What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-02-16 compared with 2021-02-12 · 450 added, 393 removed, 71 unchanged (92% of the section changed)

in this Report, the terms “we,” “us,” “our,” “the Registrant,” the “Company,”

and “Kaival” refer to Kaival Brands Innovations Group, Inc., unless otherwise indicated.

Corporate History

We were incorporated on September 4, 2018 in

the State of Delaware.

and USSE Delaware Merger

USSE Corp., a Nevada corporation (“USSE

Corp.”), was incorporated with the Nevada Secretary of State on July 8, 1998 under the original name C&A Restaurants,

(“C&A Restaurants”).

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

Effective September 19, 2018, USSE Corp.

from Nevada to Delaware pursuant to a merger of USSE Corp.

with and into USSE Delaware, Inc., a Delaware corporation (“USSE

Delaware”), with USSE Delaware as the surviving entity (the “Re-domestication Merger”).

Each share of USSE Corp.’s

capital stock issued and outstanding immediately prior to the effective date of the Re-domestication Merger was automatically converted

into one fully paid and nonassessable share of USSE Delaware.

Immediately following the Re-domestication

Merger, USSE Delaware was authorized to issue up to 1,005,000,000 shares, which consisted of:

(i) 1,000,000,000 shares of common

stock, par value $0.001 per share, of which 66,397,574 shares were issued and outstanding at such date;

and (ii) 5,000,000 shares

of preferred stock, par value $.001 per share, of which (a) 1,000,000 shares were designated as Convertible Series A, all of which

were issued and outstanding at that date;

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 at that date.

Holding Company Reorganization

On September 4, 2018, USSE Delaware acquired

1,000 shares of our common stock, which represented 100% of our then-outstanding shares of common stock, for no consideration,

resulting in us becoming a wholly-owned subsidiary of USSE Delaware.

Also, immediately prior to the Holding Company Reorganization

(as defined below), USSE Merger Sub, Inc., a Delaware corporation (“USSE Merger Sub”), was our wholly-owned subsidiary.

On September 19, 2018 (the “Effective

Time”), and in accordance with the provisions set forth in Section 251(g) of the Delaware General Corporation Law (“DGCL”),

USSE Merger Sub, an indirect wholly-owned subsidiary of USSE Delaware and our direct wholly-owned subsidiary, merged with and into

USSE Delaware, our then parent (the “Holding Company Reorganization”).

USSE Delaware was the surviving corporation

and our wholly-owned subsidiary.

USSE Delaware also changed its name to USSE Corp.

following the Holding Company Reorganization.

Upon completion of the Holding Company Reorganization,

by virtue of the merger, and without any action on the part of the holder thereof, each share of USSE Delaware’s common stock

issued and outstanding immediately prior to the Effective Time of the Holding Company Reorganization was automatically converted

into one validly issued, fully paid, and non-assessable share of our common stock.

Additionally, each share of USSE Delaware’s

preferred stock issued and outstanding immediately prior to the Effective Time was converted into one validly issued, fully paid,

and non-assessable share of our preferred stock, having the same designations, rights, powers, and preferences, and the qualifications,

limitation, and restrictions thereof, as the corresponding share of USSE Delaware’s preferred stock.

Each share of our

common stock issued and outstanding and held by USSE Delaware immediately prior to the Effective Time was cancelled.

This resulted in us being authorized to issue

up to 1,005,000,000 shares, which consisted of:

(i) 1,000,000,000 shares of common stock, par value $0.001 per share 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 outstanding.

Post-Holding Company Reorganization

On October 19, 2018, we issued 500,000,000

shares of restricted common stock and 400,000 shares of Convertible Series B preferred stock to GMRZ Holdings LLC, a Nevada limited

liability company (“GMRZ”), for services rendered to us.

Commensurate with the filing of our Amended

and Restated Certificate of Incorporation with the Delaware Secretary of State on October 22, 2018, every issued and outstanding

share of Convertible Series A preferred stock was converted into 1.25 shares of common stock with stockholders’

rights preserved.

Additionally, at the same time, every share of Convertible Series B preferred stock issued and outstanding was

converted into ten shares of common stock with stockholders’

economic rights adversely affected in the conversion.

following the conversion of the aforementioned shares, and upon filing of the Amended and Restated Certificate of Incorporation,

the authorized and unissued shares of Convertible Series A and Convertible Series B preferred stock were cancelled.

As of October

22, 2018, the Convertible Series A and Series B preferred stock were removed from the status of authorized but unissued preferred

On February 6, 2019, we entered into a non-binding

Share Purchase Agreement (the “Agreement”) by and among GMRZ, Kaival Holdings, LLC (formerly known as Kaival Brands

Innovations Group, LLC), a Delaware limited liability company (“KH”), and us, 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 our then-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 us, with KH

becoming our largest controlling stockholder.

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

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

Effective July 12, 2019, we changed our corporate

name from Quick Start Holdings, Inc.

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.

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.

Share Cancellation and Exchange Agreement

On August 19, 2020, we entered into a Share

Cancellation and Exchange Agreement (the “Share Cancellation and Exchange Agreement”) with our controlling stockholder,

Pursuant to the Share Cancellation and Exchange

Agreement, KH returned to us 300,000,000 shares of our common stock (the “Cancellation Shares”), which Cancellation

Shares were cancelled and retired by us.

Following such cancellation, KH owns 204,000,000 shares of our common stock.

August 19, 2020, we filed a Certificate of Designation of Preferences, Rights, and Limitations of the Series A Preferred

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

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

Stock ”).

series of preferred stock, whether now or hereafter designated, may by their respective terms have a preference over the

Series A Preferred Stock in respect of distribution upon liquidation, dividends, or any other right or matter.

The number of

shares so designated is three million (3,000,000) shares, par value $0.001 per share, and such amount cannot be

increased except by the favorable vote or the written consent of the holders of at least a majority of the issued and

outstanding shares of Series A Preferred Stock or by a resolution of our Board of Directors (our “Board”).

number of shares of Series A Preferred Stock may be decreased by the written consent of the holders of at least a majority of

the issued and outstanding shares of Series A Preferred Stock or by a resolution of our

provided, however, that no decrease will reduce the number of shares of Series A Preferred Stock to a

number less than the number of the shares then outstanding plus the number of shares issuable upon exercise of outstanding

rights, options, or warrants or upon conversion of outstanding securities issued by us.

The holders of the Series A Preferred

Stock do not have any preferential dividend rights and will be entitled to receive dividends, if any, only if,

when, and as declared by our Board in its sole and absolute discretion.

The holders of the Series A Preferred Stock have no

voting rights.

At any time on or after November 1, 2023, each share of Series A Preferred Stock is convertible, at the option

of the holder thereof.

Notwithstanding the foregoing, the holders of Series A Preferred Stock will be entitled to convert

their shares of Series A Preferred Stock prior to November 1, 2023 if any of the following events occur:

(i) a Change of

Control (as defined in the Certificate of Designation) or (ii) any other event as determined and agreed to by us and by

the holders holding a majority of the issued and outstanding shares of Series A Preferred Stock.

Each share of the Series A

Preferred Stock is convertible into one hundred shares of common stock, par value $0.001 per share.

In exchange for the Cancellation Shares, we

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

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

Act , in that the issuance was exempt from the registration requirements of the Act because the exchange of the Cancellation Shares

for the Preferred Shares was an exchange between us, as issuer, with an existing stockholder, and no commission or other remuneration

was paid or given directly for the exchange.

On August 31, 2020, we formed Kaival Labs,

Inc., a Delaware corporation (“Kaival Labs”), as our wholly owned subsidiary.

Company Reorganization

4, 2018, USSE Delaware, Inc., a Delaware corporation (“USSE Delaware”) acquired all of our then-outstanding shares

of common stock, par value $0.001 per share (our “Common Stock”), resulting in us becoming its wholly-owned subsidiary.

On September 19, 2018, our wholly-owned subsidiary, USSE Merger Sub, Inc., a Delaware corporation (“USSE Merger Sub”),

merged with and into USSE Delaware, our then parent, effected a reorganization (the “Holding Company Reorganization”)

in accordance with the provisions set forth in Section 251(g) of the Delaware General Corporation Law (“DGCL”).

Delaware was the surviving corporation and our wholly-owned subsidiary.

USSE Delaware also changed its name to USSE Corp.

the Holding Company Reorganization.

completion of the Holding Company Reorganization, by virtue of the merger, and without any action on the part of the holder thereof,

each share of USSE Delaware’s common stock issued and outstanding immediately prior to the effective time of the Holding

Company Reorganization was automatically converted into one validly issued, fully paid, and non-assessable share of our Common

Additionally, each share of USSE Delaware’s preferred stock issued and outstanding immediately prior to the

effective time was converted into one validly issued, fully paid, and non-assessable share of our preferred stock, having the

same designations, rights, powers, and preferences, and the qualifications, limitation, and restrictions thereof, as the corresponding

share of USSE Delaware’s preferred stock.

Each share of our Common Stock issued and outstanding and held by USSE Delaware

immediately prior to the effective time was canceled.

Change of Controls

19, 2018, we issued 500,000,000 shares of restricted Common Stock and 400,000 shares of Convertible Series B preferred stock to

GMRZ Holdings LLC, a Nevada limited liability company (“GMRZ”), for services rendered to us.

GMRZ became our

controlling stockholder as a result of such issuances.

On February 6, 2019, we entered into a non-binding Share Purchase Agreement

(the “Agreement”) by and among GMRZ, Kaival Holdings, LLC (formerly known as Kaival Brands Innovations Group, LLC),

a Delaware limited liability company (“KH”), and us, pursuant to which, on February 20, 2019, GMRZ sold 504,000,000

shares of our restricted Common Stock, representing approximately 88.06 percent of our then-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”).

consummation of the transactions contemplated by the Agreement resulted in a change in control of us, with KH becoming our largest

controlling stockholder.

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

The Purchase Price was paid with

personal funds of the members of KH.

Cancellation and Exchange Agreement

19, 2020, we entered into a Share Cancellation and Exchange Agreement (the “Share Cancellation and Exchange Agreement”)

with our controlling stockholder, KH.

to the Share Cancellation and Exchange Agreement, KH returned to us 300,000,000 shares of our Common Stock (the “Cancellation

Shares”), which Cancellation Shares were canceled and retired by us.

Following such cancellation, KH owns 204,000,000 shares

of our Common Stock.

19, 2020, we filed a Certificate of Designation of Preferences, Rights, and Limitations of the Series A Preferred Stock (the “Series

A Certificate of Designation”) with the Secretary of State of the State of Delaware, which authorized a total of 3,000,000

shares, par value $0.01 per share, of Series A Preferred Stock (the “Series A Preferred Stock”).

for the Cancellation Shares, we issued 3,000,000 shares (the “Preferred Shares”) of our newly designated 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, in that the issuance was exempt from the registration requirements of the Act because

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

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

31, 2020, we formed Kaival Labs, Inc., a Delaware corporation (“Kaival Labs”), as our wholly owned subsidiary.

16, 2021, we filed a Certificate of Amendment to the Amended and Restated Certificate of Incorporation with the Secretary of State

of the State of Delaware to effect a 1-for-12 reverse stock split (the “Reverse Stock Split”) of the shares of our

Common Stock.

The Reverse Stock Split was effective as of 12:01 a.m.

Eastern Time on July 20, 2021.

No fractional shares were

issued in connection with the Reverse Stock Split.

Any fractional shares of our Common Stock that would have otherwise resulted

from the Reverse Stock Split were rounded up to the nearest whole number.

In connection with the Reverse Stock Split, our Board

approved appropriate and proportional adjustments to all outstanding securities or other rights convertible or exercisable into

shares of our Common Stock, including, without limitation, all preferred stock, warrants, options, and other equity compensation

All historical share and per-share amounts reflected throughout our consolidated financial statements and other financial

information in this Report have been adjusted to reflect the Reverse Stock Split as if the split occurred as of the earliest period

The par value per share of our Common Stock was not affected by the Reverse Stock Split.

Business Information

Description of Business

We are focused on growing and incubating innovative

and profitable products into mature, dominant brands.

In March 2020, we commenced business operations as a result of becoming the

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

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

Nirajkumar Patel, our Chief Executive Officer and Chief Financial Officer.

On March 9, 2020, we 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”).

Pursuant to the A&R Distribution

Agreement, Bidi granted to us an exclusive worldwide right to distribute the Products for sale and resale to both retail level

customers and non-retail level customers.

We are focused on growing and incubating

innovative and profitable products into mature, dominant brands.

On March 9, 2020, we commenced business operations by entering

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 and again on April 20, 2021 (collectively the “A&R Distribution Agreement”)

in order to clarify some of the provisions.

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

right to distribute the ENDS and related components (the “Products”) for sale and resale to both retail level customers

and non-retail level customers.

We ceased all retail/direct-to-consumer sales in February 2021.

Pursuant to the terms of the A&R Distribution Agreement, Bidi provides us with all the

branding, logos, and marketing materials to be utilized by us in connection with our marking and promotion of the Products.

do not manufacture any of the Products we resell.

Currently, the Products consist primarily of the “BIDI ®

Stick,” a disposable, tamper-resistant ENDS Product and, once launched, of which there can be no assurances, the “BIDI ®

Pouch,” which provides a tobacco-derived nicotine formulation, containing natural fibers and a chew-base filler.

The A&R Distribution Agreement extends

the previous one-year, annual renewable term to an initial term of ten years, which automatically renews for another five-year

provided, that we satisfy certain minimum purchase thresholds.

The A&R Distribution Agreement also provides us with a

right of first refusal in the event Bidi receives an offer that would constitute a “change of control transaction,”

as well as a right of first refusal to act as the exclusive distributor of any and all future products of Bidi that arise out of

or related to ENDS and components related to ENDS, , or arise out of or related to the tobacco-derived nicotine industry.

In connection with the A&R Distribution

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parties in order to clarify certain provisions (all such sub-distribution agreements, as amended and restated, are collectively

referred to as the “Sub-Distribution Agreements”), whereby we appointed the counterparties as non-exclusive sub-distributors.

Pursuant to the 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”).

September 28, 2020, we entered into a patent contribution agreement (the “Patent Contribution Agreement”) with Kaival

Labs, our 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 us, which we plan to then subsequently

transfer to Kaival Labs.

Pursuant to the Patent Contribution

Agreement, we agreed to pay Next Generation a purchase price of $3 million for the Patents (the “Purchase

Price”), which is expected to be paid overtime upon two events.

First, we expect 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, we 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, we 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 this Report, none of the

Patents have been transferred, no payments have been made to Next Generation, and none of the triggering events under the Patent

Contribution Agreement have occurred.

Product Offerings

Pursuant to the A&R Distribution Agreement,

we sell and resell electronic nicotine delivery systems, which we may refer to herein as “ENDS Products”, or “e-cigarettes”,

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

Our primary Product we resell is the “Bidi Stick,”

disposable, tamper-resistant ENDS Product that comes in a variety of flavor options.

In addition to the Bidi Stick, we also recently

launched distribution of the “Bidi Pouch”

in February 2021.

The Bidi Pouch provides a tobacco-free nicotine formulation,

which contains natural fibers and a chew-base filler in six different flavors.

We do not manufacture any of the products we resell.

The Bidi Stick and Bidi Pouch are manufactured by Bidi, a related party company.

Pursuant to the terms of the A&R Distribution

Agreement, Bidi provides us with all branding, logos, and marketing materials to be utilized by us in connection with our marketing

and promotion of the Products.

We process all sales made to retail customers

and non-retail customers, with all sales to retail customers to be made through the website, www.bidivapor.com.

We provide all

customer service and support at our own expense.

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

We process all sales made only to non-retail

customers, with all sales to non-retail customers made through Bidi’s age-restricted website, www.wholesale.bidivapor.com.

We ceased all retail/direct-to-consumer sales in February 2021 in order to better ensure youth access prevention and to comply

with the Prevent All Cigarette Trafficking (“PACT”) Act.

We provide all customer service and support at our own expense.

Bidi sets the minimum prices for all sales made by us.

With respect to sales to

non-retail customers, we submit purchase orders to Bidi, Bidi delivers the Products to us, and we ship the Products directly to

these non-retail customers.

In the case of retail customers, we maintain adequate inventory levels of the Products in order to

meet these customers’

demand, and deliver the Products sold to these retail customers.

We maintain adequate inventory levels of the Products in order to meet the

demands of our non-retail customers, and deliver the Products sold to these customers.

FDA PMTA Determinations – Impact

September 2021, in connection with the PMTA process, the FDA effectively “banned” flavored ENDS by denying nearly

all then-pending PMTAs for such products.

Following the issuance of an MDO, manufacturers are required to stop selling non-tobacco

flavored ENDS products.

As of September 10, 2021, the FDA announced that it has taken action on over 93% of applications and issued

Marketing Denial Orders (“MDOs”) for more than 1,167,000 flavored ENDS products, while issuing zero marketing authorizations.

Bidi, along with nearly every other company in the ENDS industry, received a MDO for its non-tobacco flavored ENDS products.

respect to Bidi, the MDO covered all non-tobacco flavored BIDI® Sticks, including its Arctic (menthol) BIDI® Stick, which

Bidi believes the FDA mischaracterized as “flavored.” BIDI believes that because its Arctic BIDI® Stick is menthol,

it should not be subject to the MDO.

Bidi and the Company believe this position is aligned with the FDA’s public statements

and press releases stating that tobacco and menthol ENDS are not deemed flavored products subject to the MDOs.

September 21, 2021, Bidi filed a 21 C.F.R.

§ 10.75 internal FDA review request specifically of the decision to include the

Arctic BIDI® Stick in the MDO.

We anticipate a decision from the FDA on the internal review in the second or third quarter

of 2022, however, we cannot provide any assurances as to the timing or outcome.

Further, on October 22, 2021 pursuant to 21 C.F.R.

§ 10.35(a), the FDA issued an administrative stay of Bidi’s MDO pending its re-review of the MDO, which FDA initiated

at Bidi’s request.

FDA lifted this administrative stay on December 17, 2021.

Separate from the MDO re-review request and

the Section 10.75 petition for the Arctic BIDI® Stick, on September 29, 2021, Bidi also filed a petition with the U.S.

of Appeals for the Eleventh Circuit (the “Eleventh Circuit Court of Appeals”) initiating an appeal of the MDO.

arguments in the merits-based case are currently scheduled to occur in May 2022.

Until the Eleventh Circuit Court of Appeals makes

a final determination in this case, its judicial stay of the MDO issued on February 1, 2022 will remain in place.

The court-ordered

stay means that the MDO is not legally in force.

Accordingly, we anticipate being able to continue marketing and selling the Products,

subject to the FDA’s enforcement discretion, while Bidi continues with its merits case challenging the legality of the MDO.

FDA has indicated that it is prioritizing enforcement against companies that have either not submitted PMTAs, or whose PMTAs have

been refused acceptance or filing by FDA, or whose PMTAs remain subject to MDOs.

Historically,

substantially all of our revenues were derived from sales of flavored BIDI® Sticks, including the Arctic (menthol) BIDI®

Stick, sales of which constituted approximately 18.4% and 12.9%, respectively,

of our total sales of BIDI® Sticks for the twelve months ended October 31, 2021 and

October 31, 2020.

substantially all of the ENDS industry’s revenue is derived from the sales of flavored products.

business is ultimately dependent upon the outcomes of the FDA’s decision on Bidi’s Section 10.75 petition regarding

the inclusion of the Arctic BIDI® Stick in the MDO and the Eleventh Circuit Court of Appeal’s ruling on Bidi’s

challenge of the MDO.

Despite the ongoing uncertainty regarding the

ENDS industry, including the FDA’s review and PMTA process generally, and the outcome of Bidi’s pending litigation

specifically, Bidi informed us that it is not wavering in its commitment to demonstrating that all its BIDI® Stick products

are appropriate for the protection of the public health and demonstrating to the FDA that these products should remain on the market

as an alternative for adult cigarette smokers.

In this regard, Bidi has appealed the MDO (and already received a court-ordered

stay of the denial) and plans on continuing to complete multiple ongoing studies, including a clinical pharmacokinetic, or PK,

study, and several actual use and perception and intention studies to support its PMTA.

Data for several of these studies has already

been submitted to the FDA and indicate that, compared to tobacco-flavored ENDS, the flavored BIDI® Sticks do indeed provide

an added benefit for adult cigarette smokers while outweighing any risks to youth posed by flavored ENDS, particularly when considering

Bidi’s stringent youth access prevention measures.

Current Product Offerings

Pursuant to the A&R Distribution Agreement,

we sell and resell ENDS Products, also referred to as (“e-cigarettes”), to non-retail level customers.

Product we resell is the “BIDI ® Stick,” a disposable, tamper-resistant ENDS product that comes in a

variety of flavor options for adult cigarette smokers.

The court-ordered stay means that the MDO is not legally in force.

we anticipate being able to continue marketing and selling the Products, subject to the FDA’s enforcement discretion, while

Bidi continues with its merits case challenging the legality of the MDO.

FDA has indicated that it is prioritizing enforcement

against companies that have either not submitted PMTAs, or whose PMTAs have been refused acceptance or filing by FDA, or whose

PMTAs remain subject to MDOs.

All of our flavor options will continue to be available to the 11 European Markets we have received

marketing and distribution approvals.

We are wholly dependent on Bidi to supply the BIDI® Sticks to us for distribution.

any supply or other issues that impact Bidi, indirectly impacts us and our ability to operate our business.

In addition to the BIDI ®

Stick, we anticipated launching distribution of the “BIDI ® Pouch,” initially outside of the United States.

The initial planned February 2021 roll-out of the BIDI ® Pouch was delayed due to COVID-19 based manufacturing and

supply chain constraints.

Due to these complications, and in effort to prevent future bottlenecks, Bidi decided to move manufacturing

In 2021, Bidi modified the planned formulation of the BIDI ® Pouch.

The original BIDI ® Pouch

formulation intended to utilize a tobacco-free (synthetic) nicotine formulation, along with natural fibers and a chew-base filler

in six different flavors.

However, the BIDI ® Pouch product is now being placed on temporary hold domestically due

to the likelihood of the FDA enforcement of synthetic nicotine products as drugs, which will require a PMTA determination from

More specifically, while the BIDI ® Pouch, which made with synthetic (tobacco-free) nicotine, would not

fall within the meaning of a tobacco product as set forth in the Food, Drug and Cosmetic Act (“FDCA”), the FDA could

take the position that such product is a drug.

A drug is defined in Section 201(g) of the FDCA, in pertinent part, as “articles

intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals” (i.e.,

the “disease” or “therapeutic benefit” prong) or “articles (other than food) intended to affect the

structure or function of the body of man or other animals” (i.e., the “structure/function” prong).

Given nicotine’s

well-known structure/function effect on the body there is a chance the FDA will take the position that synthetic nicotine products,

such as the BIDI ® Pouch, are subject to the FDA’s drug authority and can only be marketed with an approved

New Drug Application (even if no disease or therapeutic benefit claims are made).

Indeed, prior to the enactment of the Tobacco

Control Act (the “Tobacco Control Act”), the FDA historically took the position that any product with added nicotine

(other than traditional tobacco products) was a drug, even when marketed for recreational use and without specific claims of smoking

cessation or other therapeutic benefit.

It is, of course, illegal to distribute a drug without the FDA’s approval.

these concerns, Bidi has decided not to launch the synthetic-nicotine BIDI ® Pouch at this time, but will instead

seek a PMTA marketing authorization from the FDA for the BIDI ® Pouch made with tobacco-derived nicotine.

On July 14, 2021, we announced plans to launch

our first Kaival-branded product, a Hemp CBD product.

In addition to our Kaival-branded formulation, we anticipate that we will

also provide white label, wholesale solutions for other product manufacturers through our subsidiary, Kaival Labs.

of the date of this Report, we have not launched any Kaival-branded products, nor have we begun to offer white label, wholesale

solutions to other product manufacturers.

Once we launch a Hemp CBD product, of which

there can be no assurances, we intend that all CBD products will be produced and distributed strictly in compliance under the 2018

Farm Bill, which defines hemp as the plant Cannabis sativa and any part of the plant with a delta-9 THC concentration of not more

than 0.3 percent by dry weight.

According to the 2018 Farm Bill, hemp-derived products can be offered for retail sale in the many

smoke, pouch, tinctures, topicals, capsules, vape oil and gummies/edibles.

We plan to utilize Bidi’s patented BIDI ®

Stick delivery mechanism in order to provide a similar, premium experience in the initial CBD product line.

We expect our industrial-grade

hemp CBD formula to provide greater bioavailability than many market peers, resulting in a better consumer experience in less usage.

Recycling Program

In addition to our current product offerings,

Bidi launched its recycling program, Bidi Cares, in the spring of 2020 that provides an opportunity for its adult (21+) customers

to recycle their Bidi Sticks and be rewarded with a free Bidi Stick after recycling ten used Bidi Sticks.

Each Bidi Stick contains

UL 8139 Certified batteries, which are high-quality, recyclable batteries that are distinguishable from batteries used in other

ENDS Products.

Bidi invests in recyclable batteries as a more sustainable solution to reduce electronic waste.

Bidi launched its recycling program, Bidi Cares, in the spring of 2020 that provides an opportunity for its adult (21 years of

age or older) customers to recycle their BIDI ® Sticks and be rewarded with a free BIDI ® Stick after

recycling ten used BIDI ® Sticks.

Each BIDI ® Stick contains UL 8139 Certified batteries, which are

high-quality, recyclable batteries that are distinguishable from batteries used in other ENDS Products.

Bidi invests in recyclable

batteries as a more sustainable solution to reduce electronic waste.

Marketing Strategy

1 unchanged sentence

into national distribution channels through long-standing industry relationships in accordance with the A&R Distribution Agreement.

We process all sales made to retail customers and non-retail customers, with all sales to retail customers made through the website,

www.bidivapor.com.

We process all sales made to non-retail customers.

Our long-term marketing strategy remains based

on our commitment to preventing underage access to our Products.

As such, we steer away from social media marketing, and, instead,

are more focused on ground-level marketing and advertising within authorized retailer locations ( i.e .

advertisement on retail

partners’

back-bar tobacco products area).

Part of this ground-level marketing effort focuses on supporting our authorized

partner stores and distributors in spreading brand awareness of our Products to their adult (21+) consumer base by providing in-store

marketing materials.

Additionally, we supplement these efforts with informational videos on Bidi’s fight against underage

access to vape products and content on what makes the Bidi Stick and the Bidi Pouch unique, among other types of content.

stores also have access to online informative videos about the Bidi story, which can be used to educate and assist in training

all of their staff members about the core values of Bidi.

the recycling initiative to the commitment to preventing underage vaping, and stand against the illicit market of vapor products,

we believe that together with Bidi, we are taking the necessary steps to ensure that our partners are aligned with our community

also attends trade shows at established expos throughout the United States, such as the National Association for Convenience Stores

(NACS) Show held in the fourth quarter of calendar year 2020.

Bidi anticipates attending additional trade shows in calendar year

Further, Bidi has a dedicated marketing team that focuses on these marketing efforts and more.

Throughout fiscal 2020, we significantly increased

the distribution of the Bidi Stick through national retailers, which we believe will continue to grow significantly in fiscal 2021.

In March 2020, we entered into an agreement with Lakshmi Distributer Inc., doing business as C Store Master (“C Store Master”),

which currently distributes to Circle K convenience stores.

With this relationship, we expanded our distribution footprint to more

than 5,000 Circle K locations during fiscal 2020.

Currently, our distribution footprint includes more than 30,000 retail stores,

including Circle K and 7 ELEVEN locations across the country.

Our Products are also accessible through the digital delivery service

mobile applicable, GoPuff, in more than 50 cities across the U.S.

We expect that in the third or fourth quarter

of fiscal 2021, we will launch distribution of the Products in Europe, which will further expand our distribution footprint.

As of the date of this Report we have eight

employees, all of whom are full time, including our officers and directors.

In addition to our officers and directors, we have

employees who fulfill the roles of sales staff, information technology, web development, warehouse staff and account management.

All of our employees are eligible to enroll, or have already enrolled, in our medical plan.

and Government Regulation Related to our Operations

We are a retail and wholesale distributor of

pre-packaged products, namely the Bidi Stick, an e-cigarette that comes in a variety of flavors, designed and manufactured by Bidi.

Bidi is a related third party that sells us the Products that we resell to other retailers and wholesalers, which include, but

are not limited to, C Store Master, who distributes to Circle K convenience stores, and 7-Eleven convenience stores.

we are only a retailer and wholesale distributor of the Bidi Stick and Bidi Pouch, we believe that we are only subject to Federal,

state, and international laws pertaining to a distributor, not a manufacturer, of ENDS Products.

Our business is dependent entirely on the resale

of the Products provided by Bidi;

thus, there is a significant risk that our business could be materially adversely affected if

Bidi, as the manufacture, does not properly abide by any Federal, state, or international laws that regulate ENDS Products.

lapse in production or availability of the Products from Bidi would hamper our ability to operate as we would be limited in our

ability to supply our customers if our inventory ran low, or ceased to exist entirely.

As a manufacturer of ENDS Products, Bidi is

responsible for abiding by and following various rules and regulations pertaining to the manufacturing of the ENDS Products we

sell and any lapse in abiding by any pertinent rules and regulations may negatively impact our ability to operate.

on FDA compliance and our commitment to preventing underage access to our Products.

As such, we steer away from social media marketing

and, instead, are more focused on ground-level marketing and advertising within authorized retailer locations ( i.e .

on retail partners’ back-bar tobacco products area).

Part of this ground-level marketing effort focuses on supporting our

authorized partner stores and distributors in spreading brand awareness of our Products to their adult (21 years of age and older)

consumer base by providing in-store marketing materials.

Additionally, we supplement these efforts with informational videos on

Bidi’s fight against underage access to vape products and content on what makes the BIDI ® Stick unique, among

What changed 10-K

Item 1. Business