What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-16 compared with 2021-02-12 · 957 added, 729 removed, 121 unchanged (93% of the section changed)

Financial Statements and Supplementary

Financial Statements and

Supplementary Data.

BRANDS INNOVATIONS GROUP, INC.

1 unchanged sentence

TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firms

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’

Equity (Deficit)

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Kaival Brands Innovations Group, Inc.

Opinion on the Financial Statements

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.

We have audited the accompanying consolidated balance

sheets of Kaival Innovations Group, Inc.

(collectively, the “Company”) as of October 31, 2021 and 2020, and the related consolidated

statements of operations, stockholders’ equity, and cash flows for the years then ended, 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, 2021 and 2020, 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.

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 negative

operating cash flows.

Additionally, the Company operates in a rapidly changing legal and regulatory environment;

new laws and regulations

or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result

in additional costs.

Additionally, the Company’s exclusive supplier was required to apply for FDA approval to continue selling and

marketing its products in the United States.

There can be no assurance the FDA will approve the applications.

These matters raise 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.

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

Basis for Opinion

These financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance

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.

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance 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.

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a

reasonable basis for our opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor

We have served as the Company's auditor since 2018.

Houston, Texas

February 15, 2022

Kaival Brands Innovations Group, Inc.

Consolidated Balance Sheet

Kaival Brands Innovations Group,

Consolidated Balance Sheets

receivable – related parties

deposit – related party

tax receivable

current assets

Accounts receivable

Accounts receivable –

related parties

Total current assets

Right of use asset- operating lease

LIABILITIES AND STOCKHOLDERS’

EQUITY (DEFICIT)

of use asset- operating lease

AND STOCKHOLDERS’ EQUITY

payable- related party

lease obligation, short term

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’

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

Retained earnings (accumulated deficit)

Total Stockholders’

Equity (Deficit)

TOTAL LIABILITIES & STOCKHOLDERS’

EQUITY (DEFICIT)

The accompanying notes are an integral part

of these audited consolidated financial statements.

Kaival Brands Innovations Group, Inc.

TERM LIABILITIES

lease obligation, net of current portion

STOCKHOLDERS’

stock 5,000,000 shares authorized;

Series A Convertible Preferred stock ($ 0.001 par value, 3,000,000 shares authorized , 3,000,000

shares issued and outstanding as of October 31, 2021 and October 31, 2020, respectively)

Common stock ($ 0.001

par value, 1,000,000,000 shares authorized, 30,195,312 and 23,106,886 issued and outstanding as of October 31, 2021 and October

31, 2020, respectively)

paid-in capital

earnings (accumulated deficit)

( 5,260,841 )

Stockholders’ Equity

LIABILITIES & STOCKHOLDERS’ EQUITY

The accompanying notes are an

integral part of these audited consolidated financial statements.

Kaival Brands Innovations Group,

Consolidated Statements of Operations

Ended October 31,

Revenues - related parties

Excise tax on products

Total revenues

- related parties

tax on products

revenues, net

of revenue - related party

of revenue – other

cost of revenue

Cost of revenue - related party

Cost of revenue –

Total cost of revenue

and promotions

& Administrative expenses

operating expenses

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.

(loss) before income taxes provision

( 10,468,636 )

(benefit) for income taxes

( 1,435,198 )

income (loss)

$ ( 9,033,438 )

income (loss) per common share - basic and diluted

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)

Consolidated Statements of Changes in Stockholders’ Equity

For the years ended October 31, 2021 and 2020

Convertible Preferred Shares

Convertible Preferred Shares (Series A)

Par Value Convertible Preferred Shares (Series A)

Common Shares

Par Value Common Shares

2 unchanged sentences

Balances, October 31, 2019

$ 572,364,574

Common stock issued for employee compensation

Common stock issued for compensation

Common stock settled and canceled

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

Expenses paid on behalf of the Company and contributed to capital

Balances, October 31, 2020

Common stock issued for employee compensation

Common stock settled and canceled

Common stock issued for compensation

Stock option expense

Common stock issued for cash, net of financing cost

Common stock issued for warrant exercise

Balances, October 31, 2021

( 5,260,841 )

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

The accompanying notes are an integral

part of these audited consolidated financial statements.

the Year Ended October 31, 2021

the Year Ended October 31, 2020

FLOWS FROM OPERATING ACTIVITIES

income (loss)

$ ( 9,033,438 )

Expenses paid on behalf of the Company and contributed to capital

Balances, October 31, 2020

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

based compensation

option expense

operating lease expense

contributed to capital

in current assets and liabilities:

( 1,401,562 )

The accompanying notes are an integral part

of these audited consolidated financial statements.

Kaival Brands Innovations Group, Inc.

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 and Description of Business

receivable – related parties

( 15,319,987 )

deposit – related party

( 2,925,000 )

tax receivable

( 1,753,594 )

payable – related party

( 1,331,856 )

on operating lease obligation

cash (used in) provided by operating activities

( 9,313,241 )

FLOWS FROM FINANCING ACTIVITIES:

stock issued for cash, net of financing cost

from the exercise of warrants

RSU shares with cash

cash provided by (used in) financing activities

change in cash and restricted cash

cash and restricted cash balance

DISCLOSURE OF CASH FLOW INFORMATION:

INVESTING AND FINANCING ACTIVITIES:

Recognition of ROU Asset and Liability

of common shares into Series A Preferred

The accompanying notes are an integral

part of these audited consolidated financial statements.

KAIVAL BRANDS INNOVATIONS GROUP,

NOTES TO THE CONSOLIDATED FINANCIAL

Note 1 – Organization and Description of Business

Kaival Brands Innovations Group, Inc.

“Company,”

the “Registrant,”

“we,”

“us,”

or “our”), formerly known

(the “Company,” the “Registrant,” “we,” “us,” or “our”), formerly known

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

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.

(“C&A Restaurants”).

On June 15, 2009, C&A Restaurants changed

its name to USSE Corp.

Effective September 19, 2018, USSE Nevada re-domiciled

from Nevada to Delaware pursuant to a merger of USSE Nevada 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 Nevada’s

common 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;

(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 at that date;

and (b) 500,000 shares were designated as Convertible Series B, of which 71,700 Convertible

Series B preferred shares were issued and outstanding at that date.

Holding Company Reorganization

On September 4, 2018, USSE Delaware acquired

1,000 shares of common stock of the Company, which represented 100% of the Company’s then-outstanding shares of common stock,

for no consideration, resulting in the Company 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 the Company’s 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 the Company’s direct wholly-owned subsidiary merged

with and into USSE Delaware, the Company’s then parent (the “Holding Company Reorganization”).

USSE Delaware

was the surviving corporation and the Company’s 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 the Company’s 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 the Company’s preferred stock, having the same designations, rights,

powers, and preferences, and the qualifications, limitations, and restrictions thereof, as the corresponding share of USSE Delaware’s

preferred stock.

Each share of the Company’s common stock issued and outstanding and held by USSE Delaware immediately

prior to the Effective Time was cancelled.

This resulted in the Company 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, the Company issued 500,000,000

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

liability company (“GRMZ”), for services rendered to the Company.

Commensurate with the filing of the Company’s

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 shareholders’

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

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) (“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

name from Quick Start Holdings, Inc.

to Kaival Brands Innovations Group, Inc.

The name change was effected through a parent/subsidiary

short-form merger of Kaival Brands Innovations Group, Inc., our wholly-owned Delaware subsidiary formed solely for the purpose

of the name change, with and into us.

We were the surviving entity.

On the effective date of the merger, our name

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.

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

Current 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”)

On March 9, 2020, the Company entered into an exclusive distribution

agreement (the “Distribution Agreement”) of certain electronic nicotine delivery systems (“ENDS”) and related

components (the “Products”) with Bidi Vapor, LLC, a Florida limited liability company (“Bidi”), a related

party company that is also owned by Nirajkumar Patel, the Chief Executive Officer of the Company.

The 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 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.”

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

Currently, the Products consist

primarily of the “Bidi Stick.” The Company ceased all retail/direct-to-consumer sales in February 2021.

In connection with the A&R Distribution

1 unchanged sentence

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 –

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.

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

On July 16, 2021, the Company 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 the Company’s

common stock, par value $ 0.001 per share (the “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 Common Stock that would have otherwise resulted from the Reverse Stock Split will be rounded up to the nearest whole number.

In connection with the Reverse Stock Split, the Board of Directors (the “Board”) approved appropriate and proportional

adjustments to all outstanding securities or other rights convertible or exercisable into shares of Common Stock, including, without

limitation, all preferred stock, warrants, options, and other equity compensation rights.

All historical share and per-share amounts

reflected throughout our consolidated financial statements and other financial information herein have been adjusted to reflect

the Reverse Stock Split as if the split occurred as of the earliest period presented.

The par value per share of the Common Stock

was not affected by the Reverse Stock Split.

Current Product Offerings

the A&R Distribution Agreement, The Company sells and resells electronic nicotine delivery systems, which it may refer to

herein as “ENDS Products”, or “e-cigarettes”, to non-retail level customers.

The sole Product the Company

resells is the “BIDI ® Stick,” a disposable, tamper-resistant ENDS product that comes in a variety

of flavor options for adult cigarette smokers.

The Company does not manufacture any of the Products it resells.

Stick is manufactured by Bidi.

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

all branding, logos, and marketing materials to be utilized by the Company in connection with its marketing and promotion of the

On July 14, 2021, the Company announced plans to launch

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

In addition to its Kaival-branded formulation, the Company anticipates that it will

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

The Company has not

yet launched any Kaival-branded product, nor has it begun to provide white label wholesale solutions for other product manufacturers.

In 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.

2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure.

The Company’s operations

have not been significantly impacted by COVID-19.

No impairments were recorded as of October 31, 2021 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, 2021 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.

However, the Company was indirectly impacted by supply chain issues and

regulatory oversight.

First, COVID-19 impacted Bidi’s ability to quality test and develop its new product, the BIDI ®

Pouch, in line with its targeted release date, which negatively impacted our ability to begin distribution of the BIDI ®

Throughout the year and during the Premarket Tobacco Product Application (“PMTA”) process, the Food and Drug Administration

(“FDA”) reiterated their enhanced scrutiny over ENDS products and raised the bar.

Impact of FDA PMTA Decision

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.

With 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.

As a result, beginning in September 2021, Bidi

pursued three avenues to challenge the MDO.

First, on September 21, 2021, separate from the judicial appeal of the MDO in its entirety,

Bidi filed a 21 C.F.R.

§ 10.75 internal FDA review request specifically of the decision to include the Arctic (menthol) BIDI®

Stick in the MDO.

The Company anticipates a decision from the FDA on the internal review in the second or third quarter of 2022,

although we cannot provide any assurances as to the timing or outcome.

Separately, on September 29, 2021, Bidi petitioned

Court of Appeals for the Eleventh Circuit to review the FDA’s denial of the PMTAs for its non-tobacco flavored BIDI®

Stick ENDS, arguing that it was arbitrary and capricious under the Administrative Procedure Act (“APA”), as well as

ultra vires , for the FDA not to conduct any scientific review of the company’s comprehensive applications, as required

by the Tobacco Control Act, to determine whether the BIDI® Sticks are “appropriate for the protection of the public health”

Bidi further argued that the FDA violated due process and the APA by failing to provide fair notice of the FDA’s

new requirement for ENDS companies to conduct long-term comparative smoking cessation studies for their flavored products.

1, 2022, U.S.

Court of Appeals for the Eleventh Circuit granted Bidi’s motion to stay (put on hold) the MDO, pending the

litigation on the merits.

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.

arguments in the merits-based proceeding are currently scheduled for May 2022.

Finally, on October

14, 2021, Bidi requested FDA re-review the MDO and reconsider its position that Bidi did not include certain scientific data in

its applications sufficient to allow the PMTAs to proceed to scientific review.

In light of this request, on October 22, 2021 pursuant

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

Subsequently, FDA lifted its administrative stay on December 17, 2021.

Following the lifting of the FDA’s administrative

stay, Bidi filed a renewed motion to stay the MDO with the U.S.

Court of Appeals for the Eleventh Circuit, which was granted on

February 1, 2022.

In the event that the U.S.

Court of Appeals

issues for the Eleventh Circuit a ruling adverse to Bidi, or if FDA otherwise chooses to enforce against Bidi, Bidi will be forced

to cease the continued sale of its non-tobacco flavored BIDI® Stick products in the United States, thereby resulting in the

Company being unable to distribute such products, the Company’s business and financial condition would be materially adversely

The Company cannot provide any assurances as to the timing or outcome of the merits-based case.

Risks and Uncertainties

Historically, substantially all of the Company’s

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% of its total sales of BIDI® Sticks for the fiscal years ended October 31, 2021 and 2020, respectively.

The uncertainty of any potential decisions by the FDA leading up to the MDO negatively impacted the Company’s overall revenues for

the last two quarters of fiscal 2021.

Generally, substantially all of the ENDS industry’s revenue is derived from the sales of flavored

In addition, Bidi has received approval to market

and distribute products within 11 international markets, including the United Kingdom, France, Russia, and the Czech Republic.

also secured significant intellectual property protections similar to those received in the United States from the European Union, China,

and several other regions and countries.

It is also important to note that the nicotine formulation in the Bidi® Stick has been modified

and approved at the 2% level to meet the criteria for distribution in the United Kingdom and Europe.

These international market approvals Bidi has previously

secured are for the full formulation lineup, including all flavors.

Because the FDA’s PMTA restrictions and guidelines do not pertain

to international markets, Bidi intends to continue manufacturing its full product lineup, for distribution by the Company in these international

The Company is also exploring potential partnerships with international distribution companies in order to possibly expand BIDI®

Stick distribution more rapidly in these international markets.

Note 2 – Basis of Presentation

and Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the financial

statements of the Company’s wholly-owned 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 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.

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 GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

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

3 unchanged sentences

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,

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

Significant Accounting Policies

Cash and Restricted Cash

The Company considers all highly liquid

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

There were no cash equivalents

at October 31, 2021and October 31,2020.

Cash and restricted cash at October 31, 2021 and October 31, 2020 were $ 7,825,235 and $ 7,421,701 ,

respectively.

Cash and restricted

consist of cash and cash held short-term in escrow as required.

As of October 31, 2021, and October 31, 2020, the Company had $ 65,007

and $0 in restricted cash, respectively, for amounts held in escrow.

The following

table sets forth a reconciliation of cash, and restricted cash reported in the consolidated balance sheet and the consolidated

statements of cash flows that agrees to the total of those amounts presented in the consolidated statements of cash flows.

Restrictions on Cash and Cash Equivalents

Restricted cash

Total cash and restricted cash shown in statement of cash flows

Advertising and Promotion

2 unchanged sentences

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.

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 categories.

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

If the financial condition of the debtors were to deteriorate, resulting in their inability to make payments, a larger allowance

may be required.

As of October 31, 2021, based upon management’s assessment of the accounts receivable aging and the customers’

payment history, the Company has determined that no allowance for doubtful accounts is required.

The Company had an allowance for doubtful

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

All product inventory is purchased from a related party, Bidi.

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.

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 method.

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.

All inventories are purchased from a related party of October 31, 2021, the inventories only consisted of finished goods,

were significant and located in four storage locations, one of which is a related party, Bidi and one of which is a customer/sub distributor,

Favs Business LLC (“Favs Business”).

Based upon fiscal year 2021 inventory management procedures and their results, the Company

has determined that no allowance for the inventory valuation is required at October 31, 2021.

No inventory allowance was required as of

October 31, 2020 either.

Inventory deposit – related

Company paid $2.9 million from its capital financing raise to Bidi, a related party, to have BIDI ® Sticks manufactured

with regulatory product requirements, different from the United States, as stipulated by the United Kingdom.

Once complete the

European Bidi Sticks will be maintained in appropriate warehousing for distribution and sale there.

As of the date these

audited consolidated financial statements were issued, this has not been completed and no inventory has been transferred to

the Company and this remains a deposit.

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:

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 goods.

To determine revenue recognition for arrangements within the scope of

ASC 606, the Company performs the following five steps:

(1) identify the contracts with a customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction

(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.

(2) identify the performance

obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to the performance obligations

in the contract;

and (5) recognize revenue when or as the entity satisfies a performance obligation.

The Company only applies the

five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for

the goods it transfers to the customer.

Under ASC 606, disaggregated revenue from contracts with customers depicts the nature,

amount, timing, and uncertainty of revenue and cash flows affected by economic factors.

The Company has evaluated revenues recognized

and 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% of our total sales of BIDI® Sticks for the fiscal years ended

October 31, 2021 and 2020, respectively.

OnOctober 31, 2021, the Company and one of its customers, Favs Business, entered into

a Consignment Agreement.

As of October 31, 2021, the value of the Products stored at Favs Business under the Consignment Agreement

was $2,556,930.

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, 2021 and October 31, 2020 the Company has received $ 0 and $ 623,096 in deposits from customers, respectively, which is

included with the Company’s current liabilities.

Customer Refunds

The Company infrequently has a need to adjust the size of an order after

it has been shipped, received and paid for, due to the customer oversizing the order for more product that it can realistically sell at

If and when this occurs, the Company will ask the customer to return the over allotted product.

Once received and inspected,

the Company will issue a refund for the product return.

As of October 31, 2021, the Company had one customer refund due for $316,800,

which was the result of one of the Company’s sub distributor customers returning Product that had become defective in storage.

$316,800 amount at October 31, 2021 represents the amount of refund the Company will make to this 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

The Company generates products revenue

from the sale of the Products (as defined above) to 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.

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

good is short.

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

of each credit sale routinely.

Revenue is measured by the transaction price,

which is defined as the amount of consideration expected to be received in exchange for providing goods to customers.

The transaction

price is adjusted for estimates of known or expected variable consideration, which includes refunds and returns as well as incentive

offers and promotional discounts on current orders.

Estimates for sales returns are based on, among other things, an assessment

of historical trends, information from customers, and anticipated returns related to current sales activity.

These estimates are

established in the period of sale and reduce revenue in the period of the sale.

Variable consideration related to incentive offers

and promotional programs are recorded as a reduction to revenue based on amounts the Company expects to collect.

Estimates are

regularly updated and the impact of any adjustments are recognized in the period the adjustments are identified.

In many cases,

key sales terms such as pricing and quantities ordered are established at the time an order is placed and incentives have very

short-term durations.

Amounts billed and due from customers

are short term in nature and are classified as receivables since payments are unconditional and only the passage of time related

to credit terms is required before payments are due.

The Company does not grant payment financing terms greater than one year.

Payments received in advance of revenue recognition are recorded as deferred revenue.

Concentration of Revenues and Accounts

For the fiscal year ended October 31, 2021,

approximately 23%, or $13.9 million, of the revenue from the sale of Products, primarily consisting of the “BIDI ®

Stick,” was generated from Favs Business LLC (“Favs Business”), approximately 16%, or $9.6 million, of the revenue

from the sale of Products was generated from MMS Distributing, LLC (“MMS Distro”), and approximately 14%, or $8.2 million,

of the revenue from the sale of Products was generated from C Store Master.

Favs Business and C Store Master had outstanding

balances of $1 million and, $0.3 million respectively, and accounted for approximately 50%, and 16%, respectively, of the

total accounts receivable from customers as of October 31, 2021.

For the year ended October 31, 2020, approximately

41% of the revenue from the sale of products, primarily consisting of the “BIDI® Stick,” was generated from

Favs Business in the amount of approximately $26.4 million and approximately 6% of the revenue from the sale of products was generated

from MMS Distro in the amount of approximately $3.9 million.

Brands, Inc., with an outstanding balance of approximately $0.3 million and GPM Investment, LLC, with an outstanding balance of

approximately $0.6 million, accounted for approximately 33% and 56% of the total accounts receivable from customers, respectively,

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.

Share-Based Compensation

measures the cost of services received in exchange for an award of equity instruments (share-based payments, or SBP) based on the

grant-date fair value of the award.

That cost is recognized over the period during which a recipient is required to provide service

in exchange for the SBP award—the requisite service period (vesting period).

For SBP awards subject to conditions, compensation

is not recognized until the performance condition is probable of occurrence.

The Company uses the Black-Scholes option-pricing

model to estimate the fair value of stock-based awards on the date of grant and on each modification date.

.Compensation expense

for SBP awards granted to nonemployees is re-measured each period as the underlying options vest.

The fair value

of each option granted during the year ended October 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes

option-pricing model with the weighted average assumptions in the following table:

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

Expected dividend yield

Expected option term (years)

Expected volatility

294.55 %- 301.53

Risk-free interest rate

term of options granted represents the period of time that options granted are expected to be outstanding.

The expected volatility

was based on the volatility in the trading of the Common Stock.

The assumed discount rate was the default risk-free ten-year interest

rate for US Treasury bills.

The Company stock option expense for the year ended October 31, 2021 and October 31, 2020 was $ 1,773,947

and $ 0 , respectively.

The Company’s stock-based compensation for the fiscal

years ended October 31, 2021 and October 31, 2020 was $ 9,449,421 and $ 769,437 , respectively.

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

3 unchanged sentences

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.

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

The Company has Federal net operating

loss (“NOL”) carryforwards of approximately $ 4,000,000 and state NOL carryforwards of approximately $ 1,800,000 .

the changes instituted by the CARES Act, the Federal NOLs have an indefinite life and will not expire.

The Company’s federal

and state tax returns for the 2018 and 2019 tax years generally remain subject to examination by U.S.

and various state authorities.

A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence,

it is more likely than not that some portion or all of the deferred tax asset will not be realized.

After consideration of all

the evidence, both positive and negative, management has determined that a valuation allowance of $ 1,256,059 for the year ended

on October 31, 2021 is necessary to reduce the deferred tax asset to the amount that will more likely than not be realized

pursuant to ASC 740 .

Fair Value of Financial Instruments

The Company’s balance sheet includes

certain financial instruments.

1 unchanged sentence

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

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.

1 unchanged sentence

(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).

3 unchanged sentences

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;

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;

2 unchanged sentences

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

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

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 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 –

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

Fair value estimates discussed herein

are based upon certain market assumptions and pertinent information available to management as of October 31, 2021.

The respective

carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of

these instruments.

These financial instruments include cash, restricted cash, accounts receivable, inventory, accounts payable

and accrued expenses.

Accounting Pronouncements

The Company does not believe that any recently issued effective

pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial

Note 3 – Going Concern

A recent court ruling on behalf of Bidi in

Court of Appeals for the Eleventh Circuit, granted a judicial stay of the MDO previously issued by the FDA to Bidi in

September 2021.

The ruling, issued on February 1, 2022, means that all BIDI® Stick flavors remain marketable by the Company

in the United States, subject to the FDA’s enforcement discretion, while Bidi continues with its merits case challenging

the legality of the MDO.

As the FDA has indicated that it is prioritizing enforcement against companies that have not submitted

PMTAs or who have MDOs in place, the Company views the risk of FDA enforcement against Bidi as low.

Oral arguments in the merits

case are currently scheduled in May 2022.

Court of Appeals for the Eleventh

Circuit agrees with Bidi in the merits case, the Company anticipates that FDA will be compelled to place the flavored ENDS back

into the PMTA scientific review process.

If this is the outcome of the merits case, the Company will be able to fully market and

sell the Products, subject to the FDA’s enforcement discretion, until the scientific review process is complete on each of

Bidi’s PMTA for flavored ENDS and the FDA issues its decision on each.

of Appeals for the Eleventh Circuit disagrees with Bidi on the merits case, or if FDA otherwise chooses to enforce against Bidi,

the Company will be forced to cease sales on the flavored ENDS in the United States market, leaving only the Tobacco and Menthol

(Arctic) ENDS products for sale in the United States (pending the outcome of the specific PMTA filings and the administrative review

request for the classification of “Arctic” as a standard menthol ENDS).

If this is the outcome of the merits case,

this combined with the negative cash flows from operations raises substantial doubt on

the Company’s ability to continue as a going concern.

Management plans to continue similar operations with

increased marketing, which the Company believes will result in increased revenue and net income.

However, there is no assurance that management’s

plan will be successful due to the current economic climate in the United States and globally.

These audited consolidated 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 we cannot continue as a going concern.

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 Company excludes short-term leases having initial terms of 12 months or less from

Topic 842 as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

adopted the standard in the fourth quarter of fiscal year 2020.

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

Company does not have financing leases and only one operating lease for office space, with a related party.

The operating lease is

for a term of 5 five years, beginning August 1, 2020, with rent of $ 1,000

payable monthly.

Certain of the Company’s leases include renewal options and have not been included in the calculation of the

lease liabilities and right of use assets as the Company is not reasonably certain to exercise the option.

As the operating lease

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

As of October 31, 2021, the right-to-use (“ROU”) lease asset, net of accumulated amortization, was $ 55,604 .

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.

for ROU asset for the twelve months ended October 31, 2021 was $ 14,529 and no payments were made on the ROU liability.

amortization for the expense ROU asset for the twelve months ended October 31, 2020 was $ 3,616 and three payments on the ROU

liability were $ 2,836 .

At October 31, 2021, short-term ROU lease liability was $ 13,020 and long-term liability was $ 46,185 , totaling

Schedule of Future Minimum Rental Payments for Operating Leases

Lease payments

Less discount

Less discount imputed interest

Present value of future payments

1 unchanged sentence

Long term lease obligations

Stockholder Equity

On November 1, 2021 the Company entered

into a month-to-month lease agreement with Ranger Enterprises, LLC, located in Seymour, Indiana, to store product inventory at

this satellite location.

The Company made one payment on this lease in the amount of $ 2,143 on October 31, 2021.

On November 11,

2021 the Company entered into a month- to-month lease agreement with FFE Solutions Group, located in Salt Lake City Utah, to store

additional product inventory at this satellite location.

The Company made one payment on this lease in the amount of $ 10,713 on

December 15, 2021.

Note 5 – 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,

The Company’s Chief Executive

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,

The Company’s Chief Operating

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

former officer and director, Paul Moody, paid expenses on behalf of the Company totaling $7,335 during the year ended October 31,

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

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

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.

3,000,000 shares of its Series A Preferred Stock, to Kaival Holdings, LLC (“KH”) in exchange for its return of 300,000,000 shares of Common Stock to the

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.

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

Series A Convertible Preferred Stock (the “Series A Preferred Stock”), concluded that it was more akin to equity and recorded it as permanent equity.

The authorized preferred stock of the

Company consists of 5,000,000 shares with a par value of $ 0.001 per share, of which 3,000,000 shares were designated as Series

A Preferred Stock .

Each share of the Series A Preferred Stock is initially convertible

into 100 shares of Common Stock.

As a result of the Reverse Stock Split, the conversion rate was adjusted such that each share

of the Series A Preferred Stock is convertible into approximately 8.33 shares of Common Stock.

All 3,000,000 shares of Series A

Preferred Stock were issued and outstanding as of October 31, 2021 and October 31, 2020.

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.

On November 1, 2020, 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, 83,333

shares of restricted Common Stock due upon the execution of the agreement, and an incentive compensation of 83,333

shares of restricted Common Stock or warrants to purchase 125,000

shares of restricted Common Stock.

On January 6, 2021, the Company entered into a new Consulting Agreement with Inflection Partners

which replaced the original Consulting Agreement, pursuant to which the Company engaged Inflection Partners to provide “the Inflection

Services”, in exchange for a $ 45,000

deposit, a $ 60,000

monthly retainer, 83,333

shares of restricted Common Stock due upon the execution of the agreement, and an incentive compensation of an aggregate of 166,667

shares of restricted Common Stock On October 15, 2021, the Company paid $100,000 and 225,000 shares of restricted

Common Stock.

The Consulting Agreement was terminated on October 31, 2021 and no further compensation is due.

During the year ended October 31, 2021, 308,333

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

shares of restricted Common Stock were issued to Inflection Partners as compensation for services provided to the Company The fair value of the shares of Common Stock issued was $1,597,667.

The Company implemented the Reverse

Stock Split, effective prior to the opening of the market on Tuesday, July 20, 2021.

The Reverse Stock Split was implemented by

the Company in support of its application to list on the Nasdaq Capital Market (“Nasdaq”).

As a result of the Reverse

Stock Split at the 1-for-12 ratio, every 12 shares of the Common Stock was exchanged for one share of the Common Stock.

has retroactively adjusted all share amounts and per share data herein to give effect to the Reverse Stock Split.

The authorized Common Stock of the Company

consists of 1,000,000,000 shares with a par value of $ 0.001 .

There were 30,195,312 and 23,106,886 shares of Common Stock issued

and outstanding October 31, 2021 and October 31, 2020, respectively.

In September 2021, the Company completed a firm

commitment underwritten offering, which offering was made pursuant to its Registration Statement on Form S-3 (File No.

(the “Registration Statement”).

The Securities and Exchange Commission (the “SEC”) declared the Registration Statement effective on August 10, 2021.

The Company sold 4,700,000

million shares of our Common Stock and warrants, with an exercise price of $1.90 per share and an expiration of five years, to

purchase an additional 3,525,000 shares of its Common Stock.

The Company sold each share of its Common Stock and warrants to purchase 0.75

shares of its Common Stock at a combined public offering price of $1.70.

The Company also granted the underwriter the option to purchase

an additional 705,000 shares of its Common Stock and warrants to purchase an additional 528,750 shares of its Common Stock.

of October 31, 2021, the Company had received net proceeds from the offering of approximately $ 8,305,772 , net of offering cost.

The Company had also

received approximately $1,665,113 from the exercise of 879,828 warrants.

During the year ended October 31, 2020,

318,671 shares of Common Stock were issued to two non-employee vendors as compensation for professional services rendered to the

These shares were expensed to the Company using the closing share price on the share issue dates to compute a total of

Related-Party Transactions

During the year ended October

31, 2021, 674,803 shares of Common Stock were issued to 8 non-employee vendors as compensation for professional services rendered

to the Company and two officers as additional compensation.

These shares were expensed to the Company using the closing share price

on the grant dates to compute an aggregate fair market value total of $ 8,944,100 , of which 308,333 shares and $1,597,667 compensation is related to shares

issued to Inflection Partners disclosed above.

Warrants Shares Issued

The weighted average remaining

term of the outstanding Common Stock warrants is 4.92 years as of October 31, 2021 .

As part of the underwritten offering,

the Company issued warrants to purchase a total of 4,053,750 shares of Common Stock at an exercise price of $ 1.90 per share.

warrants expire in the year 2026.

During the year ended October 31, 2021, warrants for 879,828 shares were exercised for $ 1,665,113 .

The aggregate intrinsic value of the outstanding Common Stock warrants as of October 31, 2021 was $ 0 .

The following is a summary of the stock warrant plan activity

during the years ended October 31, 2021 and 2020.

Share-based Payment Arrangement, Option, Activity

Number of Warrants

Weighted Average Exercise Price

Number of Warrants

Weighted Average Exercise Price

Warrants Outstanding at Beginning of the year

Canceled, forfeited, expired

Warrants Outstanding and Exercisable at End of Year

Restricted Stock Unit Awards

During the fiscal year October 31, 2021:

During the twelve months ended October

31, 2021, 221,666 shares of Common Stock were issued to eight employees of the Company pursuant to restricted stock unit (“RSU”)

agreements, resulting in $ 505,321 of share-based compensation.

Of the shares issued to employees, 92,871 shares were withheld by

the Company to satisfy tax withholding obligations equal to $ 254,110 as of October 31, 2021.

Additionally, one employee resigned

her employment from the Company and forfeited 23,333 RSUs Accordingly, there remains 499,167 unvested employee RSUs corresponding

to $ 1,011,019 of unamortized stock expenses as of October 31, 2021.

On January 1, 2021, the Board of Directors

approved the award of 41,667 “RSUs” under the 2020 Stock and Incentive Compensation Plan (the “Incentive

Plan”) and made a grant to one employee.

The RSUs had a fair value of $ 315,000 at the time of grant.

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.

During the fiscal year October 31, 2020:

On May 28, 2020, the Board of Directors approved the

award of 729,167 RSUs under the Incentive Plan to six employees.

The RSUs were awarded pursuant to RSU Agreements, 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 83,333 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.

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.

The 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.

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, 110,000 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, 702,500 RSUs remain

unvested, corresponding to $1,201,340 of unamortized stock expenses as of October 31,2020.

Of the shares issued to employees, 18,833

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 .

Stock Option Awards

During fiscal year 2021, the Company

granted options exercisable for up to 150,000 shares of Common Stock of which 41,667 fully vested on December 1, 2021, 15,000 fully

vested on March 17, 2021, 7,500 fully vested on June 30, 2021, 68,333 vest over the next 2 years on March 17, 2022, and 2023, and

17,500 vest over the next 2 years on June 30, 2022 and 2023.

The options have exercise prices ranging from $9.12 to $28.68 per

These options have a weighted average remaining life of 9.43 years as of October 31, 2021 and expire in the year 2031.

July 19, 2021, two of the stock option agreements, exercisable for an aggregate of 50,000 shares of Common Stock, were modified

to accelerate the full vesting period from 3 years to 2 years.

The aggregate intrinsic value of these outstanding options as of

October 31, 2021 was $0.

The Company fair valued the options

on the grant date at $ 3,088,002 using a Black-Scholes option pricing model with the following assumptions:

stock price range of

$ 9.12 to $ 27.36 per share (based on the quoted trading price on the date of grant), volatility range of 294.55 % to 301.53 %,

expected term of 10 years, and a risk-free interest rate range of 1.19 % to 1.63 %.

The Company is amortizing the expense over the

vesting terms of each.

The total stock option expense for the twelve months ended October 31, 2021 was $ 1,773,947 .

The total unamortized

stock option expense at October 31, 2021 was $ 1,314,055 .

Note 6 – Related-Party Transactions

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.

During the fiscal year ended October

31, 2021, the Company recognized revenue of $ 154,560 from seven companies owned by Nirajkumar Patel, the Chief Executive Officer

of the Company, and/or his wife.

During the fiscal 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 had 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

During the fiscal year ended October 31, 2021,

the Company purchased Products equal

to $91,149,783 from Bidi, a related party company that is also owned by Nirajkumar Patel, the Company’s Chief Executive Officer,

and after returns of $29,283,452 , resulted in the net amount of $61,866,332 in product purchases.

As of October 31, 2021,

the Company had accounts payable to Bidi of $12,667,769.

During the fiscal year ended October

31, 2021, Lakshmi Distributors Inc., doing business as C Store Master (“C Store Master”), a large customer of the Company,

elected to return the inventory associated with the consignment order placed on April 1, 2021, which was located at the staging

warehouse in California, to the Company at no cost.

The Company then returned this same inventory to Bidi’s warehouse in

Florida at no cost.

This reduced the Company’s inventory and reduced the related-party amount due to Bidi by $ 13,846,950 .

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

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:

Office Space and Other Leases

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.

During fiscal year

2021 the Company was not being charged for the leased space under the terms and conditions of the lease between the Company and

Just Pic k , was not being charged

for the separate warehouse space provided by Just Pick, and accordingly no payments were made on the lease.

Concentration of Purchases and

Accounts Payable- Related Party

For the years

ended October 31, 2021 and 2020, 100% of the inventories of Products, primarily consisting of the “BIDI® Stick,” were

purchased from Bidi, a related party company that is owned by Nirajkumar Patel, our Chief Executive Officer, in the amount of approximately$ 61.9 million and $ 54.0 million , respectively..

It also accounted for 100% of the

total accounts payable - related party as of October 31, 2021 and 2020 .

Concentration of Revenues and

Accounts Receivable

For the fiscal year ended October 31,

2021, approximately 23%, or $ 13.9 million, of the revenue from the sale of Products, primarily consisting of the “BIDI ®

Stick,” was generated from Favs Business LLC (“Favs Business”), approximately 16%, or $ 9.6 million, of the revenue

from the sale of Products was generated from MMS Distributing, LLC (“MMS Distro”), and approximately 14%, or

$ 8.2 million, of the revenue from the sale of Products was generated from C Store Master.

Favs Business and C Store Master had outstanding

balances of $ 1 million and, $ 0.3 million respectively, and accounted for approximately 50 %, and 16 %, respectively, of the total accounts

receivable from customers as of October 31, 2021.

For the year ended October 31, 2020, approximately 41% of the revenue

from the sale of products, primarily consisting of the “BIDI® Stick,” was generated from Favs Business in the amount of

approximately $26.4 million and approximately 6% of the revenue from the sale of products was generated from MMS Distro in the amount

of approximately $3.9 million.

Go Brands, Inc., with an outstanding

balance of approximately $0.3 million and GPM Investment, LLC, with an outstanding balance of approximately $0.6 million, accounted

for approximately 33% and 56% of the total accounts receivable from customers, respectively, as of October 31, 2020.

Note 8 – Income Tax

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

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.

Significant components of the tax expense

(benefit) recognized in the accompanying statements of operations for the years ended October 31, 2021 and October 31, 2020 are

Schedule of Components of Income Tax Expense (Benefit)

Current Tax Expense:

$ ( 1,301,008 )

Total Current Tax Expense

( 1,435,198 )

Deferred Tax Expense:

Total Deferred 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

Net Income Tax Liability/(Benefit)

$ ( 1,435,198 )

Total net deferred taxes are comprised

of the following at October 31, 2021 and October 31, 2020:

Schedule of Deferred Tax Assets and Liabilities

Deferred Tax Assets:

Stock Compensation Expense – NQSO

Net Operating Loss Carryforwards

Total Deferred Tax Asset

Deferred Tax Liabilities:

Prepaid Expenses

Total Deferred Tax Liabilities

Valuation Allowance

( 1,256,059 )

Net Deferred Tax Asset

Commitments and Contingencies

The Company has Federal NOL carryforwards

of approximately $ 4,000,000 and state NOL carryforwards of approximately $ 1,800,000 .

With the changes instituted

by the CARES Act, the Federal NOLs have an indefinite life and will not expire.

The Company’s federal and state tax returns

for the 2018 and 2019 tax years generally remain subject to examination by U.S.

and various state authorities.

valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than

not that some portion or all of the deferred tax asset will not be realized.

After consideration of all the evidence, both positive

and negative, management has determined that a valuation allowance of $ 1,256,059 for the year ended on October 31, 2021 is necessary

to reduce the deferred tax asset to the amount that will more likely than not be realized.

During the year ended October 31, 2021,

the Company paid $1,637,102 in combined Federal/State income taxes for taxable income generated in fiscal year 2020.

As of October

31, 2021, the Company had a total income tax receivable in the amount of $ 1,753,594 , which was the result of the NOL generated in fiscal year 2021 to be applied against taxable income in fiscal year 2020.

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.

During the year ended October 31, 2020 the Company paid $ 182,925 in income taxes

and reported an income tax accrual of $ 1,331,856 .

Note 9 – 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

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, 2021 and October 31, 2020 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

Patent Contribution Agreement

On May 4, 2021, Next Generation Labs,

LLC (“Next Generation”) notified the Company that a “reversion event” had occurred under that certain Patent

Contribution Agreement, dated September 28, 2020 (the “Patent Contribution Agreement”).

Pursuant to the Patent Contribution

Agreement, Next Generation agreed to contribute certain patents, patent applications, and patent data, described on Exhibit “A”

of the Patent Contribution Agreement (the “Patents”), to the Company and the Company would subsequently transfer the

Patents to Kaival Labs.

Pursuant to the Patent Contribution

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

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

First, the Company expected 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

sold a product that was developed using any portion of the Patents or based on the Patents, the Company agreed to pay Next Generation

the difference between the Purchase Price and the Offering Payment.

Pursuant to the terms of the Patent

Contribution Agreement, the parties agreed that the Company would file a Form 1-A offering statement no later than January 31,

2021, unless extended in writing by the Company in good faith to no later than March 15, 2021 (the “Filing Date”).

The Patent Contribution Agreement further provided that in the event the Company or Kaival Labs materially breached the terms of

the Patent Contribution Agreement and the material breach is not cured within fifteen (15) business days after Next Generation

provides written notice of such material breach, then a reversion event would occur, and the Patents would revert from Kaival Labs

to Next Generation.

The Company did not undertake a securities

offering by filing a Form 1-A offering statement by the Filing Date.

The Company attempted to negotiate an amendment to the Patent

Contribution Agreement, which would allow the Company additional time to undertake a securities offering.

However, on April 8,

2021, Next Generation notified the Company that it was in material breach of the Patent Contribution Agreement and that the Company

would have fifteen (15) business days, or April 30, 2021, to cure such breach.

Ultimately, the Company decided not to cure such

breach within the requisite time and, on May 4, 2021, Next Generation notified the Company that a reversion event occurred.

The Company has completed the process

of completing the necessary documentation to transfer the Patents from Kaival Labs to Next Generation.

Neither the Company, nor

Kaival Labs, had developed or otherwise relied on the Patents to date and does not expect the reversion of the Patents to materially

affect the Company’s business.

Consulting Agreement

On March 17, 2021, the Company entered

into a consulting agreement with Russell Quick, which granted stock options to purchase 41,667 shares of the Company’s Common

Stock in exchange for consulting services.

Quick may exercise the option on or after December 1, 2021 when the shares are fully

The exercise price per share is $ 28.68 .

The Company recognized $ 1,139,998 in expense to account for the stock options from

date of grant until date of full vestment.

Russell Quick is the Chief Executive Officer of QuikfillRx.

As of February 14, 2022,

Quick has not exercised any of his fully vested stock options.

Executive Compensation

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 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.

With respect to the Chief Operating Officer, the Board of Directors 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 of Directors 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.

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.

The Company issued these shares to the Chief Executive Officer and Chief

Operating Office on January 1, 2021.

During the quarter ended October 31, 2021, the $150 million next accumulated revenue target

was not achieved and the Company determined that no equity bonuses or cash bonuses should be accrued as of October 31, 2021.

QuikfillRx Service Agreement

On June 2, 2020, the Company entered

into the First Amendment to the Service Agreement with QuikfillRx (collectively with the “Amended Service Agreement”)

with 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.

Pursuant to the terms of the amendment, the parties modified the amount of General Compensation (as defined below) to be paid to

“General Compensation’’ consists of the following:

(i) for 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

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 0.9% 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

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.

The Company accrued $ 79,592 for

a quarterly bonus payable to QuikfillRx, based on the Applicable Gross Quarterly Sales results of the three months ended October

The Company accrued $ 3,775 for a quarterly bonus payable to QuikfillRx, based on the Applicable Gross Quarterly Sales

results of the three months ended October 31, 2021.

Note 10 – Subsequent Events

On February 4, 2022, the Company entered

into a Consulting Agreement with Oakhill Europe Ltd (“Oakhill Europe”), pursuant to which the Company engaged Oakhill

Europe to provide strategic advising and negotiation assistance for potential international distribution agreements (collectively,

the “Oakhill Services”), in exchange for a $15,000 monthly retainer, incentive compensation bonuses of up to $175,000,

and an incentive compensation bonus value of $75,000 paid in fully-vested non-qualified stock options, upon the achievement of

certain events .

November 11, 2021, the Company issued 61,250 shares of Common Stock to eight employees in accordance with the vesting schedules

set forth in RSU agreements previously entered into with such employees.

Of the shares issued to employees, 23,243 shares were

withheld by the Company to satisfy tax withholding obligations and/or satisfy cash settlement options to employees, equaling $ 124,612 .

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