What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-01-30 compared with 2022-02-16 · 587 added, 419 removed, 102 unchanged (91% of the section changed)

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

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

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

Corporate History

incorporated on September 4, 2018 in the State of Delaware.

Effective July 12, 2019, we changed our corporate name from Quick

Start Holdings, Inc.

to Kaival Brands Innovations Group, Inc.

The name change was effected through a parent-subsidiary short-form

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

change, with and into us.

We were the surviving entity.

Company Reorganization

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

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

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

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

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

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

USSE Delaware also changed its name to USSE Corp.

the Holding Company Reorganization.

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

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

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

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

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

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

share of USSE Delaware’s preferred stock.

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

immediately prior to the effective time was canceled.

Change of Controls

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

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

GMRZ became our

controlling stockholder as a result of such issuances.

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

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

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

shares of our restricted Common Stock, representing approximately 88.06 percent of our then-issued and outstanding shares of Common

Stock, to KH, and KH paid GMRZ consideration in the amount set forth in the Agreement (the “Purchase Price”).

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

controlling stockholder.

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

The Purchase Price was paid with

personal funds of the members of KH.

Cancellation and Exchange Agreement

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

with our controlling stockholder, KH.

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

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

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

of our Common Stock.

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

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

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

for the Cancellation Shares, we issued 3,000,000 shares (the “Preferred Shares”) of our newly designated Series A

Preferred Stock to KH.

The exchange of the Cancellation Shares and the issuance of the Preferred Shares was intended to comply

with Section 3(a)(9) of the Securities Act, in that the issuance was exempt from the registration requirements of the Act because

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

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

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

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

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

Common Stock.

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

Eastern Time on July 20, 2021.

No fractional shares were

issued in connection with the Reverse Stock Split.

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

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

In connection with the Reverse Stock Split, our Board

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

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

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

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

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

Business Information

Description of Business

We are focused on growing and incubating

innovative and profitable products into mature, dominant brands.

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

into an exclusive distribution agreement (the “Distribution Agreement”) with Bidi, a related party company, which Distribution

Agreement was amended and restated on May 21, 2020 and again on April 20, 2021 (collectively the “A&R Distribution Agreement”)

in order to clarify some of the provisions.

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

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

and non-retail level customers.

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

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

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

do not manufacture any of the Products we resell.

Currently, the Products consist primarily of the “BIDI ®

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

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

The A&R Distribution Agreement extends

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

provided, that we satisfy certain minimum purchase thresholds.

The A&R Distribution Agreement also provides us with a

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

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

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

We are focused on growing and incubating innovative

and profitable products into mature, dominant brands, with a current focus on the distribution of electronic nicotine delivery systems

(“ENDS”), also known as “e-cigarettes”.

Our business plan is to seek to diversify into distributing other nicotine

and non-nicotine delivery system products (including those related to hemp-derived c annabidiol (known

as CBD) products .

On March 9, 2020, we entered into an exclusive distribution

agreement (the “Distribution Agreement”) with our affiliate Bidi Vapor, LLC (“Bidi”), which Distribution Agreement

was amended and restated on May 21, 2020, April 20, 2021, on June 10, 2022, and on November 17, 2022 (collectively, the “A&R

Distribution Agreement”).

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

Bidi’s ENDS as well as non-electronic nicotine delivery systems and related components (as more particularly set forth in the A&R

Distribution Agreement, the “Products”) for sale and resale to both retail level customers and non-retail level customers.

Currently, the Products consist solely of the “ BIDI ® Stick ”, Bidi’s

disposable, tamper resistant ENDS product made with medical-grade components, a UL-certified battery

and technology designed to deliver a consistent vaping experience for adult smokers 21 and over.

We presently distribute Products

to wholesalers and retailers of ENDS products, having ceased all direct-to-consumer sales in February 2021.Nirajkumar Patel, our Chief

Science and Regulatory Officer and director and an indirect controlling shareholder of our company, owns Bidi.

BIDI ® Stick comes in a variety

of flavor options for adult cigarette smokers.

We do not manufacture any of the Products we resell.

The BIDI® Stick is manufactured

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

materials to use with our commercial partners use in connection with our marketing and promotion of the Products.

The A&R Distribution Agreement extends the previous

one-year, annual renewable term to an initial term of ten years, which automatically renews for another ten-year term if we satisfy certain

minimum purchase thresholds.

The A&R Distribution Agreement also provides us with a right of first refusal in the event Bidi receives

an offer that would constitute a “change of control transaction,” as well as a right of first refusal to act as the exclusive

distributor of any and all future products of Bidi that arise out of or related to ENDS and components related to ENDS, or arise out of

or related to the tobacco-derived nicotine industry.

In connection with the A&R Distribution

4 unchanged sentences

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

We process all sales made only to non-retail

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

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

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

process all sales made only to non-retail customers, with all sales to non-retail customers

made through Bidi’s age-restricted website, www.wholesale.bidivapor.com.

all direct-to-consumer sales in February 2021 in order to better ensure youth access

prevention and to comply with the Prevent All Cigarette Trafficking (“PACT”)

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

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

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

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

FDA PMTA Determinations – Impact

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

all then-pending PMTAs for such products.

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

flavored ENDS products.

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

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

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

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

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

it should not be subject to the MDO.

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

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

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

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

Arctic BIDI® Stick in the MDO.

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

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

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

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

at Bidi’s request.

FDA lifted this administrative stay on December 17, 2021.

Separate from the MDO re-review request and

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

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

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

Until the Eleventh Circuit Court of Appeals makes

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

The court-ordered

stay means that the MDO is not legally in force.

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

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

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

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

Historically,

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

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

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

October 31, 2020.

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

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

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

challenge of the MDO.

Despite the ongoing uncertainty regarding the

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

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

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

as an alternative for adult cigarette smokers.

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

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

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

Data for several of these studies has already

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

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

Bidi’s stringent youth access prevention measures.

Current Product Offerings

Pursuant to the A&R Distribution Agreement,

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

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

variety of flavor options for adult cigarette smokers.

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

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

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

FDA has indicated that it is prioritizing enforcement

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

PMTAs remain subject to MDOs.

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

marketing and distribution approvals.

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

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

We set the minimum prices

for all sales made by us.

We maintain adequate inventory levels of the Products in order

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

A key third party collaborator

of ours is QuikfillRx, LLC, (“QuikfillRx”) a Florida limited liability company which recently began doing business as “Kaival

Marketing Services” to better reflect its contributions to our company.

QuikfillRx provides

us 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.

QuikfillRx provides these services to us pursuant to a Services

Agreement, most recently amended on November 9, 2022, which has a current term ending on October 31, 2025 (subject to potential one-year

extensions) and pursuant to which QuikfillRx receives monthly cash compensation and was granted certain equity compensation in the form

We have also entered into key international

licensing agreements with Philip Morris Products S.A.

(“PMPSA”), a wholly owned affiliate of Philip Morris International

(“PMI”) as described further below.

August 31, 2020, we formed Kaival Labs, Inc., a Delaware corporation (herein referred to

as “Kaival Labs”), as a wholly owned subsidiary for the purpose of developing

our own branded and white-label products and services, of which none has commenced as of

the date of this Report.

On March 11, 2022, we formed Kaival Brands International, LLC, a

Delaware limited liability company (herein referred to as “KBI”), as a wholly

owned subsidiary for the purpose of entering into an international licensing agreement with

PMPSA as described further below.

FDA PMTA Determinations, 11 th

Circuit Decision and Impact on Our Business

In September 2021, in connection with the Bidi’s

Premarket Tobacco Product Application (“PMTA”) process for BIDI ® Stick, the U.S.

Food and Drug Administration’s

(“FDA”) effectively “banned” flavored ENDS by denying nearly all then-pending PMTAs for such products (including

Following the issuance of by the FDA of a related Marketing Denial Order (“MDO”) regarding these ENDS

products, manufacturers were required to stop selling non-tobacco flavored ENDS products.

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.

As a result, beginning in September 2021, Bidi pursued

multiple 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.

In May 2022, the FDA issued a determination that it views the Arctic BIDI® Stick as a flavored ENDS product,

and not strictly a menthol flavored product.

On September 29, 2021, Bidi petitioned the

Court of Appeals for the Eleventh Circuit (the “11th Circuit”) to review the FDA’s denial of the PMTAs for

its non-tobacco flavored BIDI® Stick ENDS (including the Arctic BIDI® Stick), 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 Bidi’s comprehensive applications, as required by the Tobacco Control Act (“TCA”), 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, and that the FDA should have gone through the notice and comment

rulemaking process for this requirement.

On October 14, 2021, Bidi requested that the

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 to 21 C.F.R.

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

Subsequently, the FDA decided not to

rescind the MDO and 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 11th Circuit.

On February 1, 2022, the 11 th Circuit granted

Bidi’s motion to stay (i.e., put on hold) the MDO, pending the litigation on the merits.

Oral arguments in the merits-based

proceeding were held on May 17, 2022.

On August 23, 2022, the 11 th Circuit

set aside (i.e., vacated) the MDO issued to the non-tobacco flavored BIDI® Sticks and remanded Bidi’s PMTA back to the

FDA for further review.

Specifically, the 11 th Circuit held that the MDO was “arbitrary and capricious”

in violation of the APA because the FDA failed to consider the relevant evidence before it, specifically Bidi’s aggressive

and comprehensive marketing and sales-access-restrictions plans designed to prevent youth appeal and access.

The 11 th Circuit’s opinion

further found that the FDA did not properly review the data and evidence that it has long made clear are critical to the appropriate

for the protection of the public health (“APPH”) standard for PMTAs set forth in the Tobacco Control Act including,

in Bidi’s case, “product information, scientific safety testing, literature reviews, consumer insight surveys, and

details about the company’s youth access prevention measures, distribution channels, and adult-focused marketing practices,”

which “target only existing adult vapor product users, including current adult smokers,” as well as our retailer monitoring

program and state-of-the-art anti-counterfeit authentication system.

Because a MDO must be based on a consideration of the relevant

factors, such as the marketing and sales-access-restrictions plans, the denial order was deemed arbitrary and capricious, and vacated

The FDA did not appeal to the 11th Circuit’s

The FDA had until October 7, 2022 (45 days from the August 23, 2022 decision) to either request a panel rehearing or

a rehearing “en banc” (a review by the entire 11th Circuit, not just the 3-judge panel that issued the decision), and

until November 21, 2022 (90 days after the decision) to seek review of the decision by the U.S.

Supreme Court.

No request for a

rehearing was filed, and no petition for a writ of certiorari was made to the Supreme Court.

In light of the 11th Circuit decision, the

Company anticipates having the continued ability to market and sell the non-tobacco flavored BIDI® Sticks, subject to FDA’s

enforcement discretion, for the duration of the PMTA scientific review.

The FDA has indicated that it is prioritizing enforcement

of unauthorized ENDS against companies (1) that never submitted PMTAs, (2) whose PMTAs have been refused acceptance or filing

by the FDA, (3) whose PMTAs remain subject to MDOs, and (4) that are continuing to market unauthorized synthetic nicotine products

after the July 13, 2022, cutoff.

As none of these scenarios apply to Bidi, the Company believes the current risk of FDA enforcement

Separately, on or about May 13, 2022, the FDA

placed the tobacco-flavored Classic BIDI® Stick into the final Phase III scientific review.

Other Potential

Product Offerings

In addition to the BIDI ®

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

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

supply chain constraints.

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

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

chain constraints.

Due to these complications, and in an effort to prevent future bottlenecks, Bidi decided to move manufacturing in-house.

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

The original BIDI ® Pouch

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

in six different flavors.

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

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

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

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

take the position that such product is a drug.

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

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

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

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

Given nicotine’s

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

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

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

Indeed, prior to the enactment of the Tobacco

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

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

cessation or other therapeutic benefit.

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

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

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

On July 14, 2021, we announced plans to launch

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

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

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

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

solutions to other product manufacturers.

Once we launch a Hemp CBD product, of which

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

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

than 0.3 percent by dry weight.

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

The original BIDI ® Pouch formulation

(which never came to market) intended to utilize a tobacco-free (synthetic) nicotine formulation, along with natural fibers and a chew-base

filler in six different flavors.

However, production of the BIDI ®

Pouch was placed on hold domestically due to concerns about the safety of synthetic nicotine and the likelihood of the FDA enforcement

of synthetic nicotine products either as unapproved drugs or unauthorized tobacco products.

Subsequently, the Consolidated Appropriations

Act of 2022, signed by President Biden on March 15, 2022, amended the definition of a “tobacco product” in the Food, Drug

and Cosmetic Act and gave the FDA authority to regulate products containing nicotine from any source, including synthetic nicotine.

legislation also gave manufacturers of synthetic nicotine products 60 days to prepare and submit PMTAs by May 14, 2022.

Synthetic nicotine

products subject to timely submitted PMTAs were allowed to remain on the market without the threat of enforcement for another 60 days,

until July 13, 2022.

After July 13, 2022, all synthetic nicotine products, regardless of PMTA status, are illegal and subject to FDA enforcement

(unless the product has actually been authorized and is subject to a PMTA Marketing Grant Order).

Also, on July 14, 2021, we announced plans to launch

its first Kaival-branded product, a hemp CBD vaping product.

In addition to our branded formulation, we anticipate that we will also provide

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

We have not yet launched any branded

product, nor has have begun to provide white label wholesale solutions for other product manufacturers, but the diversification of the

types of products we distribute is an important part of our growth strategy.

Assuming we launch a hemp CBD product, of which there

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

Act of 2018 (known as the 2018 Farm Bill), which defines hemp as the plant cannabis sativa and any part of the plant with a delta-9 THC

concentration of not more than 0.3 percent by dry weight.

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

sale in many forms:

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

We plan to utilize Bidi’s patented BIDI ®

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

We expect our industrial-grade

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

We plan to utilize Bidi’s patented

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

our industrial-grade hemp CBD formula to provide greater bioavailability than many market peers, resulting in a better consumer experience

in less usage.

On January 26, 2023, FDA announced that it would not initiate rulemaking to regulate CBD as a dietary food ingredient.

Rather, after careful review, the FDA has concluded that a new regulatory pathway for CBD is needed that balances individuals’ desire

for access to CBD products with the regulatory oversight needed to manage risks.

FDA further indicated that it is prepared to work with

Congress on this matter.

Recycling Program

In addition to our current product offerings,

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

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

recycling ten used BIDI ® Sticks.

In addition to our current

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

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

after recycling ten used BIDI ® Sticks.

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

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

Bidi invests in recyclable

batteries as a more sustainable solution to reduce electronic waste.

Bidi invests in recyclable batteries

as a more sustainable solution to reduce electronic waste.

This program is currently on-hold pending the outcome of negotiations with

the USPS to allow for the shipment of recycled ENDS products.

Marketing Strategy

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

and with the assistance of QuikfillRx.

We process all sales made to non-retail customers.

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As such, we steer away from social media marketing

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

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

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

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other types of content.

Retail stores also have access to online

informative videos about the Bidi story, which can be used to educate and assist in training all of their staff members about the

core values of Bidi.

From the recycling initiative to the commitment to preventing underage ENDS use, and stand against the illicit

market of ENDS products, we believe that together with Bidi, we are taking the necessary steps to ensure that our partners are

aligned with our community goals.

Bidi also attends trade shows at established

expos throughout the United States, such as the National Association for Convenience Stores (NACS) Show most recently held in July

2021 and the Tobacco Product Expo (TPE) held in January 2022.

Further, Bidi has a dedicated marketing team that focuses on these marketing

efforts and more.

Distribution Territories

In addition to

the United States, the BIDI ® Stick has received marketing and distribution approval in 11 European markets, including

the United Kingdom.

In the United States, marketing and distribution is currently limited by the FDA’s MDO issued to Bidi,

which is not legally in force as a result of the judicial stay .

In the European markets, Bidi has marketing and distribution approval for all BIDI ® Stick flavors (in compliance

with the nicotine concentration limitations in those countries).

Accordingly, in light of the pending MDO, the uncertainty regarding

whether Bidi’s PMTAs will be placed back into scientific review and whether FDA will ever find that the BIDI® Sticks

are appropriate for the protection of the public health , Bidi intends to expedite the planned product

launches into foreign markets starting with the United Kingdom.

We are also actively

exploring potential partnerships with international distribution companies in order to possibly expand Product distribution more

rapidly in these international markets.

Currently, our potential distribution

network reach is approximately 48,000 stores in the United States.

Our Products can be found in many Circle K convenience

stores and 7 ELEVEN locations throughout the United States through our partnership with Lakshmi Distributor Inc., doing business

as C Store Master (“C Store Master”), as well as stores operated by Grocery Supply Warehouse (“GSW”), Smoker

Friendly International and Avail Vapor LLC.

We also have relationships with wholesalers, such as Hilmes Distributing.

our Products are also accessible to adults 21 years of age and older through the age-gated digital delivery service mobile application,

GoPuff, in more than 50 cities across the United States.

We expect that in the second or third

quarter of fiscal 2022, we will launch distribution of the Products in Europe, which will further expand our distribution footprint.

Retail stores also have access to online informative

videos about the Bidi story, which can be used to educate and assist in training all of their staff members about the core values

From the recycling initiative to the commitment to preventing underage ENDS use, and stand against the illicit market

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

with our community goals.

We also attend trade shows at established expos

throughout the United States, such as the Tobacco Plus Expo (TPE), held February 22-24, 2022 in Las Vegas, the CSP Outlook Leadership

Conference in Asheville, N.C., August 8-10, 2022, and the National Association for Convenience Stores (NACS) Show held from October

2-4, 2022, also in Las Vegas.

Further, we have a dedicated marketing team that focuses on these marketing efforts and more.

We conduct our sales and marketing activities in close

coordination with our consultant QuikfillRx.

Pursuant to our Service Agreement with QuikfillRx (most recently amended as of November 9,

2022), QuikfillRx provides services and support relating to our sales management function (including, without limitation, services and

support relating to business planning and strategy development, staffing and recruitment, training and onboarding, direct sales and marketing,

and monitoring and results evaluation), website development and design, graphics, content, public communication, social media, management

and analytics, and market and other research.

KBI License Agreements

On June 10, 2022, Bidi entered into a License

Agreement (the “License Agreement”) with KBI, pursuant to which KBI has the exclusive irrevocable license to use Bidi’s

licensed intellectual property to the extent necessary for KBI to fulfill its obligations set forth in the Deed of Licensing Agreement,

dated June 13, 2022 (the “PMI License Agreement”), by and between KBI and PMPSA.

Such irrevocable license includes:

(i) the right of KBI to grant sub-licenses to PMPSA under the PMI License Agreement for the express purposes set forth in the PMI

License Agreement, but for no other purpose;

(ii) the right of KBI to grant to PMPSA the right to grant sub-sub-licenses in the

manner set forth in the PMI License Agreement, but for no other purpose;

and (iii) certain branding rights to the extent (but only

to the extent) necessary to permit KBI to perform its obligations to PMPSA as set forth in the PMI License Agreement.

Pursuant to the License Agreement, if at any

time, KBI receives any license of PMPSA intellectual property from PMPSA or any of its affiliates in the manner contemplated by

the PMI License Agreement, KBI will grant Bidi an irrevocable sub-license of all right, title, and interest of KBI in and to that

PMPSA intellectual property.

In addition, Bidi and KBI agree that any amount payable and all net royalties payable to KBI under

the PMI License Agreement will be apportioned equally between Bidi and KBI in a manner such that each will ultimately receive fifty

percent (50%) thereof.

The License Agreement contains customary representations,

warranties, covenants, and indemnification provisions.

Philip Morris Deed of Licensing Agreement

On June 13, 2022, KBI entered into the PMI

License Agreement with PMPSA, effective as of May 13, 2022 (the “PMI Commencement Date”).

Pursuant to the PMI License

Agreement, KBI granted PMPSA an exclusive irrevocable license to use its technology, documentation, and intellectual property to

make, distribute, and sell disposable nicotine e-cigarettes Products based on the intellectual property in certain international

markets set forth in the PMI License Agreement (the “PMI Markets”).

The Company has the exclusive international distribution

rights to the Products and, in order to allow KBI to fulfill its obligations set forth in the PMI License Agreement, has contributed

the international distribution rights for the PMI Markets to KBI as set forth in a Capital Contribution Agreement, dated June 10,

The sublicense granted to PMPSA is exclusive in the PMI Markets and neither KBI nor any of its affiliates can sell, promote,

use, or distribute any competing products in the PMI Markets for the duration of the term of the PMI License Agreement and any

Sell-Out Period (as defined in the PMI License Agreement).

PMSPA will be responsible for any regulatory filings necessary to sell

the Products in the PMI Markets.

Both KBI and PMPSA agree to work together in the registration and maintenance of the Intellectual

Property, but KBI will bear all costs and expenses to implement the registration strategy.

Finally, PMPSA has agreed to potential

future development services with KBI in the PMI Markets and has been granted certain rights with respect to potential future products.

The initial term of the PMI License Agreement

is five (5) years and automatically renews for an additional five-year period unless PMPSA has failed to meet the agreed upon minimum

key performance indicators set forth in the PMI License Agreement, in which case the PMI License Agreement will automatically terminate

at the end of the initial license term.

In consideration for the grant of the licensed rights,

PMPSA agreed to pay to KBI a royalty payment for the sale of each unit of Product manufactured and sold.

In addition, before the launch

of the first product in a market and each anniversary of such launch, PMPSA agrees to pre-pay to KBI a guaranteed minimum royalty, equal

to a percentage of the estimated royalties payable by PMPSA to KBI in relation to all markets in the twelve (12)-month period following

the first launch or each successive anniversary of the first launch, subject to an aggregate maximum guaranteed royalty payment for all

markets for each applicable twelve (12)-month period.

PMPSA may require modification of certain products to be sold under the PMI Licensing

Agreement to be modified for a PMI Market.

Pursuant to the PMI Licensing Agreement, PMPSA has absolute discretion over sales, marketing,

product branding and packaging pertaining to sales in the PMI Markets, as well as the right to select the specific PMI Markets in which

to launch commercialization and determine what product types are to be promoted in each market, subject to sales and marketing plans and

annual business plans set by PMPSA and certain expansion criteria agreed between PMPSA and KBI.

The PMI License Agreement

contains customary representations, warranties, covenants, and indemnification provisions;

however, KBI’s liability under the PMI

License Agreement is capped at the greater of:

(i) Ten Million Dollars ($10,000,000);

or (ii) an amount equal to the total of the royalties

due to KBI (but not yet paid) plus the royalties (including the guaranteed royalty payment) paid to KBI pursuant to the PMI License Agreement

during the immediately preceding twelve (12) consecutive months, provided that such amount shall not exceed Thirty Million Dollars ($30,000,000).

These royalties may be initially offset on a limited basis by jointly agreed upon costs such as development costs incurred for entry to

specific international markets .

In connection with the PMI License Agreement,

the Company, Bidi, and PMPSA also entered into a deed of letter (“Deed of Letter”) to require specific performance

of the duties and obligations set forth in the PMI License Agreement if KBI is unable or fails to sublicense the intellectual property

to PMPSA pursuant to the PMI License Agreement and/or is unable or fails to perform certain of its obligations or grant the rights

pursuant to the PMI License Agreement.

In addition, the Company, Bidi, and PMPSA entered into a guarantee (“Guarantee”),

whereby each of the Company and Bidi guarantees to PMPSA up to 50% of all of KBI’s monetary obligations set forth in the

PMI License Agreement if KBI fails to perform or discharge certain of its obligations in the PMI License Agreement.

Currently, our potential distribution network

reach is approximately 48,000 stores in the United States.

Our Products can be found in many national and regional convenience-store

chains, such as QuikTrip and GPM Investments, as well as at convenience stores (known in the industry as “c-stores”)

serviced through distributors such as S.

Abraham and Sons and H.T.

Finally, our Products are also accessible to adults

21 years of age and older through the age-gated digital delivery service mobile application, GoPuff, in more than 50 cities across

the United States.

Concentrations

Concentration

of Purchases and Accounts Payable- Related Party:

the year ended October 31, 2021, 100% of the inventories of Products, consisting solely 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, as compared to $54.0 million for the year ended October 31, 2020.

In fiscal years 2021 and 2020,

such inventories accounted for 100% of the total accounts payable.

Concentration

of Revenues and Accounts Receivable:

the year ended October 31, 2021, a substantial portion of our revenues from the sale of Products, solely consisting of the BIDI®

Stick were derived from the following customers:

Concentration of

Purchases and Other Receivable - Related Party:

the year ended October 31, 2022, 100% of the inventories of Products, consisting solely of the BIDI ® Stick, were purchased

from Bidi, a related party company that is owned by Nirajkumar Patel, our Chief Science and Regulatory Officer and director, in the amount

of approximately $1.5 million, as compared to $61.9 million for the year ended October 31, 2021.

There was no related party accounts

payable balance as of October 31, 2022.

In fiscal year 2021, such inventories accounted for 100% of the total related party accounts

On April 29, 2022, our company and Bidi agreed to

cancel the $2.9 million inventory order paid in advance in fiscal year 2021 and this was a credit against the accounts payable due to

Inventory quality control expenses were paid by us on behalf of Bidi during the year ended October 31, 2022in the amount of approximately

$0.7 million, and were offset as a credit against the existing accounts payable balance-related party.

A credit of $2.9 million was applied

on August 1, 2022, resulting in a related-party receivable balance due from Bidi of $2.1 million, to be applied on future orders of Product.

On October 31, 2022, our company and Bidi agreed to a return for short-coded or expiring inventory.

An additional credit of $1.5 million

and $108,000 for recycling costs was applied on October 31, 2022, to the related-party receivable balance due from Bidi.

As of October 31, 2022, we had a related-party receivable

balance due from Bidi of $3,704,132.

$1,539,486 of the receivable is classified as current and $2,164, 646 is classified as non-current.

The receivable balance will be realized though Bidi applying 5% credit on all future orders of Product until the entire balance is

extinguished.

Concentration of Revenues and Accounts Receivable:

the year ended October 31, 2022, a substantial portion (over 50%) of our revenues from the

sale of Products, solely consisting of the BIDI® Stick were derived from the following

(i) Favs Business, LLC (“Favs Business”) generated approximately 31%,

23%, (ii) MMS Distributing, LLC (“MMS Distro”) generated approximately 16%, and (iii) C Store Master generated

generated approximately 15%, and (iii) GPM generated approximately

For the year ended October 31, 2021, a substantial portion of our revenues from the

sale of Products, solely consisting of the BIDI® Stick were derived from the following

(i) Favs Business generated approximately 23% and, (ii) MMS Distributing,

LLC (“MMS Distro”) generated approximately 16%, and (iii) C Store Master generated

approximately 14%.

ended October 30, 2020, a substantial portion of our revenues from the sale of Products, solely consisting of the BIDI® Stick

were derived from the following customers:

(i) Favs Business generated approximately 41% and (ii) MMS Distro generated approximately

In addition, Favs Business and C Store Master accounted

for approximately 50% and 16% of the total accounts receivable from customers, respectively, as of October 31, 2021.

(“Go Brands”) and GPM Investment, LLC (“GPM”) accounted for approximately 33% and 56% of the total

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

As of the date of this Report we have

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

In addition to our officers, we have employees who fulfill the

roles of sales staff, information technology, web development, warehouse staff and account management.

All of our employees are

eligible to enroll, or have already enrolled, in our medical plan.

In addition, Favs Business and QuikTrip Corporation

accounted for approximately 65% and 15% of the total accounts receivable from customers, respectively, as of October 31, 2022.

Favs Business and C Store Master accounted for approximately 50% and 16% of the total accounts receivable from customers, respectively,

as of October 31, 2021.

As of the date of this Report we have ten employees,

all of whom are full-time, including our officers.

In addition to our officers, we have employees who fulfill the roles of sales

staff, information technology, web development, warehouse staff, and financial accounting and reporting management.

All our employees

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

Environment and Government Regulation

Related to our Operations

Because we are only a retail and wholesale

distributor of the Products, namely the BIDI ® Stick, we believe that we are only subject to Federal, state, and

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

Our business is dependent entirely on

the resale of the Products provided by Bidi;

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

affected if Bidi, as the manufacturer, does not properly abide by any Federal, state, or international laws that regulate ENDS

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

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

As a manufacturer of ENDS Products,

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

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

Because we are only a wholesale distributor

of the Products, namely the BIDI ® Stick, we believe that we are only subject to Federal, state, and international

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

Our business is dependent entirely on the resale

of the Products provided by Bidi;

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

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

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

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

As a manufacturer of ENDS Products, Bidi is

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

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

As a distributor,

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These rules and regulations include, but are not limited to, the following:

FDA and Related Regulations Relating

to ENDS Products

Effective August 8, 2016, the FDA’s

regulatory authority under The Family Smoking Prevention and Tobacco Control Act was extended to all remaining tobacco products,

(i) certain “new generation” products (such as electronic cigarettes, vaporizers, and e-liquids) and their

components or parts (such as tanks, coils, and batteries);

FDA and Related Regulations Relating to

ENDS Products

Effective August 8, 2016, the FDA’s regulatory

authority under The Family Smoking Prevention and Tobacco Control Act was extended to all remaining tobacco products, including:

(i) certain “new generation” products (such as electronic cigarettes, vaporizers, and e-liquids) and their components

or parts (such as tanks, coils, and batteries);

(ii) cigars and their components or parts (such as cigar tobacco);

pipe tobacco;

(iii) pipe tobacco;

(iv) hookah products;

or (v) any other tobacco product “newly deemed” by the FDA (the “Deeming

The Deeming Rule applies to all products made or derived from tobacco intended for human consumption, but excluding

accessories of tobacco products (such as lighters).

The Deeming Rule requires (i) United

States manufactured products be registered with the FDA and that products include ingredient listings;

(ii) newly deemed products

be marketed only after FDA review and authorization, subject to FDA’s compliance enforcement policy;

(iii) products only

make direct and implied claims of reduced risk if the FDA authorizes after finding that scientific evidence supports the claim

and that marketing the product will benefit public health as a whole;

(iv) sellers of such products refrain from distributing free

(v) sellers of such products implement minimum age and identification restrictions to prevent sales to individuals under

or (v) any other tobacco product “newly deemed” by the FDA (the “Deeming Rule”).

The Deeming Rule applies to all products made or derived from tobacco intended for human consumption but excluding accessories

of tobacco products (such as lighters).

Furthermore, starting in April 2022, FDA was also granted authority to regulate products

containing synthetic (non-tobacco) nicotine as tobacco products.

Specifically, the Consolidated Appropriations Act of 2022 amended

the definition of a “tobacco product” in the Food, Drug and Cosmetic Act and gave the FDA authority to regulate products

containing nicotine from any source, including synthetic nicotine.

The Deeming Rule requires (i) United States

manufactured products be registered with the FDA and that products include ingredient listings;

(ii) newly deemed products be marketed

only after FDA review and authorization, subject to FDA’s compliance enforcement policy;

(iii) products only make direct

and implied claims of reduced risk if the FDA authorizes after finding that scientific evidence supports the claim and that marketing

the product will benefit public health as a whole;

(iv) sellers of such products refrain from distributing free samples;

of such products implement minimum age and identification restrictions to prevent sales to individuals under age 18 (later extended

(vi) packaging of and advertisements for products include prescribed health warnings;

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Any lapse in compliance by us, or Bidi, could hamper our ability to operate, which would adversely

affect our results of operations.

Newly deemed tobacco products are also

subject to the other requirements of the Tobacco Control Act, such as the products cannot be adulterated or misbranded.

could in the future promulgate good manufacturing practice regulations for these and our other Products, which could have a material

adverse impact on Bidi’s ability to, and the cost to, manufacture our Products, which would adversely affect our financial

condition and results of operations.

affect the results of operations.

Newly deemed tobacco products are also subject

to the other requirements of the Tobacco Control Act, such as the products cannot be adulterated or misbranded.

The FDA could in

the future promulgate good manufacturing practice regulations for these and our other Products, which could have a material adverse

impact on Bidi’s ability to, and the cost to, manufacture our Products, which would adversely affect our financial condition

and results of operations.

Failure to comply with the Tobacco Control

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The PACT Act imposes substantial restrictions on sellers

and shippers of ENDS products, including, but not limited to:

registration with the Bureau of Alcohol, Tobacco, Firearms and Explosives

registration with state Tobacco Tax Administrators, and monthly reporting requirements to state and local

and shippers of ENDS products, including, but not limited to registration with the Bureau of Alcohol, Tobacco, Firearms and Explosives

(the “ATF”), registration with state Tobacco Tax Administrators, and monthly reporting requirements to state and local

Tobacco Tax Administrators.

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were required to comply with PACT Act requirements beginning on or about March 28, 2021.

We have adopted the following compliance

have retained a team of legal, tax and accounting experts

to advise on state and local tax, licensing, and regulatory

matters associated with the distribution of the BIDI ®

● We are appropriately licensed or registered in every state which requires it;

● We calculate and remit excise taxes where required;

● We have made a substantial investment in excise tax reporting and compliance

software to ensure that all applicable taxes are properly calculated and remitted to the appropriate

taxing authorities.

The software is now completely integrated with our systems;

● We have registered with the ATF and the states into which we ship the Products;

● We have implemented processes to ensure timely filing of all required reporting.

● In February 2021, the Company ceased online direct-to-consumer sales through its website.

We have adopted the following compliance measures:

We have retained a team of legal, tax

and accounting experts to advise on state and local tax, licensing, and regulatory matters associated with the distribution

of the BIDI ® Stick;

We are appropriately licensed or registered

in every state which requires it;

We calculate and remit excise taxes

where required;

We have made a substantial

investment in excise tax reporting and compliance software to ensure that all applicable

taxes are properly calculated and remitted to the appropriate taxing authorities.

is now completely integrated with our systems;

We have registered with the ATF and

the states into which we ship the Products;

We have implemented processes to ensure

timely filing of all required reporting;

In February 2021, we ceased all direct-to-consumer sales.

Federal Trade

The Federal Trade Commission (FTC) routinely requests

various industry sectors to provide information on marketing and advertising practices, and typically summarizes the aggregate information

provided by all respondents in a public report.

The FTC issued what is known as an “Order to File Special Report” to a number

of vaping industry members, including Bidi, on June 2, 2022.

Upon being advised of the exclusive distribution arrangement between Bidi

and the Company, the FTC withdrew the request directed to Bidi on August 22, 2022 and issued a request to the Company on August 29, 2022.

The Company responded timely to the FTC request on November 30, 2022.

State and Local Regulations

As a retail seller and/or wholesale

distributor of ENDS and related products, we must follow several state and local regulations.

As a retail seller and/or wholesale distributor

of ENDS and related products, we must follow several state and local regulations.

Individual U.S.

state laws and regulations

concerning e-cigarette and related products are also relatively new and developing.

Currently, certain state laws on the subject

of e-cigarette and related products serve to define and/or tax tobacco products or e-cigarette and related products, restrict access

to youth and/or retail sale, require a license to sell such products, ban e-cigarette use in certain public spaces, and require

child resistant packaging on products containing e-liquids.

As a distributor, we hold all required state licenses and permits,

and pay all applicable state e-cigarette and related products excise taxes.

We work closely with Bidi to ensure that it is compliant

with any manufacturer specific state requirements, such as any warning requirements (e.g., California Proposition 65).

state laws and regulations concerning

e-cigarette and related products are also relatively new and developing.

Currently, certain state laws about e-cigarette and related

products serve to define and/or tax tobacco products or e-cigarette and related products, restrict access to youth and/or retail

sale, require a license to sell such products, ban e-cigarette use in certain public spaces, and require child resistant packaging

on products containing e-liquids.

In addition, a number of states and localities have banned the sale of non-tobacco flavored tobacco

Recently, for example, California passed Proposition 31, which prohibits the sale of non-tobacco flavored tobacco products,

including e-cigarettes, in retail locations.

Thus, the non-tobacco flavored BIDI® Sticks are not permitted to be sold in California

retail locations.

We anticipate more states and localities will take this approach.

As a distributor, we hold all required state

licenses and permits, and pay all applicable state e-cigarette and related products excise taxes.

We work closely with Bidi to

ensure that it is compliant with applicable manufacturer specific state requirements, such as any warning requirements (e.g., California

Proposition 65).

Excise Taxes on Vapor Products

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could result in a decline of our shipment volume, revenue, and profit.

In February 2021, Bidi ceased online direct-to-consumer

sales through its website.

The Company ceased all direct-to-consumer sales in

February 2021.

International Regulations and Pertinent

The World Health Organization’s

Framework Convention on Tobacco Control (“FCTC”) is the first international public health treaty that establishes a

global agenda to reduce initiation of tobacco use and regulate tobacco in an effort to encourage tobacco cessation.

Over 170 governments

worldwide have ratified the FCTC.

The FCTC has led to increased efforts to reduce the supply and demand of tobacco products and

to encourage governments to further regulate the tobacco industry.

The tobacco industry expects significant regulatory developments

to take place over the next few years, driven principally by the FCTC.

Regulatory initiatives that have been proposed, introduced,

or enacted include:

levying of substantial and increasing tax and duty charges;

● restrictions or bans on advertising, marketing, and sponsorship;

● the display of larger health warnings, graphic health warnings, and other labeling requirements;

● restrictions on packaging design, including the use of colors and generic packaging;

● restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions

or bans on cigarette vending machines;

● requirements regarding testing, disclosure, and performance standards for tar, nicotine, carbon

monoxide, and other smoke constituents levels;

● requirements regarding testing, disclosure, and use of tobacco product ingredients;

● increased restrictions on smoking in public and workplaces and, in some instances, in private places

and outdoors;

● elimination of duty-free allowances for travelers;

● encouraging litigation against tobacco companies.

If the United States becomes a signatory

to the FCTC and/or national laws are enacted in the United States that reflect the major elements of the FCTC, our business, results

The World Health Organization’s Framework

Convention on Tobacco Control (“FCTC”) is the first international public health treaty that establishes a global agenda

to reduce initiation of tobacco use and regulate tobacco to encourage tobacco cessation.

Over 170 governments worldwide have ratified

The FCTC has led to increased efforts to reduce the supply and demand of tobacco products and to encourage governments

to further regulate the tobacco industry.

The tobacco industry expects significant regulatory developments to take place over the

next few years, driven principally by the FCTC.

Regulatory initiatives that have been proposed, introduced, or enacted include:

the levying of substantial and increasing

tax and duty charges;

restrictions or bans on advertising,

marketing, and sponsorship;

restrictions or bans on advertising,

marketing, and sponsorship;

the display of larger health warnings,

graphic health warnings, and other labeling requirements;

restrictions on packaging design, including

the use of colors and generic packaging;

restrictions or bans on the display

of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines;

requirements regarding testing, disclosure,

and performance standards for tar, nicotine, carbon monoxide, and other smoke constituents’ levels;

requirements regarding testing, disclosure,

and use of tobacco product ingredients;

increased restrictions on smoking in

public and workplaces and, in some instances, in private places and outdoors;

elimination of duty-free allowances

for travelers;

encouraging litigation against tobacco

If the United States becomes a signatory to

the FCTC and/or national laws are enacted in the United States that reflect the major elements of the FCTC, our business, results

of operations and financial condition could be materially and adversely affected.

Environmental Laws

We may be subject to federal, state,

and local environmental laws and regulations.

Compliance with these provisions has not had, nor do we expect such compliance will

have any, material adverse effect upon our capital expenditures, financial condition, or competitive position.

We believe that

we are not subject to any material costs for compliance with any environmental laws.

Because we solely distribute Bidi’s

Products, which comprises all of our business operations, Bidi’s competitors in the ENDS industry are indirect competitors

Many of these competitors in the ENDS industry are better capitalized than we are and have access to greater resources,

financial, and otherwise.

We believe that our ability, and Bidi’s ability, to effectively compete in the industry and acquire

a strong market position is, and will continue to be, in large part due to the growing recognition of the Bidi brand name, the

perceived quality of each of our Products, and the ongoing efforts of our sales, marketing, and distribution teams.

Bidi, compete against, just to name a few, what we refer to as “big tobacco” companies, including Altria Group, Inc.

We may be subject to federal, state, and local

environmental laws and regulations.

Compliance with these provisions has not had, nor do we expect such compliance will have any,

material adverse effect upon our capital expenditures, financial condition, or competitive position.

We believe that we are not

subject to any material costs for compliance with any environmental laws.

Because we solely distribute Bidi’s Products,

which comprises all our business operations, Bidi’s competitors in the ENDS industry are indirect competitors of ours.

of these competitors in the ENDS industry are better capitalized than we are and have access to greater resources, financial, and

We believe that our ability, and Bidi’s ability, to effectively compete in the industry and acquire a strong market

position is, and will continue to be, in large part due to the growing recognition of the Bidi brand name, the perceived quality

of each of our Products, and the ongoing efforts of our sales, marketing, and distribution teams.

We, through Bidi, compete against,

just to name a few, what we refer to as “big tobacco” companies, including Altria Group, Inc.

(formerly Philip Morris);

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Swisher International;

and manufacturers

including U.K.

based Imperial Brands, PLC, NJOY, Logic Technology.

“Big tobacco” has substantially greater resources,

and a customer base that has historically demonstrated loyalty to their brands, which can pose a significant hurdle to competitors

operating in the same, or similar, industries.

Competition in the ENDS industry is

based upon not only brand quality and positioning but also on price, packaging, promotion, and retail availability and visibility.

Given the decreasing prevalence and public acceptance of cigarette consumption, the “big tobacco” companies continue

to demonstrate an increased interest and participation in other/additional tobacco industries/markets.

As such, we consider the

“big tobacco” companies to be our primary competitors at this point in time, but it is our belief that we have the

capability to compete successfully.

Based on Goldman Sachs’ Equity

Research Report through January 29, 2022 on the Nielsen data for total nicotine volumes (the “Goldman Report”), the

BIDI ® Stick was the largest disposable ENDS Product based on retail sales for the 52-week period ending on January

The BIDI ® Stick has increased its absolute-dollar market share of the disposable ENDS market share from

24.2% during the 52-week period ending on January 28, 2021 to 42.4% of retail sales during the 52-week period ending on January

According to the Goldman Report, total dollar sales growth has surged to 2,879% to lead the category for the 12-week

period ended January 29, 2022.

We believe our growth underscores the unique customer experience the BIDI ® Stick

and manufacturers including U.K.

Imperial Brands, PLC, NJOY, and Logic Technology.

“Big tobacco” has substantially greater resources, and a customer

base that has historically demonstrated loyalty to their brands, which can pose a significant hurdle to competitors operating in

the same, or similar, industries.

Competition in the ENDS industry is based upon

not only brand quality and positioning but also on price, packaging, promotion, and retail availability and visibility.

decreasing prevalence and public acceptance of cigarette consumption, the “big tobacco” companies continue to demonstrate

an increased interest and participation in other/additional tobacco industries/markets.

As such, we consider the “big tobacco”

companies to be our primary competitors now, but it is our belief that we have the capability to compete successfully.

Based on Goldman Sachs’

Equity Research Report using Nielsen data for total nicotine volumes (the “Goldman Report”), the BIDI® Stick was the

top disposable ENDS Product based on retail sales for the 52-week period ending on December 17, 2022.

The BIDI® Stick has decreased

its absolute-dollar market share of the disposable ENDS market share to 3.2% during the 52-week period ending on December 17, 2022, from

24.2% absolute dollar market share for the 52-week period ending January 28, 2022.

to the Goldman Report, total dollar sales have decreased 54.8% for the 52-week period ended December 17, 2022.

believe our market position as the top disposable ENDS Product based on retail sales for the last year underscores the unique customer

experience the BIDI® Stick provides.

Intellectual Property

Currently, as of the date of this Report,

we have no intellectual property rights other than the trademarks KAIVAL BRANDS AND KAIVAL LABS.

Currently, as of the date of this Report, we

have no intellectual property rights other than the trademarks KAIVAL BRANDS AND KAIVAL LABS.

We rely on certain intellectual

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We have not elected to use the extended transition period for complying with new

or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised

or revised accounting standards under Section 102(b)(2) of the JOBS Act, which allows us to delay the adoption of new or revised

accounting standards that have different effective dates for public and private companies until those standards apply to private

Corporate History

We were incorporated on September 4, 2018,

in the State of Delaware.

Effective July 12, 2019, we changed our corporate name from Quick Start Holdings, Inc.

to Kaival Brands

Innovations Group, Inc.

The name change was affected 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.

surviving entity.

2018 Holding Company Reorganization

On September 4, 2018, USSE Delaware, Inc.,

a Delaware corporation (“USSE Delaware”) acquired all of our then-outstanding shares of common stock, par value $0.001

per share (our “Common Stock”), resulting in us becoming its wholly owned subsidiary.

On September 19, 2018, our wholly

owned subsidiary, USSE Merger Sub, Inc., a Delaware corporation (“USSE Merger Sub”), merged with and into USSE Delaware,

our then parent, effected a reorganization (the “Holding Company Reorganization”) in accordance with the provisions

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

USSE Delaware was the surviving corporation

and our wholly owned subsidiary.

USSE Delaware also changed its name to USSE Corp.

following the Holding Company Reorganization.

Upon completion of the Holding Company Reorganization,

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

issued and outstanding immediately prior to the effective time of the Holding Company Reorganization was automatically converted

into one validly issued, fully paid, and non-assessable share of our Common Stock.

Additionally, each share of USSE Delaware’s

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

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

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

Each share of our

Common Stock issued and outstanding and held by USSE Delaware immediately prior to the effective time was canceled.

2018 Change of Control

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

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

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

GMRZ became our controlling stockholder as a result of

such issuances.

On February 6, 2019, we entered into a non-binding Share Purchase Agreement (the “Agreement”) by and

among GMRZ, Kaival Holdings, LLC (formerly known as Kaival Brands Innovations Group, LLC), a Delaware limited liability company

(“KH”), and us, pursuant to which, on February 20, 2019, GMRZ sold 504,000,000 shares of our restricted Common Stock,

representing approximately 88.06 percent of our then-issued and outstanding shares of Common Stock, to KH, and KH paid GMRZ consideration

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

The consummation of the transactions contemplated

by the Agreement resulted in a change in control of us, with KH becoming our largest controlling stockholder.

The sole voting members

of KH are Nirajkumar Patel and Eric Mosser.

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

2020 Share Cancellation and Exchange Agreement

On August 19, 2020, we entered into a Share

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

Pursuant to the Share Cancellation and Exchange

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

Shares were canceled and retired by us.

Following such cancellation, KH owns 204,000,000 shares of our Common Stock.

On August 19, 2020, we filed a Certificate

of Designation of Preferences, Rights, and Limitations of the Series A Preferred Stock (the “Series A Certificate of Designation”)

with the Secretary of State of the State of Delaware, which authorized a total of 3,000,000 shares, par value $0.01 per share,

of Series A Preferred Stock (the “Series A Preferred Stock”).

In exchange for the Cancellation Shares, we

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

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

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

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

was paid or given directly for the exchange.

2021 Reverse Stock Split

On July 16, 2021, we filed a Certificate of

Amendment to the Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to affect

a 1-for-12 reverse stock split (the “Reverse Stock Split”) of the shares of our Common Stock.

The Reverse Stock Split

was effective as of 12:01 a.m.

Eastern Time on July 20, 2021.

No fractional shares were issued in connection with the Reverse Stock

Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up

to the nearest whole number.

In connection with the Reverse Stock Split, our Board approved appropriate and proportional adjustments

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

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

All historical share and per-share amounts reflected

throughout our consolidated financial statements and other financial information in this Report have been adjusted to reflect the

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

The par value per share of our Common Stock was

not affected by the Reverse Stock Split.

2022 Preferred Shares

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 Convertible

Preferred Stock (the “Series A Preferred Stock”).

Each share of the Series A Preferred Stock was initially convertible

into 100 shares of Common Stock;

however, 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.

On June 24, 2022, all 3,000,000

shares of Series A Preferred Stock were converted into shares of Common Stock by Kaival Holdings, LLC, a related party.

The conversion

of 3,000,000 shares of Series A Preferred Stock, at a conversion rate of 8.33, equaled 25,000,000 shares of Common Stock.

result, the authorized, preferred stock of the Company consists of 5,000,000 shares with a par value of $0.001 per share, with

0 shares of preferred stock issued or outstanding as of October 31, 2022.

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 1. Business