convert to Common Stock upon the occurrence of a Change of Control (as defined in the GoFire APA). On December 3, 2024, the Company paid
accrued dividends of $
Pursuant to the GoFire APA, the Company is required
to use commercially reasonable efforts to register the APA Shares and Warrant Shares with the SEC for distribution to GoFire’s stockholders
and/or public resale by such stockholders within 180 days of the Closing Date. In addition, if any Series B Preferred Stock remains outstanding
nineteen (19) months after the Closing Date, the Company shall use commercially reasonable efforts to file with the SEC a subsequent registration
statement registering the distribution to GoFire’s stockholders and/or public resale Series B Conversion Shares by such stockholders.
If such subsequent registration statement is required, the Company will use its commercially reasonable efforts to obtain effectiveness
of such subsequent registration statement within nineteen (19) months of the Closing Date, and if the Company does not so register the
Series B Conversion Shares within nineteen (19) months of the Closing Date, the Company will issue to GoFire or its designee an additional
ten percent (10%) of all of the Series B Conversion Shares underlying the then outstanding shares of Series B Preferred Stock. All of
the securities issued as consideration for the Purchased Assets are subject to a lock-up agreement that terminates one hundred eighty
(180) days from the Closing Date. As of July 31, 2026, the Company has accrued the additional ten percent (10%) of all of the Series
B Conversion Shares of $
F-14
Common Stock
During the nine months ended July 31, 2026, the Company canceled fully vested shares of common stock previously issued to directors and officers in connection with the termination of the merger and share exchange agreement with Delta.
During the three and nine months ended July 31,
2026, the Company issued zero and shares of common stock, respectively, to directors and officers pursuant to grants under the
Company's Amended and Restated 2020 Stock and Incentive Compensation Plan. The restricted shares vest as to shares immediately
upon the date of grant, with the remaining shares vesting at a rate of shares per quarter over the following 12 quarters,
subject to continued service. As of July 31, 2026, shares had vested and shares remained unvested. The Company recognized
stock compensation cost of $
During the three and nine months ended July 31, 2025,
the Company issued zero and fully vested shares of common stock, respectively, to directors, officers and an employee pursuant
to grants under the Company’s Amended and Restated 2020 Stock and Incentive Compensation Plan. During the three and nine months
ended July 31, 2025, the Company recognized stock compensation cost of zero and $
Stock Options
Summary of stock options information is as follows:
| Aggregate | Aggregate | Exercise Price | WA Exercise | |||||||||||||
| Number | Exercise Price | Range | Price | |||||||||||||
| Outstanding, October 31, 2025 | $ | $ | - | $ | ||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Cancelled, forfeited, or expired | ||||||||||||||||
| Outstanding, July 31, 2026 | $ | - | ||||||||||||||
| Exercisable, July 31, 2026 | $ | $ | - | $ | ||||||||||||
On March 31, 2026, the
Company granted
During the three and nine
months ended July 31, 2026, the Company recognized $
As of July 31, 2026, the Company had $
Warrants
Warrant information as of the periods indicated is as follows:
| Weighted | ||||||||||||||||
| Aggregate | Exercise | Average | ||||||||||||||
| Aggregate Number |
Exercise Price |
Price Range |
Exercise Price | |||||||||||||
| Outstanding, October 31, 2025 | $ | $ | - | $ | ||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Cancelled, forfeited, or expired | ||||||||||||||||
| Outstanding, July 31, 2026 | $ | $ | - | $ | ||||||||||||
| Exercisable, July 31, 2026 | $ | $ | - | $ | ||||||||||||
The weighted average remaining contractual life is approximately years for common stock warrants outstanding as of July 31, 2026. As of July 31, 2026, there was intrinsic value of outstanding stock warrants.
F-15
Note 7 – Related-Party Transactions
License Fees and Accounts Payable
Bidi is a related party of the Company. The Company and Bidi remain parties to an exclusive U.S. distribution agreement, under which the Company no longer generates product revenue, and to the KBI License Agreement, under which KBI pays Bidi 50% of adjusted earned royalties received under the PMI License Agreement.
During the three and nine months ended July 31, 2026,
the Company paid license fees of approximately $
During the three and nine months ended July 31, 2025,
the Company paid license fees of approximately $
Note 8 – Subsequent Events
On August 15, 2026, the Company granted a non-qualified option to purchase shares of common stock to a director, with an exercise price of $0.0273 per share and a term of 10 years. The options vested on the earlier of December 31, 2026 or the consummation of a change in control as defined in the stock option agreement.
F-16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto for the nine months ended July 31, 2026, included under Item 1 – Financial Statements in this Report and our audited financial statements and notes thereto for the year ended October 31, 2025, contained in the 2025 Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Report regarding forward-looking statements.
Overview
We were previously engaged in the sale, marketing and distribution of electronic nicotine delivery system (“ENDS”) products, also known as “e-cigarettes”, in a variety of flavors. Until October of 2024, our primary source of revenue has been the Bidi Stick as we sold our inventory on hand. However, on June 11, 2024, RAI Strategic Holdings, Inc., R.J. Reynolds Vapor Company, R.J. Reynolds Tobacco Company, and RAI Services Company (collectively, the “RJ Reynolds Entities”) filed a patent infringement complaint with the International Trade Commission (the “ITC”) against Bidi, us, and forty (40) other respondents (the “ITC Complaint”) pursuant to Section 337 of the Tariff Act of 1930, as amended. Specifically, the ITC Complaint alleges that one or more components or elements of the Bidi Stick infringe U.S. Patent No. 11,925,202, which is owned by one of the RJ Reynolds Entities. The ITC Complaint requests the ITC grant: (a) temporary and permanent limited exclusion orders pursuant to Section 337(e) of the Tariff Act of 1930, as amended, which would prohibit the importation of the Bidi Stick in the United States; and (b) issue temporary and permanent cease and desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended, which would prohibit the sale and distribution of the Bidi Stick in the United States. No damages are recoverable in the proceedings before the ITC. Since the initiation of the ITC Complaint, we have not imported any Bidi Sticks and currently do not generate any revenue from the sale of Bidi Sticks. Our current primary source of revenue is through an international licensing agreement with Philip Morris Products S.A. (“PMPSA”), a wholly owned affiliate of Philip Morris International Inc. (“PMI”).
We have also entered into a Merger and Share Exchange Agreement (the “Merger Agreement”) with Delta Corp Holdings Limited, a company incorporated in England and Wales (together with its successors and assigns, “Delta”), Delta Corp Holdings Limited, a Cayman Islands exempted company (“Pubco”), KAVL Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Pubco (“Merger Sub”) and Delta Corp Cayman Limited (the “Sellers”).
On September 11, 2025, Kaival Brands Innovations Group, Inc., (the “Company”) and Delta Corp Holdings Limited, a company incorporated in England and Wales (together with its successors and assigns, “Delta”) entered into a Business Combination Termination and Release Agreement (the “Termination Agreement”) pursuant to Section 10.1(a) of the Merger Agreement (the “Merger Agreement") among the Company, Delta, Delta Corp Holdings Limited, a Cayman Islands exempted company, KAVL Merger Sub Inc. and Delta Corp Cayman Limited.
Pursuant to the Termination Agreement, the Company and Delta mutually terminated the Merger Agreement and all agreements between the parties that are ancillary thereto and Delta waived any and all claims against the other party that in any way directly and/or indirectly arise out of, are based upon, or are in connection with the Merger Agreement any agreements ancillary thereto.
Material Items, Trends and Risks Impacting Our Business
We believe that the following items and trends may be useful in better understanding our results of operations.
On June 11, 2024, the RJ Reynolds Entities filed the ITC Complaint. The ITC Complaint requests the ITC grant: (a) temporary and permanent limited exclusion orders pursuant to Section 337(e) of the Tariff Act of 1930, as amended, which would prohibit the importation of the Bidi Stick in the United States; and (b) issue temporary and permanent cease and desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended, which would prohibit the sale and distribution of the Bidi Stick in the United States. No damages are recoverable in the proceedings before the ITC. If the Company or Bidi is prohibited from importing the Bidi Stick, then our business, operations, financial results, and reputation would be significantly adversely impacted. Although Bidi disputes the patent infringement claims set forth in the ITC Complaint by the RJ Reynolds Entities, in December 2024 Bidi entered into a consent order agreeing to cease all importation and distribution of the Bidi Stick until the RJ Reynolds Entities’ patent expires in October 2026. In November 2024, the ITC Administrative Law Judge (ALJ) denied temporary relief to the Reynolds Entities and the case proceeded on the merits. A trial was held in April 2025. A decision from the ALJ is expected on July 21, 2025. The ALJ’s initial determination (ID) will be reviewed by the Commission and the Commission deadline is November 24, 2025, subject to potential extensions. The asserted patent expires in October 2026 as would any exclusion order that the ITC enters as a result of the ITC Complaint, as well as the Bidi consent order.
1
As a result of the ITC Complaint and other factors, we do not expect any significant revenue from the sale of Bidi Sticks in the foreseeable future. Our primary source of revenue is from KBI from royalties from PMI under the PMI License Agreement.
PMI Licensing Agreement and International Distribution
On June 13, 2022, we, through our wholly owned subsidiary, KBI, entered into the PMI License Agreement with PMPSA, a wholly owned affiliate of PMI, for the development and distribution of ENDS products in certain markets outside of the United States, subject to market (or regulatory assessment). The PMI License Agreement grants to PMPSA a license of certain intellectual property rights relating to Bidi’s ENDS device, known as the BIDI® Stick in the United States, as well as potentially newly developed devices, to permit PMPSA to manufacture, promote, sell, and distribute such ENDS device and newly developed devices, in international markets, outside of the United States.
On July 25, 2022, we announced the launch of PMPSA’s custom-branded self-contained e-vapor product, pursuant to the licensing agreement. The product, a self-contained e-vapor device initially called VEEBA and more recently rebranded as VEEV NOW, has been custom developed and was initially distributed in Canada. VEEV NOW was then commercially launched by PMPSA in Europe in February 2023, with additional market launches planned this year. On August 12, 2023, we executed and entered into a Deed of Amendment No. 1 (the “PMI License Amendment”) with PMPSA, Bidi and KBI. Pursuant to the PMI License Amendment (which was effective on June 30, 2023), resulting in a Net Reconciliation Payment to KBI and ongoing quarterly royalty payments.
The ability of PMPSA to generate sales of its licensed products is important to our results of operations since we derive royalty revenue from PMPSA sales. Should our relationship with PMPSA deteriorate or terminate, or if PMPSA is unable to generate meaningful sales of its licensed products, our business and results of operations would be materially harmed.
Ability to Develop and Monetize the GoFire Intellectual Property
We purchased certain vaporizer and inhalation-related technology from GoFire in May 2023 with the goal of diversifying our business and lessening our dependence on BIDI Vapor. We do not expect that the acquired assets will generate immediate revenue for us, and while we believe this to be a transformative acquisition for us and we are already seeking to develop and monetize the acquired assets, we can give no assurances at this time that either (i) the patent applications we acquired will eventuate in issued patents or (ii) we will be able to enter into successful monetizing arrangements with respect to these assets.
Inflation
Consumer purchases of tobacco products are historically affected by economic conditions, such as changes in employment, salary and wage levels, the availability of consumer credit, inflation, interest rates, fuel prices, sales taxes, and the level of consumer confidence in prevailing and future economic conditions. The U.S. has been experiencing an environment of material inflation in recent quarters, and this condition may impact discretionary consumer purchases, such as the BIDI® Stick. Demand for our Products may also decline during recessionary periods or at other times when disposable income is lower, and taxes may be higher.
Corporate History
We were incorporated on September 4, 2018, in the State of Delaware. Effective July 12, 2019, we changed our corporate name from Quick Start Holdings, Inc. to Kaival Brands Innovations Group, Inc. The name change was effected through a parent/subsidiary short-form merger of Kaival Brands Innovations Group, Inc., our wholly-owned Delaware subsidiary formed solely for the purpose of the name change, with and into us. We were the surviving entity.
2
Going Concern
In accordance with Financial Accounting Standards Board (or FASB), Accounting Standards Update (or ASU) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying financial statements are issued.
We will need significant additional funds to satisfy our outstanding payables, fund our working capital, and sustain operations. As discussed in Note 3, conditions and other factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
There can be no assurance that we will be able to obtain additional capital or generate revenues sufficient to sustain operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these or other risks or uncertainties.
Liquidity and Capital Resources
We believe we will not have sufficient cash on hand to support our operations for the next twelve months from the date of filing this report. As of July 31, 2026, we had a working capital deficit of $265,407 and total cash of $133,221. As discussed above, this condition and other factors raise substantial doubt regarding our ability to continue as a going concern.
We will need to raise additional capital to fund our operations. There can be no assurance that capital will be available to us on reasonable terms, if at all. Should capital not be available on acceptable terms, we may be required to take other actions to preserve liquidity. These matters are subject to numerous risks and uncertainties, including market conditions, regulatory considerations, and other factors beyond the Company’s control.
Cash Flows:
Net cash flows used in operations was approximately $1.3 million for the first nine months of fiscal year 2026, compared to $2.0 million cash flows used by operations for the first nine months of fiscal year 2025. The decrease in cash flows used in operations for the first nine months of fiscal year 2026 compared to the first nine months of fiscal year 2025 was primarily due to the decrease of accrued expenses, depreciation and amortization, and stock- based compensation.
Net cash flows provided by financing activities was approximately $1.0 million for the first nine months of fiscal year 2026, compared to cash flows used in financing activities of approximately $0.6 million for the first nine months of fiscal year 2025. The cash provided by financing activities for the first nine months of fiscal year 2026 consisted primarily of proceed from the issuance of Common Stock.
Results of Operations
Three months ended July 31, 2026, compared to three months ended July 31, 2025
Revenues:
Revenues for the third quarter of fiscal year 2026 were approximately $55 thousand, compared to approximately $142 thousand in the same period of the prior fiscal year. Revenues decreased in the third quarter of 2026, primarily due to a decrease in royalty revenue.
Cost of Revenue, Net and Gross Profit:
Gross profit in the third quarter of fiscal year 2026 was approximately $55 thousand, or approximately 100.0% of revenues, net, compared to approximately $142 thousand or approximately 100%, of revenues, net, for the third quarter of fiscal year 2025. Total cost of revenue, net was zero for the third quarter of fiscal year 2026, compared to zero for the third quarter of fiscal year 2025.
3
Operating Expenses:
Total operating expenses were approximately $0.3 million for the third quarter of fiscal year 2026, compared to approximately $0.7 million for the third quarter of fiscal year 2025. The decrease is primarily from decrease in General and administrative expenses. For the third quarter of fiscal year 2026, operating expenses consisted primarily of professional fees of approximately $0.1 million, and all other general and administrative expenses of approximately $0.2 million. General and administrative expenses in the third quarter of fiscal year 2026 consisted primarily of salaries and wages, insurance, banking fees, and business fees.
For the third quarter of fiscal year 2025, operating expenses consisted primarily of professional fees of approximately $0.2 million, and all other general and administrative expenses of approximately $0.5 million. General and administrative expenses in the third quarter of fiscal year 2025 consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes.
Income Taxes:
During the third quarter of fiscal year 2026, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately $0.2 million. Similarly, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately $0.6 million for the third quarter of fiscal year 2025.
Net Loss:
As a result of the items noted above, the net loss for the third quarter of fiscal year 2026 was approximately $0.2 million, or $0.02 basic and diluted net loss per share, compared to a net loss of approximately $0.6 million, or $0.05 basic and diluted net loss per share, for the third quarter of fiscal year 2025. The decrease in the net loss for the third quarter of fiscal year 2026, as compared to the third quarter of fiscal year 2025, is primarily attributable to the decrease in general and administrative expenses.
Nine months ended July 31, 2026, compared to nine months ended July 31, 2025
Revenues:
Revenues for the nine months ended July 31, 2026, were approximately $0.2 million, compared to $0.4 million for the nine months ended July 31, 2025. Revenues decreased during the nine months ended July 31, 2026, compared to the nine months ended July 31, 2025, primarily due to a decrease in royalty sales.
Cost of Revenue and Gross Profit:
Gross profit for the nine months ended July 31, 2026, was approximately $0.2 million, compared to gross profit of approximately $0.4 million for the nine months ended July 31, 2025. Total cost of revenue was zero million for the nine months ended July 31, 2026, compared to zero million for the nine months ended July 31, 2025. The decrease in gross profit for the nine months ended July 31, 2026 compared to the nine months ended July 31, 2025, is due to the decrease in royalty sales during the nine months ended July 31, 2026.
Operating Expenses:
Total operating expenses were approximately $1.6 million for the nine months ended July 31, 2026, compared to approximately $7.0 million for the nine months ended July 31, 2025. For the nine months ended July 31, 2026, operating expenses consisted primarily of stock option expense of $49 thousand, professional fees totaling approximately $0.7 million, and all other general and administrative expenses of approximately $0.8 million. General and administrative expenses during the nine months ended July 31, 2026, consisted primarily of salaries and wages, insurance, project expenses, banking fees, business fees and state and franchise taxes.
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For the nine months ended July 31, 2025, operating expenses consisted primarily of stock option expense of $36 thousand, professional fees totaling approximately $4.3 million, loss on ROU asset of $0.7 million, and all other general and administrative expenses of approximately $2.0 million. General and administrative expenses during the nine months ended July 31, 2025, consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes.
Income Taxes:
During the nine months ended July 31, 2026, we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately $1.4 million for the nine months ended July 31, 2026. Similarly, we did not accrue a tax provision for income taxes during the nine months ended July 31, 2025, due to the pre-tax loss of approximately $6.6 million for the nine months ended July 31, 2025.
Net Loss:
The net loss for the nine months ended July 31, 2026, was approximately $1.4 million, or $0.10 basic and diluted net loss per share, compared to net loss for the nine months ended July 31, 2025, which was approximately $6.6 million, or $0.61 basic and diluted net loss per share. The decrease in the net loss for the nine months ended July 31, 2026, as compared to the nine months ended July 31, 2025, is primarily attributable to reduced expenses.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore actual results could differ from those estimates. There have been no material changes to our critical accounting policies and estimates during the nine months ended July 31, 2026 from those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our 2025 Annual Report for the year ended October 31, 2025.
Recent Accounting Pronouncements
Refer to Item 1, Financial Statements, Note 2, Basis of Presentation and Significant Accounting Policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
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We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15e and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer to allow for timely decisions regarding required disclosure.
As of July 31, 2026, the end of the period covered by this Report, we carried out an evaluation under the supervision and with the participation of members of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and the operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. Our management has concluded, based on their evaluation, that the disclosure controls and procedures were not effective as of the end of the period covered by this Report due to material weaknesses in our internal control over financial reporting as disclosed in our Annual Report on Form 10-K for the year ended October 31, 2025.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Exchange Act) that have occurred during the quarter ended July 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time we may become party to legal proceedings that we consider to be part of the ordinary course of our business. We also are subject to the regulatory and intellectual-property matters involving Bidi Vapor, LLC described below, which may affect us even though we are not the named manufacturer.
On February 12, 2025 and November 6, 2025, counsel to a stockholder of the Company delivered written demands purporting to exercise inspection rights under Section 220 of the Delaware General Corporation Law. Counsel to a second stockholder delivered a written demand dated February 24, 2025. The demands request specified books and records of the Company. The Company produced certain Board minutes in 2025 in response to the February 12 demand and is assembling additional Board-level records. As of the date of this Report, the Company is not aware of a complaint filed in the Court of Chancery of the State of Delaware arising out of these demands. The Company reserves all rights and objections with respect to the demands, including as to form, scope, purpose, and timeliness. The Company cannot predict whether a books-and-records action will be filed or the outcome of any such action.
We are not a named party to the FDA marketing-denial proceedings or to the ITC investigation involving Bidi’s products, other than as originally named and later dismissed from ITC Investigation No. 337-TA-1410. The outcome of those or related proceedings could have a material effect on royalty revenue under the PMI license, which is currently our primary source of revenue.
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits
The following exhibits are filed herewith as a part of this Quarterly Report.
| 101.INS | Inline XBRL Instance Document* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* |
| (1) | Schedules and Exhibits omitted pursuant to Item 601(b) (10) (iv) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any Schedule or Exhibit so furnished |
*filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| KAIVAL BRANDS INNOVATIONS GROUP, INC. | ||
| Date: September 14, 2026 | A | /s/ Eric Mosser |
| Eric Mosser | ||
| Chief Executive Officer | ||
| Date: September 14, 2026 | By: | /s/ Eric Morris |
| Eric Morris | ||
| Chief Financial Officer |
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