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Item 8. Financial Statements and Supplementary Data

2021-02-12 compared with 2020-01-27 · 712 added, 306 removed, 138 unchanged (88% of the section changed)

Financial Statements and Supplementary

Brands Innovations Group, Inc.

FINANCIAL STATEMENTS

and Supplementary Data.

Kaival Brands Innovations Group, Inc.

QUICK START HOLDINGS, INC.

TO FINANCIAL STATEMENTS

of Independent Registered Public Accounting Firms

Balance Sheets

of Operations

of Changes in Stockholders’

Statements of Cash Flows

Notes to Financial Statements

Report of Independent Registered Public Accounting Firms

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’

Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

To the Stockholders and Board of Directors of

Kaival Brands Innovations Group, Inc.

(FKA Quick Start Holdings, Inc.)

Opinion on the Financial Statements

We have audited the

accompanying balance sheets of Kaival Brands Innovations Group, Inc.

(the “Company”) as of October 31, 2019 and

2018, and the related statements of operations, changes in stockholders’

deficit, and cash flows for the year ended

October 31, 2019 and the period from September 4, 2018 (inception) through October 31, 2018, and the related notes

(collectively referred to as the “financial statements”).

In our opinion, the financial statements present

fairly, in all material respects, the financial position of the Company as of October 31, 2019 and 2018, and the results of

its operations and its cash flows for the year ended October 31, 2019 and the period from September 4, 2018 (inception)

through October 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements

have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 3 to the financial statements,

the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about

its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 3.

The financial

statements do not include any adjustments that might result from the outcome of this uncertainty.

We have audited the accompanying

consolidated balance sheets of Kaival Brands Innovations Group, Inc.

(collectively, the “Company”) as of October 31,

2020 and 2019, and the related consolidated statements of operations, changes in stockholders’

equity (deficit), and cash

flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October

31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, in conformity with accounting

principles generally accepted in the United States of America.

Basis for Opinion

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We conducted our audits in accordance

with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America.

standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are

free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of

internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's

internal control over financial reporting.

with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required

to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are

required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

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www.malonebailey.com

We have served as the Company's

auditor since 2018.

We have served as the Company's auditor

Houston, Texas

January 27, 2020

February 12, 2021

Kaival Brands Innovations Group, Inc.

(FKA Quick Start Holdings, Inc.)

Balance Sheets

October 31, 2019

October 31, 2018

Consolidated Balance Sheet

CURRENT ASSETS:

Accounts receivable

Accounts receivable –

related parties

Total current assets

Right of use asset- operating lease

LIABILITIES AND STOCKHOLDERS’

EQUITY (DEFICIT)

CURRENT LIABILITIES:

Accounts payable- related party

Accrued expenses

Income tax accrual

Deferred revenue

Office lease liability –

Total current liabilities

LONG TERM LIABILITIES

Operating lease obligation, net of current portion

TOTAL LIABILITIES

STOCKHOLDERS' DEFICIT:

Preferred stock ($.001 par value, 5,000,000 shares authorized, none issued and outstanding as of October 31, 2019 and 2018)

Common stock ($.001 par value, 1,000,000,000 shares authorized, 572,364,574 issued and outstanding as of October 31, 2019 and 2018)

STOCKHOLDERS’

EQUITY(DEFICIT):

Preferred stock 5,000,000 shares authorized;

Series A Convertible Preferred stock ($.001 par value, 3,000,000 shares authorized, 3,000,000 and none issued and outstanding as of October 31, 2020 and October 31, 2019, respectively)

Common stock ($.001 par value, 1,000,000,000 shares authorized, 277,282,630 and 572,364,574 issued and outstanding as of October 31, 2020 and October 31, 2019, respectively)

Additional paid-in capital

Accumulated deficit

Total Stockholders' deficit

Retained earnings (accumulated deficit)

Total Stockholders’

Equity (Deficit)

TOTAL LIABILITIES & STOCKHOLDERS’

The accompanying

notes are an integral part of these financial statements.

Kaival Brands

Innovations Group, Inc.

Start Holdings, Inc.)

of Operations

the Year Ended

the period from

October 31, 2018

and administrative

EQUITY (DEFICIT)

The accompanying notes are an integral part

of these audited consolidated financial statements.

Kaival Brands Innovations Group, Inc.

Consolidated Statements of Operations

Ended October 31,

Revenues - related parties

Excise tax on products

Total revenues

Cost of revenue

Cost of revenue - related party

Cost of revenue –

Total cost of revenue

Operating expenses

and diluted loss per share

average number of common shares outstanding –

Basic and Diluted

accompanying notes are an integral part of these financial statements.

Brands Innovations Group, Inc.

Quick Start Holdings, Inc.)

of Changes in Stockholders’

the period from September 4, 2018 (inception) to October 31, 2018 and

the year ended October 31, 2019

Par Value Preferred

Shares (Series A)

Par Value Preferred

Shares (Series B)

Common Shares

Par Value Common

Additional Paid-in

Date of inception

September 4, 2018

Shares issued

in reorganization

preferred and common shares for services

Conversion of

preferred Series A & B into common shares

Expenses paid on

behalf of the Company and contributed to capital

Advertising and Promotions

General & Administrative expenses

Total operating expenses

Interest Income

Total Other Income

Income (loss) before income taxes provision

Provision for income taxes

Net income (loss)

Net income (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 audited consolidated financial statements.

Kaival Brands Innovations Group, Inc.

Consolidated Statements of Changes in Stockholders’

Equity (Deficit)

For the years ended October 31, 2020 and 2019

Convertible Preferred Shares

Par Value Convertible Preferred Shares (Series A)

Par Value Common Shares

Additional Paid-in Capital

Retained Earnings (Accumulated Deficit)

Balances, October 31, 2018

Expenses paid on

behalf of the Company and contributed to capital

$ 572,364,574

Expenses paid on behalf of the Company and contributed to capital

Balances, October 31, 2019

accompanying notes are an integral part of these financial statements.

Brands Innovations Group, Inc.

Quick Start Holdings, Inc.)

of Cash Flows

the Year Ended

the period from

4, 2018 (inception) to

FLOWS FROM OPERATING ACTIVITIES

to reconcile net loss to net cash used in operating activities:

contributed to capital

in current assets and liabilities:

cash used in operating activities

change in cash

DISCLOSURE OF CASH FLOW INFORMATION:

FINANCING TRANSACTIONS:

Series A & B and common shares issued in reorganization

Series B and common shares issued for services

of Preferred Series A & B into common shares

The accompanying

notes are an integral part of these financial statements.

$ 572,364,574

Issuance of common shares for employee compensation

Issuance of common shares for compensation

Common shares settled and cancelled

Return of common shares in exchange for Series A convertible preferred shares

(300,000,000 )

Expenses paid on behalf of the Company and contributed to capital

Balances, October 31, 2020

$ 277,282,630

The accompanying notes are an integral part

of these audited consolidated financial statements.

Kaival Brands Innovations Group, Inc.

FKA QUICK START HOLDINGS, INC.

Notes to the Audited Financial Statements

Consolidated Statements of Cash Flows

For the Year Ended

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

Adjustment to reconcile net income (loss) to net cash provided by operating activities:

Stock based compensation

ROU operating lease expense

Expenses contributed to capital

Changes in current assets and liabilities:

Accounts receivable

Accounts receivable –

related parties

Deferred revenue

Payments on operating lease liability

Accounts payable –

related party

Accrued taxes

Accrued expenses

Net cash provided by operating activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Settled RSU shares with cash

Cash flows used in financing activities

Net change in cash

Beginning cash balance

Ending cash balance

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid

Income taxes paid

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Initial Recognition of ROU Asset and Liability

Conversion of common shares into Series A Preferred

The accompanying notes are an integral part

of these audited consolidated financial statements.

BRANDS INNOVATIONS GROUP, INC.

to the CONSOLIDATED Financial Statements

Note 1 –

Organization, Description of Business and Basis

of Presentation

Kaival Brands, Inc.

(we, us, our, the

Organization and Description of Business

Kaival Brands Innovations Group, Inc.

“Company,”

or the “Registrant”), formerly known as Quick Start Holdings, Inc., was incorporated on

September 4, 2018 in the State of Delaware.

the “Registrant,”

“we,”

“us,”

or “our”), formerly known

as Quick Start Holdings, Inc., was incorporated on September 4, 2018 in the State of Delaware.

and USSE Delaware Merger

USSE Corp., a Nevada Corporation

(“USSE Nevada”), formerly known as Quick Start Holdings, Inc., was incorporated with the Nevada Secretary of

State on July 8, 1998 under the original name C&A Restaurants, Inc.

USSE Corp., a Nevada Corporation (“USSE

Nevada”), formerly known as Quick Start Holdings, Inc., was incorporated with the Nevada Secretary of State on July 8, 1998

under the original name C&A Restaurants, Inc.

(“C&A Restaurants”).

15, 2009, C&A Restaurants changed its name to USSE Corp.

On June 15, 2009, C&A Restaurants changed

its name to USSE Corp.

Effective September 19, 2018, USSE Nevada re-domiciled

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of which 66,397,574 shares were issued and outstanding;

(ii) 5,000,000 shares of preferred stock, par value $0.001 per share,

of which (a) 1,000,000 shares were designated as Convertible Series A, all of which were issued and outstanding;

and (b) 500,000

shares were designated as Convertible Series B, of which 71,700 shares of Convertible Series B preferred stock were issued and

(ii) 5,000,000 shares of preferred stock, par value $0.001 per share, of

which (a) 1,000,000 shares were designated as Convertible Series A, all of which were issued and outstanding;

and (b) 500,000 shares

were designated as Convertible Series B, of which 71,700 shares of Convertible Series B preferred stock were issued and outstanding.

Post-Holding Company Reorganization

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On February 6, 2019, the Company entered into

a non-binding Share Purchase Agreement (the “Agreement”), by and among the Company, GMRZ, and Kaival Holdings, LLC (formerly known as Kaival Brands Innovations Group, LLC),

a Delaware limited liability company (formerly known as Kaival Brands Innovations Group, LLC) (“KH”), pursuant to which,

on February 20, 2019, GMRZ sold 504,000,000 shares of the Company’s restricted common stock, representing approximately 88.06

percent of the Company’s issued and outstanding shares of common stock, to KH, and KH paid GMRZ consideration in the amount

set forth in the Agreement (the “Purchase Price”).

The consummation of the transactions contemplated by the Agreement

resulted in a change in control of the Company, with KH becoming the Company’s largest controlling stockholder.

members of KH are Nirajkumar Patel and Eric Mosser.

The Purchase Price was paid with personal funds of the members of KH.

a non-binding Share Purchase Agreement (the “Agreement”), by and among the Company, GMRZ, and Kaival Holdings, LLC

(formerly known as Kaival Brands Innovations Group, LLC) (“KH”), a Delaware limited liability company, pursuant to

which, on February 20, 2019, GMRZ sold 504,000,000 shares of the Company’s restricted common stock, representing approximately

88.06 percent of the Company’s issued and outstanding shares of common stock, to KH, and KH paid GMRZ consideration in the

amount set forth in the Agreement (the “Purchase Price”).

The consummation of the transactions contemplated by the

Agreement resulted in a change in control of the Company, with KH becoming the Company’s largest controlling stockholder.

The sole members of KH are Nirajkumar Patel and Eric Mosser.

The Purchase Price was paid with personal funds of the members of

Effective July 12, 2019, we changed our corporate

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was changed to “Kaival Brands Innovations Group, Inc.”

and our Amended and Restated Certificate of Incorporation,

as amended (the “Charter”), was further amended to reflect our new legal name.

There were no other changes to our

Currently, we have 572,364,574 shares of common

stock issued and outstanding and no shares of preferred stock issued and outstanding.

KH, which is owned and controlled by Nirajkumar

Patel and Eric Mosser, is our controlling stockholder, owning 504,000,000 shares of our restricted common stock.

As of October 31, 2019, the Company had not

yet commenced any business operations.

and our Amended and Restated Certificate of Incorporation, as

amended (the “Charter”), was further amended to reflect our new legal name.

On August 19, 2020, upon approval

by the Company’s Board of Directors, the Company filed a Certificate of Designation of Preferences, Rights, and Limitations

of the Series A Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware,

which authorizes a total of 3,000,000 shares, par value $0.01 per share, of Series A Convertible Preferred Stock (the “Series

A Preferred Stock”).

On August 19, 2020, the Company entered into

a Share Cancellation and Exchange Agreement (the “Agreement”) with KH.

Prior to entering into the Agreement, KH owned

504,000,000 shares of the common stock, which constituted approximately 87.42% of the Company’s issued and outstanding shares

of the common stock.

Pursuant to the Agreement, on August 19,

2020, KH voluntarily returned to the Company 300,000,000 shares of the common stock (the “Cancellation Shares”), which

Cancellation Shares were cancelled and retired by the Company.

As a result of the cancellation and retirement

of the Cancellation Shares, at October 31, 2020, the Company had 277,282,630 shares of the common stock issued and outstanding,

of which 204,000,000 shares are held by the KH, constituting approximately 73.57% of the issued and outstanding shares of the

common stock.

In exchange for the Cancellation Shares the

Company issued 3,000,000 shares (the “Preferred Shares”) of the Series A Preferred Stock to KH.

The exchange of the

Cancellation Shares and the issuance of the Preferred Shares was intended to comply with Section 3(a)(9) of the Securities Act

of 1933, as amended (the “Act”), in that the issuance is exempt from the registration requirements of the Act because

the exchange of the Cancellation Shares for the Preferred Shares was an exchange between the Company, as issuer, with an existing

stockholder, and no commission or other remuneration was paid or given directly for the exchange.

The Series A Preferred Stock

have no voting rights and each share of Series A Preferred Stock is convertible into 100 shares of common stock.

The holders have

the Series A Preferred Stock may convert their Series A Preferred Stock at any time on or after November 1, 2023.

Notwithstanding

the foregoing, the holders of the Series A Preferred Stock may convert their shares of Series A Preferred Stock prior to November

1, 2023 if a change of control (as provided for in the Certificate of Designation) or upon the occurrence of any other event as

determined and agreed to by the Company and the holders holding a majority of the issued and outstanding shares of Series A Preferred

The shares of common stock to be issued upon conversion will bear a restricted legend.

Description of Business

The Company is focused on growing and incubating

innovative and profitable products into mature, dominant brands.

In March 2020, the Company commenced business operations as a

result of becoming an exclusive distributor of certain electronic nicotine delivery systems and related components (the “Products”)

manufactured by Bidi Vapor, LLC (“Bidi”), a Florida limited liability company, a related party company that is also

owned by Nirajkumar Patel, the Chief Executive Officer and Chief Financial Officer of the Company.

9, 2020, the Company entered into an exclusive distribution agreement (the “Distribution Agreement”) with Bidi, a related

party company, which Distribution Agreement was amended and restated on May 21, 2020 (the “A&R Distribution Agreement”)

in order to clarify some of the provisions.

Pursuant to the A&R Distribution Agreement, Bidi granted the Company an exclusive

worldwide right to distribute the Products for sale and resale to both retail level customers and non-retail level customers.

the Products consist primarily of the “Bidi Stick.”

In connection with the A&R Distribution

Agreement, the Company entered into non-exclusive sub-distribution agreements, some of which were subsequently amended and restated

by the parties in order to clarify certain provisions (all such agreements, as amended and restated, are collectively referred

to as the “A&R Sub-Distribution Agreements”), whereby the Company appointed the counterparties as non-exclusive

sub-distributors.

Pursuant to the A&R Sub-Distribution Agreements, the sub-distributors agreed to purchase for resale the Products

in such quantities as they should need to properly service non-retail customers within the continental United States (the “Territory”).

On August 31, 2020 the Company formed Kaival

Labs, Inc., a Delaware corporation (herein referred to as “Kaival Labs”) as a wholly owned subsidiary of the Company.

Recent Developments

January 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain

of coronavirus (“COVID-19”) originating in Wuhan, China and the risks to the international community as the virus spread

globally beyond its point of origin.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase

in global exposure.

operations have not been significantly impacted.

No impairments were recorded as of October 31, 2020 and no triggering events or

changes in circumstances had occurred.

However, the full impact of the COVID-19 pandemic continues to evolve subsequent to the

fiscal year ended October 31, 2020 and as of the date these consolidated financial statements are issued.

As such, the full magnitude

of the COVID-19 pandemic, and the resulting impact, if any, on the Company’s financial condition, liquidity, and future results

of operations is uncertain.

Management is actively monitoring the global situation on our financial condition, liquidity, operations,

suppliers, industry, and customers.

Reduced demand for products or impaired ability to meet customer demand (including as a result

of disruptions at the Company’s suppliers) could have a material adverse effect on its business operations and financial

Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, the Company is not

presently able to estimate the effects of the COVID-19 pandemic on its results of operations, financial condition, or liquidity

for the current fiscal year.

As of the date of this filing, the Company’s recently commenced business operations have not

been impacted.

Note 2 –

Summary of Significant Accounting Policies

Basis of Presentation and

Significant Accounting Policies

of Consolidation

The consolidated financial statements include the financial statements

of the Company’s wholly-owned subsidiary, Kaival Labs.

Intercompany transactions are eliminated.

Basis of Presentation

This summary of significant accounting policies is presented to

assist in understanding the Company's financial statements.

These accounting policies conform to accounting principles, generally

accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.

This summary of significant accounting policies

is presented to assist in understanding the Company's consolidated financial statements.

These accounting policies conform to accounting

principles, generally accepted in the United States of America (“GAAP”), and have been consistently applied in the

preparation of the consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally

accepted accounting principles 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.

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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original

maturity of three months or less when purchased to be cash equivalents.

Cash and cash equivalents at October 31, 2019 and 2018

The Company accounts for income taxes under ASC 740, “

Taxes .”

Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for

the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and

liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected

to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs.

A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not

realize tax assets through future operations.

No deferred tax assets or liabilities were recognized at October 31, 2019 and

Basic Earnings (Loss) Per Share

The Company computes basic and diluted earnings (loss) per share

in accordance with ASC Topic 260, Earnings per Share .

Basic earnings (loss) per share is computed by dividing net income

(loss) by the weighted average number of common shares outstanding during the reporting period.

Diluted earnings (loss) per share

reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or

equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.

The Company does not have any potentially dilutive instruments as

of October 31, 2019 and 2018 and, thus, anti-dilution issues are not applicable.

The Company considers all highly liquid investments

with an original maturity of three months or less when purchased to be cash equivalents.

Cash and cash equivalents at October 31,

2020 and October 31, 2019 were $7,421,701 and $0, respectively

Significant Accounting Policies

Advertising and Promotion

All advertising, promotion and marketing expenses, including

commissions, are expensed when incurred.

Accounts Receivable and Allowance for Doubtful Accounts

Receivables are stated at cost, net of an allowance

for doubtful accounts.

The Company establishes an allowance for doubtful accounts based on management’s assessment of the

collectability of accounts receivables.

A considerable amount of judgment is required in assessing the amount of the allowance

and the Company considers the historical level of credit losses and collection history and applies percentages to aged receivable

The Company makes judgments about the creditworthiness of debtors based on ongoing credit evaluations and monitors

current economic trends that might impact the level of credit losses in the future.

If the financial condition of the debtors were

to deteriorate, resulting in their inability to make payments, a larger allowance may be required.

The Company has an allowance

for doubtful accounts of $13,773, which is 1.0% of total accounts receivable customer balances as of October 31, 2020.

are stated at the lower of cost and net realizable value.

Cost includes all costs of purchase and other costs incurred in bringing

the inventories to their present location and condition.

The Company determines cost based on the FIFO

Net realizable value is the estimated selling

price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

As of October 31, 2020, the inventories only consisted of finished goods and were nominal.

Revenue Recognition

The Company adopted ASC 606, Revenue

from Contracts with Customers (Topic 606) (“ASC 606”), in the second quarter of fiscal year 2020, as this

was the first quarter that the Company generated revenues.

Under 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

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

(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.

Products Revenue

The Company generates products revenue from

the sale of the Products (as defined above) to retail and non-retail customers.

The Company recognizes revenue at a point in time

based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied

and control of the Products has been transferred to the customer.

In most situations, transfer of control is considered complete

when the products have been shipped to the customer.

The Company determined that a customer obtains control of the Product upon

shipment when title of such product and risk of loss transfer to the customer.

The Company’s shipping and handling costs

are fulfillment costs and such amounts are classified as part of cost of sales.

The Company’s sales arrangements for retail

sales usually require full prepayment before delivery of the Products.

The advance payment is not considered a significant financing

component because the period between the Company transfers a promised good to a customer and when the customer pays for that good

The Company offers credit sales arrangements to non-retail (or wholesale) customers and monitors the collectability of

each credit sales periodically.

Deferred Revenue

The Company accepts partial payments for orders

from wholesale customers, which it holds as deposits or deferred revenue, until the Company has received full payment and orders

are shipped to the customer.

Revenue for these orders is recognized at time of shipment to the customer.

As of October 31, 2020,

the Company has received $623,096 in deposits from customers, which is included with the Company’s current liabilities.

Income taxes are provided for the tax effects

of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to

differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting.

Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable

or deductible when the assets and liabilities are recovered or settled.

Deferred taxes are also recognized for operating losses

that are available to offset future taxable income and tax credits that are available to offset future federal income taxes.

Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments

that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flow.

Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.

Fair Value of Financial Instruments

The Company’s balance sheet includes certain

financial instruments.

The carrying amounts of 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 , 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

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).

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;

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;

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 October 31, 2019.

The respective carrying value of certain

on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.

financial instruments include accrued expenses.

Related Parties

The Company follows ASC 850, Related Party Disclosures, for

the identification of related parties and disclosure of related party transactions.

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.

estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of October

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 accrued expenses.

Share-Based Compensation

ASC 718, “

Compensation –

Stock Compensation ”,

prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired.

Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such

as employee stock ownership plans and stock appreciation rights.

Share-based payments to employees, including grants of employee

stock options, are recognized as compensation expense in the financial statements based on their fair values.

That expense is recognized

over the period during which an employee is required to provide services in exchange for the award, known as the requisite service

period (usually the vesting period).

The Company accounts for stock-based compensation issued to non-employees

and consultants in accordance with the provisions of ASC 505-50, “

Equity –

Based Payments to Non-Employees.”

of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable:

the goods or services received;

or (b) the equity instruments issued.

The fair value of the share-based payment transaction

is determined at the earlier of performance commitment date or performance completion date.

The Company had no stock-based compensation plans

as of October 31, 2019 and 2018.

The Company’s stock-based compensation for the years ended

October 31, 2019 and 2018 were $0.

Recently Issued Accounting Pronouncements

We have reviewed the FASB issued Accounting Standards Update accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future

The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles

and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial

position or operations in the near term.

The applicability of any standard is subject to the formal review of our financial management

and certain standards are under consideration.

The Company measures the cost of services received

in exchange for an award of equity instruments based on the fair value of the award.

For employees and directors and non-employees

(effective January 1, 2019), the fair value of the award is measured on the grant date.

The fair value amount is then recognized

over the period during which services are required to be provided in exchange for the award, usually the vesting period.

The Company’s stock-based compensation for the periods ended

October 31, 2020 and October 31, 2019 was $769,437 and $0, respectively.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards

Board, or FASB, issued ASU 2014-09, “

Revenue from Contracts with Customers (ASC 606),”

and issued subsequent

amendments to the initial guidance or implementation guidance between August 2015 and November 2017 within ASU 2015-04, ASU 2016-08,

ASU 2016-10, ASU 2016-12, ASU 2016-20, ASU 2017-13, and ASU 2017-14 (collectively, including ASU 2014-09, “ASC 606”).

Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount

that reflects the consideration which the entity expects to receive in exchange for those goods or services.

In addition, the standard

requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company adopted the standard in the second quarter of fiscal year 2020.

The adoption of ASC 606 did not have any impact on

the Company’s previously reported consolidated financial statements in any prior period nor did it result in a cumulative

effect adjustment to retained earnings.

February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).

ASU 2016-02 was amended by ASU 2018-01, ASU2018-10,

ASU 2018-11, ASU 2018-20 and ASU 2019-01, which FASB issued in January 2018, July 2018, July 2018,

December 2018 and March 2019, respectively (collectively, the “amended ASU 2016-02”).

The amended ASU 2016-02 requires

lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease

term, and a lease liability for all leases with terms greater than 12 months.

The recognition, measurement, and presentation of

expenses and cash flows arising from a lease by a lessee have not significantly changed from current GAAP.

The amended ASU 2016-02

retains a distinction between finance leases (i.e.

capital leases under current GAAP) and operating leases.

The classification

criteria for distinguishing between finance leases and operating leases will be substantially similar to the classification criteria

for distinguishing between capital leases and operating leases under current GAAP.

The amended ASU 2016-02 also requires qualitative

and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases.

retrospective transition approach is permitted to be used when an entity adopts the amended ASU 2016-02, which includes a number

of optional practical expedients that entities may elect to apply.

The Company adopted the standard in the fourth quarter of fiscal

The adoption of the amended ASU 2016-02 did not have any impact on the Company’s previously reported financial

statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.

Note 3 –

Going Concern

The Company’s financial statements are

prepared in accordance with generally accepted accounting principles applicable to a going concern that contemplates the realization

Company’s financial statements are prepared in accordance with GAAP applicable to a going concern that contemplates the realization

of assets and liquidation of liabilities in the normal course of business .

The Company demonstrates adverse conditions

that raise substantial doubt about the Company's ability to continue as a going concern for one year following the issuance of

these financial statements.

These adverse conditions are negative financial trends, specifically operating loss, working capital

deficiency, and other adverse key financial ratios.

The Company has not established any source

of revenue to cover its operating costs.

Management plans to fund operating expenses with related party contributions to capital.

There is no assurance that management's plan will be successful.

The financial statements do not include any adjustments relating

to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary

in the event that the Company cannot continue as a going concern.

benefits of income tax losses are not recognized in the accounts until realization is more likely than not.

The Company has a net

carryforward operating loss of $73,225, which

starts to expire in 2038.

The Company adopted ASC 740, “

Accounting for Income Taxes ,”

as of its inception.

to ASC 740, the Company is required to compute tax asset benefits for non-capital losses carried forward.

The potential benefit

of the net operating loss has not been recognized in these financial statements because the Company cannot be assured it is more

likely than not it will utilize the loss carried forward in future years.

Tax Cuts and Jobs Act of 2017 (the “2017 Act”) reduced the corporate tax rate from 34% to 21% for tax years beginning

after December 31, 2017.

For net operating losses (“NOLs”) arising after December 31, 2017, the 2017 Act limits a taxpayer’s

ability to utilize NOL carryforwards to 80% of taxable income.

In addition, NOLs arising after 2017 can be carried forward indefinitely,

but carryback is generally prohibited.

NOLs generated in tax years beginning before January 1, 2018 will not be subject to the

taxable income limitation.

The 2017 Act would generally eliminate the carryback of all NOLs arising in a tax year ending after

2017 and, instead, would permit all such NOLs to be carried forward indefinitely.

components of the Company’s deferred tax assets and liabilities as of October 31, 2019 and 2018 after applying enacted corporate

income tax rates, is net operating loss carryforward of $15,377 and $919, and a valuation allowance of $15,377 and $919, respectively,

which is a total deferred tax asset of $0.

The Company’s tax returns for 2018 and 2019 remain open to examination.

Deferred tax asset, generated from NOL at statutory rates

Valuation allowance

The reconciliation

of the effective income tax rate to the federal statutory rate is as follows:

Federal income tax rate

Increase in valuation allowance

Effective income tax rate

Note 5 –

Commitments and Contingencies

The Company follows ASC 450-20, Los s Contingencies, to

report accounting for contingencies.

Liabilities for loss contingencies arising from claims, assessments, litigation, fines

and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment

can be reasonably estimated.

The Company considered its going concern disclosure requirements in accordance with ASC 240-40-50.

Prior to March 2020, the Company demonstrated

adverse conditions that raised substantial doubt about the Company’s ability to continue as a going concern.

These adverse

conditions were negative financial trends, specifically operating loss, working capital deficiency, and other adverse key financial

Also, the Company had not established any source of revenue to cover its operating costs.

The Company’s management

funded operating expenses with related party contributions to capital.

on March 9, 2020, the Company commenced business operations upon entering into the A&R Distribution Agreement with Bidi, a

related party company, whereby Bidi granted the Company an exclusive worldwide right to distribute the Products for sale and resale

to both retail level customers and non-retail level customers.

In April 2020, in connection with the A&R

Distribution Agreement, the Company entered into the A&R Sub-Distribution Agreements with certain third-party counterparties,

whereby the Company appointed such counterparties as non-exclusive sub-distributors.

Pursuant to the A&R Sub-Distribution Agreements,

the sub-distributors agreed to purchase for resale the Products in such quantities as they should need to properly service non-retail

customers within the Territory.

With these agreements

in effect, the Company has established sources of revenue to cover its operating costs and achieved net income for the year ended

October 31, 2020.

As of October 31, 2020, the Company had a

positive working capital.

Management plans

to continue similar operations with increased marketing, which the Company believes will result in increased revenue and net income

and will satisfy its estimated liquidity needs twelve months from the issuance of the financial statements.

However, there is no

assurance that management’s plan will be successful due to the current economic climate in the United States and globally.

At the time of issuance of these consolidated financial statements, the previously reported going concern has been alleviated based

on the reasons above, and management does not have substantial doubt of the Company’s ability to continue as a going concern.

These financial statements do not include any

adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities

that might be necessary in the event that the Company cannot continue as a going concern.

Note 4 –

Stockholder’s Deficit

The Company capitalizes all leased assets pursuant

to ASU 2016-02, "Leases (Topic 842),"

which requires lessees to recognize right-of-use assets and lease liability, initially

measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified

as either financing or operating leases.

The Company does not have financing leases, only one operating lease for office space.

The operating lease is for a term of five years, beginning August 1, 2020, with rent of $1,000 payable monthly.

As the operating

lease does not provide implicit interest rate, we estimated a current borrowing rate of 4.5% in determining the present value of

As of October 31, 2020, the right-to-use (“ROU”) lease asset, net of accumulated amortization, was $70,133.

The initial recognition of the ROU operating lease was $73,749 for both the ROU asset and ROU liability.

The amortization expense

for the ROU asset for the twelve months ended October 31, 2020 was $3,616 and one payment on the ROU liability was $2,836.

31, 2020, short-term ROU lease liability was $$11,709 and long-term liability was $59,204, totaling $70,913.

Operating lease expense

totaling $3,000 for August-October 2020 was accrued at fiscal year-end.

No rent payments had been made as of October 31, 2020.

Lease payments

Less discount

Present value of future payments

Less current obligations

Long term lease obligations

Stockholder Equity

Additional Paid-In Capital

The Company’s Chief Executive Officer

and Chief Financial Officer, Mr.

Nirajkumar Patel, paid expenses on behalf of the Company totaling $16,257 during the year ended

October 31, 2020, which is considered a contribution to the Company with no expectation

of repayment and is recorded as additional paid-in capital.

The Company’s Chief Operating Officer,

Eric Mosser, paid expenses on behalf of the Company totaling $10,900 during the year ended October 31, 2020, which

is considered a contribution to the Company with no expectation of repayment and is recorded as additional paid-in capital.

The Company’s Chief Executive Officer,

Nirajkumar Patel, paid expenses on behalf of the Company totaling $6,000 during the year ended October 31, 2019, which

6 unchanged sentences

2019, which is considered a contribution to the Company with no expectation of repayment and is recorded as additional paid-in

Company’s former officer and director, Paul Moody, paid expenses on behalf of the Company totaling $1,376 during the period

from September 4, 2018 (inception) to October 31, 2018, which is considered a contribution to the Company with no expectation

of repayment and is recorded as additional paid-in capital.

Note 7 –

Preferred Shares Issued

On August 19,

2020, upon approval by the Company’s Board of Directors, the Company filed the Certificate of Designation with the Secretary

of State of the State of Delaware, which authorizes a total of 3,000,000 shares of Series A Preferred Stock.

(See Note 1, Post-Holding Company Reorganization , for more detail of the designated terms.)

On August 19, 2020, the Company issued 3,000,000

shares of its Series A Preferred Stock, to KH in exchange for its return of 300,000,000 shares of common stock to the Company.

No cash consideration was paid during this exchange.

At the time of issuance, the Company evaluated the nature of the Series A

Preferred Stock, concluded that it was more akin to equity and recorded it as permanent equity.

Common Shares Issued

Stock Unit Awards

May 28, 2020, the Board of Directors approved the award of 8,500,000 restricted

stock units (“RSUs”) under the Stock and Incentive Compensation Plan (the “Incentive Plan”) to six employees.

The RSUs were awarded pursuant to restricted stock unit agreements (“RSU Agreement”), which provide for vesting over

the course of three years, with a portion of the RSUs vesting every three months.

The vesting schedules are set forth in the applicable

RSU Agreements.

On June 1, 2020, the Board of Directors approved

the award of 1,000,000 RSUs under the Incentive Plan to one newly-hired employee.

The RSUs were awarded pursuant to a RSU Agreement,

which provide for vesting over the course of three years, with a portion of the RSUs vesting every three months.

The vesting schedules

are set forth in the applicable RSU Agreement.

On July 26, 2020,

the Company amended the RSU award agreements previously entered into with employees to include the option for employees of receiving

a combination of cash and shares for their bonus, at the discretion of the Company.

Any cash portion paid will be equal to the

fair market value of the vested RSUs.

Company evaluated the amendments under ASC 718 and determined the amendment did not qualify as a modification.

Any difference in

the amount paid in cash and the fair market value of the shares purchased is recorded as additional compensation.

As of June 1, 2020, the Board of Directors

had approved a total of 9,500,000 granted RSUs for seven employees.

These shares were valued at fair market value on the grant

dates, using the closing share price for those dates, for a total of $1,359,600, which is to be vested over the vesting period.

During the year ended October 31, 2020, 1,320,000 shares of common stock were issued to seven employees of the Company under the

RSU agreements, resulting in $158,260 of share-based compensation.

As of October 31, 2020, 8,430,000 RSUs remain to be vested.

Of the shares

issued to employees, 226,000 shares were withheld by the Company to satisfy tax withholding obligations equal to $223,763.

The shares had a fair market value on the settlement date of $179,922.

The difference in the amount

paid and fair market value was $49,743 and was recorded as additional compensation.

During the year ended October 31, 2020, 3,824,056

shares of common stock were issued to two non-employee vendors as compensation for professional services rendered to the Company.

These shares were expensed to the Company using the closing share price on the share issue dates to compute a total of $611,177.

Related-Party Transactions

the home office space and equipment of our management at no cost.

Note 8 –

Revenue and Accounts Receivable

During the year ended October 31, 2020, the

Company recognized revenue of $233,955 from seven companies owned by Nirajkumar Patel, the Chief Executive Officer and Chief Financial

Officer of the Company, and/or his wife.

As of October 31, 2020, the Company has accounts receivable from the related party in

the amount of $15,360.

Purchases and Accounts Payable

During the year ended October 31, 2020, the

Company purchased Products with a value of $53,981,351 from Bidi a related party company that is also owned by Nirajkumar Patel,

our Chief Executive Officer and Chief Financial Officer.

As of October 31, 2020, the Company had accounts payable to Bidi of $1,409,561.

Contributed Capital

During the year ended October 31, 2020, the

Company’s Chief Executive Officer / Chief Financial Officer and Chief Operating Officer provided contributed capital of $16,257

and $10,900, respectively, to the Company.

During the year ended October 31, 2019, the

Company’s Chief Executive Officer/Chief Financial Officer, Chief Operating Office, and former officer and director paid expenses

on behalf of the Company for $6,000, $13,628, and $7,335, respectively.

For additional information, see Note 4, Additional

Paid-in Capital .

On August 1, 2020, the Company began leasing

office space for its main corporate office in Grant, Florida.

The five-year lease agreement is with a related party, Just Pick,

LLC (“Just Pick”).

The Company’s Chief Executive Officer is an officer of Just Pick.

Prior to this, the Company utilized the home

office space and warehouse of its management at no cost through July 31, 2020.

Note 7 - Concentrations

Financial instruments, which potentially subject

the Company to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable,

Concentration of Purchases and Accounts

Payable- Related Party

For the year ended October 31, 2020, 100% of

the inventories of products, primarily consisting of the “Bidi Stick,”

were purchased from Bidi, a related party company

that is also owned by Nirajkumar Patel, the Company’s Chief Executive Officer and Chief Financial Officer, in the amount

of $53,981,351.

It also accounted for 100% of the total accounts payable as of October 31, 2020.

Concentration of Revenues and Accounts

For the year ended October 31, 2020, approximately

41% of the revenue from the sale of the Products, primarily consisting of the “Bidi Stick,”

was generated from Favs

Business, LLC in the amount of $26,428,760 and approximately 6% of the revenue from the sale of products was generated from MMS

in the amount of $3,905,704.

Go Brands, Inc., with an outstanding balance

of $319,175 and GPM Investment, LLC, with an outstanding balance of $551,212 , accounted for approximately 33% and 56% of the total

accounts receivable from customers, respectively, as of October 31, 2020.

The Company is subject to federal income taxes

and state income tax in the U.S.

Significant judgment is required in determining the provision for income taxes and income tax

assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

The Tax Cuts and Jobs Act (the “Tax Act”)

was enacted on December 22, 2017 and reduced the U.S.

federal corporate tax rate from 35% to 21%, eliminated corporate Alternative

Minimum Tax, modified rules for expensing capital investment, and limited the deduction of interest expense for certain companies.

The Company fulfilled and shipped all of the Products from Florida and, thus, it is subject to the state corporate income tax of

Florida with a tax rate of 4.458%.

There is no difference from the income tax computed at the combined federal and state statutory

rate to the income tax effective rate.

During the year ended October 31, 2020, the

Company generated taxable income of $5,950,117 and, thus, accrued $1,249,525 of federal income tax.

Estimated state income tax

of $182,925 was paid to the state of Florida based on taxable income for the nine months ended July 31, 2020.

The accrued expense

for state taxes was $82,331 at October 31, 2020.

income tax provision contains the following components:

Current tax expense:

Total current tax expense

Estimated tax payments:

Total estimated tax payment

Net income tax liability

Significant components

of the Company’s deferred tax assets and liabilities as of October 31, 2020 and October 31, 2019 after applying enacted corporate

income tax rate, is net operating loss carryforward of $0 and $15,377, and a valuation allowance of $0 and $15,377, respectively,

which is a total deferred tax asset of $0.

The Company’s tax returns for 2018 and 2019 remain open to examination.

Significant components of the Company's deferred

tax assets and liabilities are as follows:

Deferred tax asset

Net operating loss carry-forward

Total deferred tax asset

Valuation allowance

Net Deferred tax asset

Commitments and Contingencies

The Company follows ASC 450-20, Los s Contingencies, to

report accounting for contingencies.

Liabilities for loss contingencies arising from claims, assessments, litigation, fines

and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment

can be reasonably estimated.

There were no commitments or contingencies as of October 31, 2020 and October 31, 2019 other than

On May 28, 2020, the Board of Directors approved

cash bonus awards to each of the Chief Executive Officer and the Chief Operating Officer.

With respect to the Chief Executive Officer,

the Board of Directors approved a cash bonus award equal to $30,000 for every $25 million in gross revenues generated by the Company.

With respect to the Chief Operating Officer, the Board approved a cash bonus award equal to $20,000 for every $25 million in gross

revenues generated by the Company.

On May 28, 2020, the Board of Directors also approved an equity bonus award for each of the

Chief Executive Officer and the Chief Operating Officer.

With respect to the Chief Executive Officer, the Board of Directors approved

an award of 90,000 restricted shares of the Company’s common stock for every $50 million in accumulated gross revenues generated

by the Company.

With respect to the Chief Operating Officer, the Board approved an award of 75,000 restricted shares of the Company’s

common stock for every $50 million in accumulated gross revenues generated by the Company.

The Company’s accumulated gross

revenues will be evaluated on a quarterly basis, beginning with the second quarter of fiscal year 2020.

At October 31, 2020, the

Company determined that the fair value of the equity bonus shares, or $165,000, should be accrued as it was deemed likely that

the $50 million revenue target would be met.

March 31, 2020, the Company entered into a service agreement (the “Service Agreement”) with QuikfillRx LLC, a Florida

limited liability company (“QuikfillRx”), whereby QuikfillRx provides the Company with certain services and support

relating to sales management, website development and design, graphics, content, public communication, social media, management

and analytics, and market and other research (collectively, the “Services”).

The Services are provided by QuikfillRx

as requested from time to time by the Company.

On June 2, 2020, the Company entered into the

First Amendment to the Service Agreement (the “First Amendment”

and, collectively with the Service Agreement, the “Amended

Service Agreement”) with QuikfillRx.

Pursuant to the terms of the First Amendment, the parties modified the amount of General

Compensation (as defined below) to be paid to QuikfillRx.

“General Compensation”

consists of the following:

the Services provided in March 2020, the Company paid QuikfillRx an amount equal to $86,000;

(ii) for the Services provided in

April 2020, the Company paid QuikfillRx an amount equal to $100,000;

(iii) each calendar month commencing May 2020 through October

2020, the Company paid QuikfillRx an amount equal to $125,000 per month for the Services to be performed during such calendar month;

(iv) if the parties agree to extend the term of the Amended Service Agreement beyond the original expiration date of October 31,

2020, then for the period between November 1, 2020 and October 31, 2021, the Company will pay QuikfillRx $125,000 per month for

the Services to be performed during such calendar month;

and (iv) if the parties agree to extend the term of the Amended Service

Agreement beyond October 31, 2021, then for the period between November 1, 2021 and October 31, 2022, the Company will pay QuikfillRx

$150,000 per month for the Services to be performed during such calendar month.

In October 2020, the parties agreed to extend

the term of the Amended Service Agreement.

In addition, the Company will pay the following quarterly bonuses:

An amount equal to 0.9% of the Applicable Gross Quarterly Sales (as

defined in the Amended Service Agreement), which amount shall, at the Company’s option be paid in (a) cash or (b) shares

of the Company’s common stock, or (c) a combination of cash and common stock.

An amount equal to 0.27% of the Applicable Gross Quarterly Sales, which amount must be paid in cash.

The Company has accrued $79,592 for a quarterly

bonus payable to QuikfillRx, based on the Applicable Gross Quarterly Sales results of the three months ended October 31, 2020.

On September 28, 2020, the Company, entered

into a patent contribution agreement (the “Patent Contribution Agreement”) with Kaival Labs, the Company’s wholly-owned

subsidiary, and Next Generation Labs, LLC, a California limited liability company (“Next Generation”), whereby Next

Generation will contribute certain patents, patent applications, and patent data (collectively, the “Patents”) to the

Pursuant to the Patent Contribution Agreement,

the Company has agreed to pay Next Generation a purchase price of $3 million for the Patents (the “Purchase Price”),

which is expected to be paid over-time upon two events.

First, the Company expects to pay part of the Purchase Price from proceeds

generated from a future securities offering (the “Offering Payment”).

Additionally, on the first date that Kaival Labs

sells a product that was developed using any portion of the Patents or based on the Patents, the Company will pay Next Generation

the difference between the Purchase Price and the Offering Payment.

Labs has also agreed to pay Next Generation a quarterly royalty equal to fifteen percent (15%) of the profits from sales of a product

that was developed using any portion of the Patents or based on the Patents, on an accrued basis.

Finally, the Company has agreed

to pay all of the applicable costs associated with obtaining product approval(s) from the United States Food and Drug Administration.

As of the date of issuance of these consolidated

financial statements, none of the Patents have been transferred, no payments have been made to Next Generation, and none of the

triggering events listed in the Patent Contribution Agreement have occurred.

Subsequent Events

The Company’s Chief Executive Officer and Chief Operating Officer paid expenses on behalf of the Company

totaling $15,957 and $10,200, respectively.

These payments are considered to be contributions to the Company with no expectation

of repayment.

Changes in and Disagreements with

Accountants on Accounting and Financial Disclosure.

On December 31,

2020, the Company issued 188,391 shares of common

stock to Quickfillrx as a bonus for the fourth quarter of the fiscal year, which was accrued at fiscal year end.

On December 31, 2020, the Company issued 90,000

and 75,000 shares of common stock to the CEO and COO, respectively, as bonus for reaching the revenue benchmark at fiscal year

These amounts were accrued as of the fiscal year end.

On December 31,

2020, the Company issued 57,625 shares of common

stock to Jared M.

Witt as compensation for legal services to the Company.

On December 31,

2020, the Company issued 4,532 shares of common

stock to Jared T.

Walsh as compensation for legal services to the Company.

On January 6,

2021, the Company entered into a Consulting Agreement with Inflection Partners LLC (“Inflection Partners”), pursuant

to which the Company engaged Inflection Partners to provide investor relations, corporate communication, marketing, strategic advising,

and operational activities (collectively, the “Inflection Services”), in exchange for a $45,000 deposit, a $60,000

monthly retainer, and an incentive compensation of 1,000,000 shares of common stock or warrants to purchase 1,500,000 shares of

common stock .

As of the issuance date of these consolidated financial statements, 1,000,000 shares of common stock have been issued to Inflection

Partners as compensation for services provided to the Company.

January 11, 2021, the Company entered into

a Services Agreement (the “TE Services Agreement”), for a period of one month, with Trending Equities Corp.

(“Trending

Equities”), pursuant to which the Company engaged Trending Equities to provide certain social media awareness and consulting

and investor relations services (the “TE Services”).

In connection therewith, the Company issued 500,000 shares of

the Company’s restricted common stock to Trending Equities as partial consideration for the TE Services to be rendered to

In addition, the Company must pay Trending Equities $7,500 as a monthly fee for the term of the TE Services Agreement

and an advertising fee of $275,000, due on the effective date of the TE Services Agreement.

The initial term of the TE Services

Agreement was extended in February 2021.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data