What changed in this filing

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Item 1A. Risk Factors

2023-01-30 compared with 2022-02-16 · 655 added, 735 removed, 146 unchanged (90% of the section changed)

Risk Factors.

Our business is subject to numerous

We caution you that the following important factors, among others, could cause our actual results to differ materially from

those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications

with investors and oral statements.

Any or all of our forward-looking statements contained in this Report and in any other public

statements we make may turn out to be wrong.

They can be affected by inaccurate assumptions we might make or by known or unknown

risks and uncertainties.

Many factors mentioned in the discussion below will be important in determining future results.

Consequently,

no forward-looking statement can be guaranteed.

Actual future results may differ materially from those anticipated in forward-looking

We undertake no obligation to update any forward-looking statements, whether as a result of new information, future

events or otherwise.

You are advised, however, to consult any further disclosure we make in our reports filed with the SEC.

Our business and an investment in our company

is speculative and subject to significant risks .

We caution you that the following important factors, among others, could

cause our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf in filings

with the SEC, press releases, communications with investors and oral statements.

Any or all of our forward-looking statements contained

in this Report and in any other public statements we make may turn out to be wrong.

They can be affected by inaccurate assumptions we

might make or by known or unknown risks and uncertainties.

Many factors mentioned in the discussion below will be important in determining

future results.

Consequently, no forward-looking statement can be guaranteed.

Actual future results may differ materially from those

anticipated in forward-looking statements.

We undertake no obligation to update any forward-looking statements, whether as a result of

new information, future events or otherwise.

You are advised, however, to consult any further disclosure we make in our reports filed

with the SEC.

Risks Related to Our Business and Industry

have a limited operating history, and our historical operating and financial results may not be indicative of future performance,

which, along with the relative early stage of the ENDS industry, makes it difficult to predict our future business prospects and

financial performance.

We have had a limited operating history.

Our business and prospects may thus be difficult to evaluate,

and our prospects will be dependent on our ability to meet a number of challenges.

Further, the ENDS industry is relatively new

We rely exclusively on Bidi as the supplier

of the Products that we distribute.

The loss of this relationship, or any negative impacts on Bidi’s ability to manufacture

the Products, would severely harm our business.

Pursuant to the A&R Distribution Agreement between us and Bidi, Bidi

has engaged us to act as the sole distributor of the ENDS products and related components, including the BIDI® Stick, manufactured

Any failure by Bidi to fulfil its obligation under the A&R Distribution Agreement could have a material adverse effect

on our revenue and operating results and operating cash flows;

and could impair the strength of our brand.

In addition, because of our dependence on Bidi as

the exclusive supplier of Products, any loss of our relationship with Bidi, or any adverse change in the financial health of Bidi that

would affect its ability to perform its obligations under the A&R Distribution Agreement, would have a material adverse effect on

our revenue, operating results, and ability to run our business.

Further, Bidi is subject to supply shortages and interruptions,

long lead times, and act-of-God events such as global pandemics, weather related catastrophes, or conflict, any of which could disrupt

the operations of Bidi and have a material adverse impact on our results of operations.

We may be unable to identify or contract with

new suppliers or producers in the event of a disruption to our supply and could experience a material adverse effect on our revenue, operating

results, and ability to run our business.

The terms of our agreements with Bidi, including our A&R Distribution Agreement, may not always be as favorable to us as the

terms that may be obtained by arms’ length negotiation.

We currently are, and we anticipate that we will continue to be,

substantially dependent on our relationships with our affiliated entities, including Bidi.

We believe that our current arrangement with

Bidi provides our business with stability and transparency.

Although we believe that the terms of the A&R Distribution Agreement are

as favorable to us as what we could have obtained in an arm’s length transaction, there can be no assurance that this arrangement

or any future agreements that we enter with Bidi, or any other affiliated entity, will be as favorable to us as we may be able to negotiate

with unaffiliated parties.

Our relationship with Bidi is subject

We currently have no intellectual property rights (other than the trademarks KAIVAL BRANDS and KAIVAL LABS)

and rely on the intellectual property rights, including logos, trademarks, and trade names, of Bidi that were granted to us pursuant

to the A&R Distribution Agreement to be used in connection with the marketing, advertisement, and sale of the Products.

also indirectly rely on Bidi’s intellectual property rights related to the Products, such as patents.

We have from time to

time considered, and discussed with Bidi, potential alterations to this arrangement, including a potential acquisition by us of

all or a portion of the intellectual property owned by Bidi and related to the Products.

Should we pursue such a transaction, it

would be a “related party transaction,” as defined by the listing rules of The Nasdaq Stock Market, LLC (the “Nasdaq”)

and, thus, subject to the review of the Audit Committee of our Board.

Further, should we undertake such a transaction, then we

would become responsible to respond if a third-party challenged Bidi’s patents, or infringed upon such rights, in which case

our business could be materially adversely affected.

We outsource key sales and marketing and other

key functions to QuikfillRx, and the loss of this relationship would damage our business.

We conduct our sales and marketing activities

in close coordination with our consultant QuikfillRx.

Pursuant to our agreement with QuikfillRx (most recently amended in November 2022),

QuikfillRx provides key services to us.

We are therefore reliant on our relationship with QuikfillRx, and the loss of that relationship

for any reason would significantly damage our ability to operation our business.

We have a limited operating history, and our

historical operating and financial results may not be indicative of future performance, which, along with the relative early stage of

the ENDS industry, makes it difficult to predict our future business prospects and financial performance.

Our current business

model is relatively new, and so business and prospects may be difficult to evaluate.

Our limited operating history makes it difficult

to evaluate both our operating history and our future potential.

We have yet to demonstrate a consistent ability to generate revenue,

and are still subject to many of the risks common to early-stage companies operating in the nicotine and non-nicotine delivery system

products sector, including the uncertainty as to our ability to implement our business plan, market acceptance of business plan, under-capitalization,

cash shortages, limitations with respect to personnel, financing and other resources and uncertainty of our ability to generate revenues.

There is therefore a significant risk that our activities will not result in any material revenues or profit, and the likelihood of our

business viability and long-term prospects must be considered in light of the stage of our development.

There can be no assurance that

we will be able to fulfill our stated business strategy and plans, or that financial, technological, market, or other limitations may

force us to modify, alter, significantly delay, or significantly impede the implementation of such plans.

We have insufficient results

of operations in our current business model for investors to use to identify historical trends.

Investors should consider our prospects

considering the risk, expenses and difficulties we will encounter as an early-stage company.

Our revenue and income potential is unproven

and our business model is continually evolving.

We are therefore subject to the risk that we will be unable to address these risks, and

our inability to address these risks could lead to the failure of our business.

Moreover, the ENDS industry is relatively new

and is rapidly evolving.

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and any other entry barriers in relation to the ENDS industry may materially and adversely affect our business operations.

issued Bidi an MDO.

If Bidi is ultimately unsuccessful in its appeal of the MDO, or if the FDA chooses to otherwise enforce against

Bidi, or if our expectations as to how the purchasing habits of consumers may change to offset the loss of revenue with respect

to certain of our Products, we will not be able to market the Products that make up a substantial majority of our revenue .

Thus, our revenues and, thereby our financial results and condition, would be materially adversely affected.

As of September

23, 2021, the FDA announced that it has taken action on over 93% of PMTAs and issued MDOs for more than 1,167,000 flavored ENDS

products, while issuing zero marketing authorizations for flavored ENDS.

Bidi was among the many companies that received a MDO

for its non-tobacco flavored BIDI ® Sticks.

While Bidi has appealed this decision on various grounds and recently

received a court-ordered stay of the denial, its appeal may not be successful.

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.

Further, the MDO received by Bidi covering

flavored ENDS products included its Arctic (menthol) BIDI ® Stick, which is not consistent with the FDA’s public

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

its Arctic (menthol) BIDI ® Stick has a menthol characterizing flavor, Bidi believes that this menthol BIDI ®

Stick may have been inadvertently included on the MDO.

Accordingly, 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 BIDI ® Stick in the MDO.

We anticipate a decision from 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 of the litigation.

still-pending PMTA for the Classic BIDI ® Stick is ultimately unsuccessful, or if the FDA’s re-review of its

decision to include Arctic BIDI® Stick in the MDO

is unsuccessful, or if the FDA disagrees with Bidi’s position regarding the menthol (Arctic) BIDI ® Stick,

issues a warning letter, or takes other action against Bidi resulting in us not being able to distribute the menthol (Arctic) BIDI ®

Stick in the United States, or consumers do not purchase the tobacco (Classic) or menthol (Arctic) BIDI ® Sticks,

our revenues and, thereby our financial results and condition, would be materially adversely affected.

In such an event, our financial

results and condition will also be significantly impacted by our ability to continue to sell the Arctic (menthol) BIDI ®

Stick and the degree to which sales of the Classic (tobacco) and Arctic (menthol) BIDI ® Sticks replace sales of

flavored products.

Separate from

the Section 10.75 petition regarding the inclusion of the Arctic BIDI® Stick on the MDO on September 29, 2021, Bidi also filed

a petition with the Eleventh Circuit Court of Appeals initiating an appeal of the MDO.

If the Eleventh Circuit Court of Appeals

rules against Bidi in its pending litigation on the merits proceeding related to the MDO, we may be unable to sell the Products

that make up a substantial majority of our revenue ;

thus, our business and financial condition would be materially adversely affected.

Oral 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% of

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

Generally, substantially

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

If Bidi’s still-pending PMTA for the

Classic BIDI® Stick is ultimately unsuccessful, or if the FDA denies the Section 10.75 administrative review regarding the

Arctic BIDI® Stick’s inclusion in the MDO, or if the Eleventh Circuit Court of Appeals rules against Bidi in its MDO

challenge or lifts the current stay of the MDO, or if the FDA otherwise enforces against Bidi, issues a warning letter, or takes

other action against Bidi resulting in us not being able to distribute our products or permitted to be sold in the United States,

our revenues and, thereby our financial results and condition, would be materially adversely affected.

If Bidi’s planned PMTA

for the tobacco-derived nicotine-based formulation of the BIDI ® Pouch is not authorized by the FDA, we will not

be able to sell the BIDI ® Pouch in the United States .

are currently planning to initiate distribution of the BIDI ® Pouch initially outside the United States.

also planning to submit a PMTA for a BIDI ® Pouch manufactured using a tobacco-derived nicotine formula.

Pouch cannot be distributed in the United States unless the PMTA is authorized.

If the PMTA is not authorized, or if authorization

is materially delayed, our revenues and, thereby our financial results and condition, would be materially adversely affected

If it is determined or perceived

that the usage of ENDS products poses long-term health risks, the use of ENDS products may decline significantly, which may materially

was among the many companies that received a MDO for its non-tobacco flavored BIDI ® Sticks.

On August 23, 2022,

Court of Appeals for the Eleventh Circuit set aside (i.e., vacated) the MDO issued to the non-tobacco flavored BIDI®

Sticks and remanded Bidi’s Premarket Tobacco Product Application (“PMTA”) back to FDA for further review.

Specifically,

the Court held that the MDO was “arbitrary and capricious” in violation of the Administrative Procedure Act (“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 opinion further indicated 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 the Company’s 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 by the FDA.

The FDA did not appeal the 11th Circuit’s

The Agency 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 the meantime, we anticipate that Bidi will

be able to continue marketing and selling the non-tobacco flavored BIDI® Sticks, subject to FDA’s enforcement discretion,

for the duration of the PMTA scientific review.

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, we believe the risk of FDA enforcement is low.

Separately, on or about

May 13, 2022, FDA placed the tobacco-flavored Classic BIDI® Stick into the final Phase III scientific review.

Bidi’s planned PMTA for the tobacco-derived nicotine-based formulation of the BIDI ® Pouch is not submitted to

or authorized by the FDA, we will not be able to sell the BIDI ® Pouch in the United States .

We are currently

planning to initiate distribution of the BIDI ® Pouch initially outside the United States.

Bidi is also planning to

submit a PMTA for a BIDI ® Pouch manufactured using a tobacco-derived nicotine formula.

The BIDI ® Pouch

cannot be distributed in the United States unless the PMTA is authorized.

If it is determined or perceived that

the usage of ENDS products poses long-term health risks, the use of ENDS products may decline significantly, which may materially

and adversely affect our business, financial condition, and results of operations.

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the exposure to toxic chemicals through ENDS product usage will increase the risk of COVID-19.

Research regarding the actual causes

of these illnesses is still ongoing.

If ENDS product usage is determined or perceived to pose long-term health risks or to be linked

to illnesses, the usage of ENDS products may significantly decline, which would have a material adverse effect on our business,

financial condition, and results of operations.

Although we currently do not offer products containing THC, any perceived correlation

between THC and Vitamin E acetate may adversely affect the public’s perception of ENDS products in general, regardless of

whether such products contain THC and/or Vitamin E.

We rely exclusively on Bidi as

the supplier of the Products that we distribute.

The loss of this relationship, or any negative impacts on Bidi’s ability

to manufacture the Products, would severely harm our business.

Pursuant to the A&R Distribution Agreement between us

and Bidi, Bidi has engaged us to act as the sole distributor of the ENDS products and related components, including the BIDI ®

Stick, manufactured by Bidi.

Any failure by Bidi to perform its obligation under the A&R Distribution Agreement could have

a material adverse effect on our revenue and operating results and operating cash flows;

and could impair the strength of our brand.

In addition, because of our dependence

on Bidi as the exclusive supplier of Products, any loss of our relationship with Bidi, or any adverse change in the financial health

of Bidi that would affect its ability to perform its obligations under the A&R Distribution Agreement, would have a material

adverse effect on our revenue, operating results, and ability to run our business.

Further, Bidi is subject to supply shortages

and interruptions, long lead times, and act-of-God events such as global pandemics, weather related catastrophes, or conflict,

any of which could disrupt the operations of Bidi and have a material adverse impact on our results of operations.

We may be unable

to identify or contract with new suppliers or producers in the event of a disruption to our supply, and could experience a material

adverse effect on our revenue, operating results, and ability to run our business.

The terms of our agreements with

affiliated entities including our A&R Distribution Agreement with Bidi may not always be as favorable to us as the terms that

may be obtained by arms’ length negotiation.

We currently are, and we anticipate that we will continue to be, substantially

dependent on our relationships with our affiliated entities, including Bidi.

We believe that our current arrangement with Bidi

provides our business with stability and transparency.

Although we believe that the terms of the A&R Distribution Agreement

are as favorable to us as what we could have obtained in an arm’s length transaction, there can be no assurance that this

arrangement or any future agreements that we enter into with Bidi or any other affiliated entity will be as favorable to us as

we may be able to negotiate with unaffiliated parties.

Our relationship with Bidi is

subject to change.

We currently have no intellectual property rights (other than the trademarks KAIVAL BRANDS and KAIVAL

LABS) and rely on the intellectual property rights, including logos, trademarks, and trade names, of Bidi that were granted to

us pursuant to the A&R Distribution Agreement to be used in connection with the marketing, advertisement, and sale of the Products.

We also indirectly rely on Bidi’s intellectual property rights related to the Products, such as patents.

We have from time

to time considered, and discussed with Bidi, potential alterations to this arrangement, including a potential acquisition by us

of all or a portion of the intellectual property owned by Bidi and related to the Products.

Should we pursue such a transaction,

it would be a “related party transaction,” as defined by the listing rules of The Nasdaq Stock Market, LLC (the “Nasdaq”)

and, thus, subject to the review of the Audit Committee of our Board.

Further, should we undertake such a transaction, then we

would become responsible to respond if a third-party challenged Bidi’s patents, or infringed upon such rights, in which case

our business could be materially adversely affected.

Research regarding the actual causes of these

illnesses is still ongoing.

If ENDS product usage is determined or perceived to pose long-term health risks or to be linked to

illnesses, the usage of ENDS products may significantly decline, which would have a material adverse effect on our business, financial

condition, and results of operations.

Although we currently do not offer products containing THC, any perceived correlation between

THC and Vitamin E acetate may adversely affect the public’s perception of ENDS products in general, regardless of whether

such products contain THC and/or Vitamin E.

We may not be successful in maintaining

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flow and financial markets.

Consumer perceptions of the overall

safety of tobacco and nicotine-based products is likely to continue to shift, and our success depends, in part, on our ability

to anticipate these shifting tastes and the rapidity with which the markets in which we compete will evolve in response to these

changes on a timely and affordable basis.

If we are unable to respond effectively and efficiently to changing consumer preferences,

the demand for our Products may decline, which could have a material adverse effect on our business, results of operations, and

financial condition.

Regulations may be enacted in the future,

particularly in light of increasing restrictions on the form and content of marketing of tobacco products, that would make it more

difficult to appeal to our consumers or to leverage existing recognition of the Bidi brand, or other brands that we own or license

in the future.

Furthermore, even if we are able to continue to distinguish our Products, there can be no assurance that the sales,

marketing, and distribution efforts of our competitors will not be successful in persuading consumers of our Products to switch

to their products.

Many of our competitors have greater access to resources than we do, which better positions them to conduct

market research in relation to branding strategies or costly marketing campaigns.

Any loss of consumer brand loyalty to our Products

or reduction of our ability to effectively brand our Products in a recognizable way will have a material effect on our ability

to continue to sell our Products and maintain our market share, which could have a material adverse effect on our business, results

Consumer perceptions of the overall safety

of tobacco and nicotine-based products is likely to continue to shift, and our success depends, in part, on our ability to anticipate

these shifting tastes and the rapidity with which the markets in which we compete will evolve in response to these changes on a

timely and affordable basis.

If we are unable to respond effectively and efficiently to changing consumer preferences, the demand

for our Products may decline, which could have a material adverse effect on our business, results of operations, and financial

Regulations may be enacted in the future, particularly

considering increasing restrictions on the form and content of marketing of tobacco products, that would make it more difficult

to appeal to our consumers or to leverage existing recognition of the Bidi brand, or other brands that we own or license in the

Furthermore, even if we can continue to distinguish our Products, there can be no assurance that the sales, marketing,

and distribution efforts of our competitors will not be successful in persuading consumers of our Products to switch to their products.

Many of our competitors have greater access to resources than we do, which better positions them to conduct market research in

relation to branding strategies or to launch costly marketing campaigns.

Any loss of consumer brand loyalty to our Products or

reduction of our ability to effectively brand our Products in a recognizable way will have a material effect on our ability to

continue to sell our Products and maintain our market share, which could have a material adverse effect on our business, results

of operations, and financial condition.

The competitive environment and our

competitive position are also significantly influenced by economic conditions, the state of consumer confidence, competitors’

introduction of low-priced products or innovative products, higher taxes, higher absolute prices, and larger gaps between price

categories and product regulation that diminishes the consumer’s ability to differentiate tobacco products.

Due to the impact

of these factors, as well as higher state and local excise taxes and the market share of deep discount brands, the tobacco industry

has become increasingly price competitive.

As we seek to adapt to the price competitive environment, our competitors that are better

capitalized may be able to sustain price discounts for long periods of time by spreading the loss across their expansive portfolios,

with which we are not positioned to compete.

The competitive environment and our competitive

position are also significantly influenced by economic conditions, the state of consumer confidence, competitors’ introduction

of low-priced products or innovative products, higher taxes, higher absolute prices, and larger gaps between price categories and

product regulation that diminishes the consumer’s ability to differentiate tobacco products.

Due to the impact of these factors,

as well as higher state and local excise taxes and the market share of deep discount brands, the tobacco industry has become increasingly

price competitive.

As we seek to adapt to the price competitive environment, our competitors that are better capitalized may be

able to sustain price discounts for long periods of time by spreading the loss across their expansive portfolios, with which we

are not positioned to compete.

“Big tobacco” has also established

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resources, capital, experience, market penetration, sales and distribution channels than do we.

Our distribution efforts rely

in part on our ability to leverage relationships with large retailers and national chains.

Our distribution efforts rely

in part on our ability to leverage relationships with large retailers and national chains to sell and promote our Products, which

is dependent upon the strength of the Bidi brand name and, in the future, any brand names that we may own or license, and our salesforce

effectiveness.

To maintain these relationships, we must continue to supply products that will bring steady business to these retailers

and national chains.

We may not be able to sustain these relationships or establish other relationships with such entities, which

could have a material adverse effect on our ability to execute our branding strategies, our ability to access the end-user markets

with our Products, or our ability to maintain our relationships with the manufacturer and sub-distributors of our Products.

example, if we are unable to meet benchmarking provisions in certain of our contracts or if we are unable to maintain and leverage

our retail relationships on a scale sufficient to make us an attractive distributor, it would have a material adverse effect on

our ability to act as sole distributor for Bidi, and on our business, results of operations and financial condition.

In addition, there are factors beyond

our control that may prevent us from leveraging existing relationships, such as industry consolidation.

If we are unable to develop

and sustain relationships with large retailers and national chains or are unable to leverage those relationships due to factors

such as a decline in the role of brick-and-mortar retailers in the North American economy, our capacity to maintain and grow brand

and product recognition and increase sales volume will be significantly undermined.

In such an event, we may ultimately be forced

to pursue and rely on local and more fragmented sales channels, which will have a material adverse effect on our business, results

of operations and financial condition.

Competition from illicit sources

may have an adverse effect on our overall sales volume, restricting the ability to increase selling prices and damaging brand equity.

Our distribution efforts rely in part

on our ability to leverage relationships with large retailers and national chains.

Our distribution efforts rely in part

on our ability to leverage relationships with large retailers and national chains to sell and promote our Products, which is dependent

upon the strength of the Bidi brand name and, in the future, any brand names that we may own or license, and our salesforce effectiveness.

To maintain these relationships, we must continue to supply products that will bring steady business to these retailers and national

We may not be able to sustain these relationships or establish other relationships with such entities, which could have

a material adverse effect on our ability to execute our branding strategies, our ability to access the end-user markets with our

Products, or our ability to maintain our relationships with the manufacturer and sub-distributors of our Products.

if we are unable to meet benchmarking provisions in certain of our contracts or if we are unable to maintain and leverage our retail

relationships on a scale sufficient to make us an attractive distributor, it would have a material adverse effect on our ability

to act as sole distributor for Bidi, and on our business, results of operations and financial condition.

In addition, there are factors beyond our control

that may prevent us from leveraging existing relationships, such as industry consolidation.

If we are unable to develop and sustain

relationships with large retailers and national chains or are unable to leverage those relationships due to factors such as a decline

in the role of brick-and-mortar retailers in the North American economy, our capacity to maintain and grow brand and product recognition

and increase sales volume will be significantly undermined.

In such an event, we may ultimately be forced to pursue and rely on

local and more fragmented sales channels, which will have a material adverse effect on our business, results of operations and

financial condition.

Competition from illicit sources may

have an adverse effect on our overall sales volume, restricting the ability to increase selling prices and damaging brand equity.

Illicit trade and tobacco trafficking in the form of counterfeit products, smuggled genuine products, and locally manufactured

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may lead to commoditization of our Products.

Although we combat counterfeiting of

our Products by engaging in certain tactics, such as requiring all sales force personnel to randomly collect our Products from

retailers in order to be tested by our quality control team, maintaining a quality control group that is responsible for identifying

counterfeit products and surveillance of retailers we suspect are selling counterfeit Products through our own secret shopper force,

no assurance can be given that we will be able to detect or stop sales of all counterfeit products.

In addition, we have in the

past and will continue to bring suits against retailers and distributors that sell certain counterfeit products.

While we have

been successful in securing financial recoveries from and helping to obtain criminal convictions of counterfeiters in the past,

no assurance can be given that we will be successful in any such suits or that such suits will be successful in stopping other

retailers or distributors from selling counterfeit products.

Even if we are successful, such suits could consume a significant

amount of management’s time and could also result in significant expenses to us.

Any failure to track and prevent counterfeiting

of our Products could have a material adverse effect on our ability to maintain or effectively compete for our Products we distribute

under the Bidi brand names, which would have a material adverse effect on our business, results of operations and financial condition.

Our Products are regulated by

the FDA, which has broad regulatory powers.

Increases in tobacco-related taxes have been proposed or enacted and are likely to

continue to be proposed or enacted in numerous jurisdictions.

Tobacco products, premium cigarette papers, and tubes have

long been subject to substantial federal, state, and local excise taxes.

Such taxes have frequently been increased or proposed

to be increased, in some cases significantly, to fund various legislative initiatives or further disincentivize tobacco usage.

Since 1986, smokeless products have been subject to federal excise tax.

Federally, smokeless products are taxed by weight (in pounds

or fractional parts thereof) manufactured or imported.

Any increases in tobacco-related taxes may materially adversely affect the demand for the Products.

The market for ENDS products is

subject to a great deal of uncertainty and is still evolving.

ENDS products, having recently been introduced to market

over the past 10 to 15 years, are at a relatively early stage of development, and represent core components of a market that is

evolving rapidly, highly regulated, and characterized by a number of market participants.

Rapid growth in the use of, and interest

in, ENDS products is recent, and may not continue on a lasting basis.

The demand and market acceptance for these products is subject

to a high level of uncertainty.

Although we combat counterfeiting of our Products

by engaging in certain tactics, such as requiring all sales force personnel to randomly collect our Products from retailers in

order to be tested by our quality control team, maintaining a quality control group that is responsible for identifying counterfeit

products and surveillance of retailers we suspect are selling counterfeit Products through our own secret shopper force, no assurance

can be given that we will be able to detect or stop sales of all counterfeit products.

In addition, we have in the past and will

continue to bring suits against retailers and distributors that sell certain counterfeit products.

While we have been successful

in securing financial recoveries from and helping to obtain criminal convictions of counterfeiters in the past, no assurance can

be given that we will be successful in any such suits or that such suits will be successful in stopping other retailers or distributors

from selling counterfeit products.

Even if we are successful, such suits could consume a significant amount of management’s

time and could also result in significant expenses to us.

Any failure to track and prevent counterfeiting of our Products could

have a material adverse effect on our ability to maintain or effectively compete for our Products we distribute under the Bidi

brand names, which would have a material adverse effect on our business, results of operations and financial condition.

Our Products are regulated by the FDA,

which has broad regulatory powers.

Increases in tobacco-related taxes have been proposed or enacted and are likely to continue

to be proposed or enacted in numerous jurisdictions.

Tobacco products, premium cigarette papers, and tubes have long been

subject to substantial federal, state, and local excise taxes.

Such taxes have frequently been increased or proposed to be increased,

in some cases significantly, to fund various legislative initiatives or further disincentivize tobacco usage.

Since 1986, smokeless

products have been subject to federal excise tax.

Federally, smokeless products are taxed by weight (in pounds or fractional parts

thereof) manufactured or imported.

Any increases in tobacco-related taxes may materially adversely affect the demand for the

The market for ENDS products is subject

to a great deal of uncertainty and is still evolving.

ENDS products, having recently been introduced to market over the

past 10 to 15 years, are at a relatively early stage of development, and represent core components of a market that is evolving

rapidly, highly regulated, and characterized by a number of market participants.

Rapid growth in the use of, and interest in, ENDS

products is recent, and may not continue on a lasting basis.

The demand and market acceptance for these products is subject to

a high level of uncertainty.

Therefore, we are subject to all the business risks associated with a new enterprise in an evolving

For example, ENDS products that are

non-tobacco flavored continue to face the threat of prohibition at the local level, as many state and local authorities and attorneys

general push for bans or request the FDA to deny a PMTA for flavored ENDS.

To date, at least four states have banned the sale of

flavored ENDS (e.g., New York, New Jersey, Rhode Island, and Massachusetts), with several more considering similar bans (e.g.,

Maryland, California, and Connecticut).

As the September 9, 2021 PMTA review deadline has now passed, the FDA has implemented a

de facto ban of flavored ENDS by denying over 93% of pending applications, while issuing zero marketing authorizations.

flavors are ultimately prohibited to be sold by Bidi, because of an adverse ruling in the litigation pending with the Eleventh

Circuit Court of Appeals, the FDA’s decision on the Section 10.75 review regarding the inclusion of the Arctic BIDI®

Stick in the MDO, or otherwise, the use of ENDS products may decline significantly, which may materially and adversely affect

our business, financial condition, and results of operations.

Continued evolution, uncertainty, and the resulting increased risk

of failure of our new and existing product offerings in this market could have a material adverse effect on our ability to build

and maintain market share and on our business, results of operations and financial condition.

not obtained premarket authorization from the FDA and its pending PMTAs for the non-tobacco flavored BIDI ® Sticks

have been issued a MDO.

The Eleventh Circuit Court of Appeals granted a judicial stay of the MDO pending the litigation on the

merits of the appeal.

The court-ordered stay means that the MDO is not legally in force and that all BIDI ® Stick

flavors (including the Arctic BIDI ® Stick) may remain on the market but are subject to the FDA’s enforcement

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

our Classic (tobacco) BIDI ® Stick, which was not included in the FDA’s MDO, and is currently marketed pursuant

to a policy of FDA enforcement discretion pending scientific review of the PMTA.

There could be a material adverse impact on our

business development efforts if the FDA determines that our Products are not subject to this compliance policy, or if our Products

become subject to increased regulatory compliance burdens imposed by the FDA and other regulatory or legislative bodies.

ENDS product that contains tobacco-derived nicotine, or that falls within the meaning of a component or part of an ENDS product,

is a “tobacco product” as defined in the FDCA.

Upon effectiveness in August 2016 of the FDA’s Deeming Rule,

ENDS products became regulated tobacco products subject to all the FDCA requirements, including premarket review for “new”

tobacco products ( i.e., products introduced or modified after the February 15, 2007 “grandfather date”).

respect to premarket review, because there are no confirmed grandfathered ENDS that were on the market as of February 15, 2007,

all ENDS products require the FDA marketing authorization through the PMTA process.

For a product to be authorized through the

PMTA pathway, the applicant must demonstrate that the product is appropriate for the protection of public health (“APPH”).

This public or population health standard is quite high ,

and requires considering the product’s risks and benefits to the population as a whole,

including users and nonusers of the tobacco product, and taking into account the increased or decreased likelihood that existing

users of tobacco products will stop using such products, and the increased or decreased likelihood that those who do not use tobacco

products will start using such products.

All ENDS must go through this scientifically rigorous PMTA review process to prove they

are APPH before receiving marketing authorization.

Moreover, all ENDS that are on

the market today are subject to the FDA’s enforcement “compliance policy.” While the FDA could not modify the

statute’s 2007 grandfather date, in the Deeming Rule, the agency established an enforcement “compliance policy”

permitting non-grandfathered deemed products (including ENDS) that were on the market as of the effective date of the Deeming

Rule (August 8, 2016) to remain on the market for a certain amount of time until premarket applications became due.

deadline for currently marketed deemed products has shifted over the years from August 2018 to August 2022 to finally, after a

court order, September 9, 2020.

To be marketed

today, ENDS must have been on the U.S.

market on August 8, 2016 and subject to a PMTA submitted to the FDA on or before September

If they meet these criteria, then pursuant to the 2020 district court order and the FDA’s current enforcement policy,

they may remain on the market during the FDA’s PMTA review for up to one year, or until September 9, 2021.

The FDA has further

indicated that the court order continues to permit the agency to determine at its discretion ( i.e., on a case-by-case basis)

whether to allow an ENDS product subject to a timely-submitted PMTA to remain on the market after the one-year compliance period

ends on September 9, 2021.

Any ENDS product marketed without authorization after that date would

be subject to enforcement by the FDA.

If a new tobacco product is commercialized without having the requisite marketing authorization

in effect, the FDA may deem the product adulterated and/or misbranded.

Introduction into interstate commerce of any such violative

product is prohibited and may lead to a seizure, injunction, or other enforcement action.

If Bidi’s still-pending PMTA for the

Classic BIDI® Stick is ultimately unsuccessful, or if the FDA denies the Section 10.75 administrative review regarding the

Arctic BIDI® Stick’s inclusion in the MDO, or if the Eleventh Circuit Court of Appeals rules against Bidi in its MDO

challenge or lifts the current stay of the MDO, or if the FDA otherwise enforces against Bidi, or takes other action against Bidi

resulting in us not being able to distribute our products or permitted to be sold in the United States, our revenues and, thereby

our financial results and condition, would be materially adversely affected.

For example, ENDS products that are non-tobacco

flavored continue to face the threat of prohibition at the local level, as many state and local authorities and attorneys general

push for bans or request the FDA to deny a PMTA for flavored ENDS.

To date, at least four states have banned the sale of flavored

ENDS (e.g., New York, New Jersey, Rhode Island, and Massachusetts), with several more considering similar bans (e.g., Maryland,

California, and Connecticut).

As the September 9, 2021, PMTA review deadline has now passed, the FDA has implemented a de facto

ban of flavored ENDS by denying over 93% of pending applications, while issuing zero marketing authorizations.

If flavors are ultimately prohibited to be

sold by Bidi, because of the FDA’s decision on the Section 10.75 review regarding the inclusion of the Arctic BIDI® Stick

in the MDO, or otherwise, the use of ENDS products may decline significantly, which may materially and adversely affect our business,

financial condition, and results of operations.

Continued evolution, uncertainty, and the resulting increased risk of failure of

our new and existing product offerings in this market could have a material adverse effect on our ability to build and maintain

market share and on our business, results of operations and financial condition.

For more information, see Item 1.

Business Information, FDA PMTA Determinations – Impact on Business.

Some of our Product offerings

through Bidi are subject to developing and unpredictable regulation.

Our Products are sold through our distribution network

and may be subject to uncertain and evolving federal, state, and local regulations, including hemp, non-THC cannabidiol (CBD) and

other non-tobacco consumable products.

Enforcement initiatives by those authorities are therefore unpredictable and impossible

to anticipate.

We anticipate that all levels of government, which have not already done so, are likely to seek in some way to regulate

these products, but the type, timing, and impact of such regulations remains uncertain.

These regulations include or could include

restrictions including prohibitions on certain form factors, such as smokable hemp products, or age restrictions.

we cannot give any assurance that such actions would not have a material adverse effect on this emerging business.

Significant increases in state

and local regulation of our Products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous

jurisdictions.

The PACT Act, which went into effect in June 2010, amended the Jenkins Act and initially only applied to

the sales of cigarettes, roll-your-own tobacco, and smokeless tobacco.

Specifically, the PACT Act regulates the sale, transfer,

or shipment of these products for both business-to-business transactions as well as “delivery sales,” which are defined

as any sale of cigarettes, roll-your-own tobacco, or smokeless tobacco where the consumer orders the product remotely, and prohibits

such deliveries through the U.S.

Postal Service (“USPS”), except in certain circumstances ( e.g., business-to-business

Under the enactment of the Preventing

Online Sales of E-Cigarettes to Children Act (part of the larger 2021 Consolidated Appropriations Act), effective March 27, 2021,

the definition of “cigarettes” in the PACT Act was amended to include ENDS, which is defined as “any electronic

device that, through an aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device,”

Business -- FDA

PMTA Determinations, 11 th Circuit Decision and Impact on Our Business.

Some of our Product offerings through Bidi are

subject to developing and unpredictable regulation.

Our Products are sold through our distribution network and may be subject

to uncertain and evolving federal, state, and local regulations, including hemp, non-THC cannabidiol (CBD) and other non-tobacco consumable

Enforcement initiatives by those authorities are therefore unpredictable and impossible to anticipate.

We anticipate that all

levels of government, which have not already done so, are likely to seek in some way to regulate these products, but the type, timing,

and impact of such regulations remains uncertain.

These regulations include or could include restrictions including prohibitions on certain

form factors, such as smokable hemp products, or age restrictions.

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.

Accordingly, we cannot give any assurance that such actions

would not have a material adverse effect on this emerging business.

Significant increases in state and local regulation of our Products have

been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.

The PACT Act, which went into

effect in June 2010, amended the Jenkins Act and initially only applied to the sales of cigarettes, roll-your-own tobacco, and smokeless

Specifically, the PACT Act regulates the sale, transfer, or shipment of these products for both business-to-business transactions

as well as “delivery sales,” which are defined as any sale of cigarettes, roll-your-own tobacco, or smokeless tobacco where

the consumer orders the product remotely and prohibits such deliveries through the U.S.

Postal Service (“USPS”), except in

certain circumstances ( e.g., business-to-business deliveries).

Under the enactment of the Preventing Online

Sales of E-Cigarettes to Children Act (part of the larger 2021 Consolidated Appropriations Act), effective March 27, 2021, the

definition of “cigarettes” in the PACT Act was amended to include ENDS, which is defined as “any electronic device

that, through an aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device,”

including “an e-cigarette;

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to the PACT Act.

The PACT Act requires all sellers to

register with the ATF, as well as the tobacco tax administrators of the states into which a shipment is made or in which an advertisement

The PACT Act requires all sellers to register

with the ATF, as well as the tobacco tax administrators of the states into which a shipment is made or in which an advertisement

or offer is disseminated.

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These requirements apply to all sales, including sales to consumers and sales between businesses.

In addition to the de facto FDA flavor

ban that has resulted from the denial of nearly all PMTAs for flavored ENDS, ENDS products that are non-tobacco flavored continue

to face the threat of prohibition at the local level, as many state and local authorities and attorneys general push for bans or

request the FDA to deny PMTAs for flavored ENDS.

To date, at least four states have banned the sale of flavored ENDS (e.g., New

York, New Jersey, Rhode Island, and Massachusetts), with several more considering similar bans (e.g., Maryland, California, and

Connecticut).

Our supply to our wholesalers

and retailers is dependent on the demands of their customers who are sensitive to increased sales taxes and economic conditions

affecting their disposable income.

Consumer purchases of tobacco products are historically affected by economic conditions,

such as changes in employment, salary and wage levels, the availability of consumer credit, inflation, interest rates, fuel prices,

sales taxes, and the level of consumer confidence in prevailing and future economic conditions.

Discretionary consumer purchases,

such as the BIDI ® Stick, may decline during recessionary periods or at other times when disposable income is lower,

and taxes may be higher.

We may be subject to increasing

international control and regulation.

The 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.

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

● the 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.

Our business may be damaged by

events outside of our suppliers’ control, such as the impact of epidemics (e.g., COVID-19), political upheavals, or natural

COVID-19 could adversely impact our business, including several key activities that are critical to our success.

global outbreak of COVID-19 continues to rapidly evolve.

As a result, businesses have continued to be subject to intermittent closures

and countries around the world have continued to sporadically limit travel.

The extent to which COVID-19 may impact our business

will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate impact

of the disease on specific geographies, the duration of the outbreak, travel restrictions and social distancing in the United States

and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and

other countries to contain and treat the disease.

The spread of COVID-19 throughout the

world has also created global economic uncertainty, which may cause partners, suppliers, and potential customers to closely monitor

their costs and reduce their spending budget.

In addition to the de facto FDA flavor ban

that has resulted from the denial of nearly all PMTAs for flavored ENDS, ENDS products that are non-tobacco flavored continue to

face the threat of prohibition at the local level, as many state and local authorities and attorneys general push for bans or request

the FDA to deny PMTAs for flavored ENDS.

To date, at least four states have banned the sale of flavored ENDS (e.g., New York, New

Jersey, Rhode Island, and Massachusetts), with several more considering similar bans (e.g., Maryland, California, and Connecticut).

Our supply to our wholesalers and retailers

is dependent on the demands of their customers who are sensitive to increased sales taxes and economic conditions affecting their

disposable income.

Consumer purchases of tobacco products are historically affected by economic conditions, such as changes

in employment, salary and wage levels, the availability of consumer credit, inflation, interest rates, fuel prices, sales taxes,

and the level of consumer confidence in prevailing and future economic conditions.

Discretionary consumer purchases, such as the

BIDI ® Stick, may decline during recessionary periods or at other times when disposable income is lower, and taxes

may be higher.

We may be subject to increasing international

control and regulation.

The 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

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;

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

Our business may be damaged by events outside

of our own or Bidi’s control, such as the impact of epidemics (e.g., COVID-19), political changes, or natural disasters.

could adversely impact our business, including several key activities that are critical to our success.

The global outbreak of

COVID-19 and variants of the virus continues to rapidly evolve.

While business interruption due to COVID-19 began to abate during 2022,

global businesses have continued to be subject to intermittent closures and countries around the world have continued to sporadically

limit travel.

The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and

cannot be predicted with confidence, such as the ultimate impact of the disease on specific geographies, the duration of the outbreak,

travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the

effectiveness of actions taken in the United States and other countries to contain and treat the disease.

The spread of COVID-19 throughout the world

has also created global economic uncertainty, which may cause partners, suppliers, and potential customers to closely monitor their

costs and reduce their spending budget.

Either of the foregoing could materially adversely affect our research and development

activities, clinical trials, supply chain, financial condition and cash flows.

If the COVID-19 outbreak continues to

spread, we may need to limit operations or implement other limitations on our activities.

There is a risk that other countries

or regions may be less effective at containing COVID-19, in which case the risks described herein could be elevated significantly.

Reliance on information technology

means a significant disruption could affect our communications and operations.

If the COVID-19 outbreak continues to spread,

we may need to limit operations or implement other limitations on our activities.

There is a risk that other countries or regions

may be less effective at containing COVID-19, in which case the risks described herein could be elevated significantly.

Reliance on information technology means

a significant disruption could affect our communications and operations.

We increasingly rely on information technology

9 unchanged sentences

personal or other sensitive data and reputational harm.

Security and privacy breaches

may expose us to liability and cause us to lose customers.

Security and privacy breaches may expose

us to liability and cause us to lose customers.

Federal and state laws require us to safeguard our wholesalers’,

3 unchanged sentences

measures may not prevent security breaches.

We cannot guarantee that a future breach would not result in material liability or

otherwise harm our business.

In the event of any such breach, we may be required to notify governmental authorities or consumers

under breach disclosure laws, indemnify consumers, or other third parties for losses resulting from the breach, and expend resources

investigating and remediating any vulnerabilities that contributed to the occurrence of the breach.

We rely on third-party technology

to safeguard the security of sensitive information in our possession.

Advances in computer capabilities, new discoveries in the

field of cryptography, inadequate facility security or other developments may result in a compromise or breach of the technology

used by us to protect customer data.

Any compromise of our security, even a security breach that does not result in a material

liability could harm our reputation and, therefore, our business and financial condition.

In addition, a party who is able to circumvent

our security measures or exploit inadequacies in our security measures, could, among other effects, misappropriate proprietary

information, cause interruptions in our operations or expose customers and other entities with which we interact to computer viruses

or other disruptions.

Actual or perceived vulnerabilities may lead to claims against us.

Any insurance coverage that we obtain

to cover such risks may be insufficient to cover all claims or losses.

To the extent the measures we have taken prove to be insufficient

or inadequate, we may become subject to litigation or administrative sanctions, which could result in significant fines, penalties

or damages and harm to our reputation.

We cannot guarantee that a future breach will not result in material liability or otherwise

harm our business.

In the event of any such breach, we may be required to notify governmental authorities or consumers under breach

disclosure laws, indemnify consumers, or other third parties for losses resulting from the breach, and expend resources investigating

and remediating any vulnerabilities that contributed to the occurrence of the breach.

We rely on third-party technology to safeguard

the security of sensitive information in our possession.

Advances in computer capabilities, new discoveries in the field of cryptography,

inadequate facility security or other developments may result in a compromise or breach of the technology used by us to protect

customer data.

Any compromise of our security, even a security breach that does not result in a material liability could harm our

reputation and, therefore, our business and financial condition.

In addition, a party who can circumvent our security measures

or exploit inadequacies in our security measures, could, among other effects, misappropriate proprietary information, cause interruptions

in our operations or expose customers and other entities with which we interact to computer viruses or other disruptions.

or perceived vulnerabilities may lead to claims against us.

Any insurance coverage that we obtain to cover such risks may be insufficient

to cover all claims or losses.

To the extent the measures we have taken prove to be insufficient or inadequate, we may become subject

to litigation or administrative sanctions, which could result in significant fines, penalties or damages and harm to our reputation.

We may fail to manage our growth.

We have grown significantly in a short amount of time and intend to continue to grow in the future.

However, any future

growth will place additional demands on our resources, and we cannot be sure we will be able to manage our growth effectively.

If we are unable to manage our growth while expanding the distribution of our Products and increasing profit margins, or if new

systems that we implement to assist in managing our growth do not produce the expected benefits, our business, financial position,

results of operations and cash flows could be adversely affected.

We may not be able to support, financially or otherwise, future

growth, or hire, train, motivate and manage the required personnel.

Our failure to manage growth effectively could also limit our

ability to achieve our goals as they relate to streamlined sales, marketing and distribution operations and the ability to achieve

certain financial metrics.

We are subject to fluctuations

in our results that make it difficult to track trends and develop strategies in the short-term.

In response to competitor

actions and pricing pressures, we have engaged in significant use of promotional and sales incentives.

We regularly review the

results of our promotional spending activities and adjust our promotional spending programs in an effort to maintain our competitive

position as well as to confirm compliance with our adult-focused marketing policies.

Accordingly, unit sales volume and sales promotion

costs in any period are not necessarily indicative of sales and costs that may be realized in subsequent periods.

Additionally,

promotional activity significantly increases net sales in the month in which it is initiated, and net sales are adversely impacted

in the month after a promotion.

Accordingly, based upon the timing of our marketing and promotional initiatives, we have and may

continue to experience significant variability in our results, which could affect our ability to formulate strategies that allow

us to maintain our market presence across volatile periods.

If our fluctuations obscure our ability to track important trends in

our key markets, it may have a material adverse effect on our business, results of operations and financial condition.

and global economic

conditions could negatively impact our business, prospects, results of operations, financial condition or cash flows.

business and operations are sensitive to global economic conditions.

These conditions include interest rates, energy costs, inflation,

recession, fluctuations in debt and equity capital markets, and the general condition of the United States and world economies,

including as a result of the effect of the COVID-19 pandemic.

A material decline in the economic conditions affecting consumers,

which cause a reduction in disposable income for the average consumer, may change consumption patterns, and may result in a reduction

in spending on our Product offerings or a switch to cheaper products or products obtained through illicit channels.

As such, demand

for our Products may be particularly sensitive to economic conditions such as inflation, recession, high energy costs, unemployment,

changes in interest rates and money supply, changes in the political environment, the ultimate effect on the economy of the COVID-19

pandemic and other factors beyond our control, any combination of which could result in a material adverse effect on our business,

results of operations, and financial condition.

The departure of key management

personnel and the failure to attract and retain talent could adversely affect our operations.

Our success depends upon

the continued contributions of our senior management, especially our Chief Executive Officer, Nirajkumar Patel, and our Chief Operating

Officer, Eric Mosser.

If one or more of our executive officers are unable or unwilling to continue in their present positions,

we may not be able to replace them readily, if at all.

Additionally, we may incur additional expenses to recruit and retain new

executive officers.

If any of our executive officers join a competitor or forms a competing company, we may lose some or all of

our customers.

Finally, we do not maintain “key person” life insurance on any of our executive officers.

these factors, the loss of the services of any of these key persons could adversely affect our business, financial condition, and

results of operations

Our insurance may be insufficient

to cover losses that may occur as a result of our operations.

We currently maintain directors’ and officers’

liability insurance and property and general liability insurance.

This insurance or other insurance we may elect to obtain may

not be or remain available to us or be obtainable by us at commercially reasonable rates, and the amount of our coverage may not

be adequate to cover any liability we incur.

Future increases in insurance costs, coupled with the increase in deductibles, will

result in higher operating costs and increased risk.

If we were to incur substantial liability and such damages were not covered

by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we were not able to obtain

liability insurance, our business, results of operations and financial condition could be materially adversely affected.

have grown significantly in a short amount of time and intend to continue to grow in the future.

However, any future growth will

place additional demands on our resources, and we cannot be sure we will be able to manage our growth effectively.

If we are unable

to manage our growth while expanding the distribution of our Products and increasing profit margins, or if new systems that we

implement to assist in managing our growth do not produce the expected benefits, our business, financial position, results of operations

and cash flows could be adversely affected.

We may not be able to support, financially or otherwise, future growth, or hire, train,

motivate and manage the required personnel.

Our failure to manage growth effectively could also limit our ability to achieve our

goals as they relate to streamlined sales, marketing and distribution operations and the ability to achieve certain financial metrics.

We are subject to fluctuations in our

results that make it difficult to track trends and develop strategies in the short term.

In response to competitor actions

and pricing pressures, we have engaged in significant use of promotional and sales incentives.

We regularly review the results

of our promotional spending activities and adjust our promotional spending programs to maintain our competitive position as well

as to confirm compliance with our adult-focused marketing policies.

Accordingly, unit sales volume and sales promotion costs in

any period are not necessarily indicative of sales and costs that may be realized in subsequent periods.

Additionally, promotional

activity significantly increases net sales in the month in which it is initiated, and net sales are adversely impacted in the month

after a promotion.

Accordingly, based upon the timing of our marketing and promotional initiatives, we have and may continue to

experience significant variability in our results, which could affect our ability to formulate strategies that allow us to maintain

our market presence across volatile periods.

If our fluctuations obscure our ability to track important trends in our key markets,

it may have a material adverse effect on our business, results of operations and financial condition.

and global economic conditions

could negatively impact our business, prospects, results of operations, financial condition or cash flows.

and operations are sensitive to global economic conditions.

These conditions include interest rates, energy costs, inflation, recession,

fluctuations in debt and equity capital markets, and the general condition of the United States and world economies, including

as a result of the effect of the COVID-19 pandemic.

A material decline in the economic conditions affecting consumers, which cause

a reduction in disposable income for the average consumer, may change consumption patterns, and may result in a reduction in spending

on our Product offerings or a switch to cheaper products or products obtained through illicit channels.

As such, demand for our

Products may be particularly sensitive to economic conditions such as inflation, recession, high energy costs, unemployment, changes

in interest rates and money supply, changes in the political environment, the ultimate effect on the economy of the COVID-19 pandemic

and other factors beyond our control, any combination of which could result in a material adverse effect on our business, results

of operations, and financial condition.

The departure of key management personnel and

the failure to attract and retain talent could adversely affect our operations.

Our success depends upon the continued contributions

of our senior management, especially our President and Chief Operating Officer, Eric Mosser, and our Chief Science & Regulatory Officer,

Nirajkumar Patel.

If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not

be able to replace them readily, if at all.

Additionally, we may incur additional expenses to recruit and retain new executive officers.

If any of our executive officers join a competitor or forms a competing company, we may lose some or all of our customers.

do not maintain “key person” life insurance on any of our executive officers.

Because of these factors, the loss of the services

of any of these key persons could adversely affect our business, financial condition, and results of operations.

Our insurance may be insufficient to

cover losses that may occur as a result of our operations.

We currently maintain directors’ and officers’ liability

insurance and property and general liability insurance.

This insurance or other insurance we may elect to obtain may not be or

remain available to us or be obtainable by us at commercially reasonable rates, and the amount of our coverage may not be adequate

to cover any liability we incur.

Future increases in insurance costs, coupled with the increase in deductibles, will result in

higher operating costs and increased risk.

If we were to incur substantial liability and such damages were not covered by insurance

or were in excess of policy limits, or if we were to incur such liability at a time when we were not able to obtain liability insurance,

our business, results of operations and financial condition could be materially adversely affected.

Risks Related to our Securities

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attempts by our stockholders to replace or remove our management.

In addition, Section 203 of the DGCL

prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, which generally

refers to a person which together with its affiliates owns, or within the last three years has owned, 15 percent or more of our

voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder,

unless the business combination is approved in a prescribed manner.

The existence of the foregoing provisions

and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of Common Stock.

They could also deter potential acquirers of our company, thereby reducing the likelihood that our stockholders could receive a

premium for their Common Stock in an acquisition.

Future offerings of debt or equity

securities may rank senior to our Common Stock.

If we decide to issue debt or equity securities in the future ranking senior

to our Common Stock or otherwise incur additional indebtedness, it is possible that these securities or indebtedness will be governed

by an indenture or other instrument containing covenants restricting our operating flexibility and limiting our ability to pay

dividends to stockholders.

In addition, Section 203 of the DGCL prohibits

a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, which generally refers

to a person which together with its affiliates owns, or within the last three years has owned, 15 percent or more of our voting

stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless

the business combination is approved in a prescribed manner.

The existence of the foregoing provisions and

anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of Common Stock.

could also deter potential acquirers of our company, thereby reducing the likelihood that our stockholders could receive a premium

for their Common Stock in an acquisition.

Future offerings of debt or equity securities

may rank senior to our Common Stock.

We may seek to raise new funding from time to time through the issuance of debt or equity

Our Board of Directors has the ability, without further approval of our stockholders, to issue debt or equity securities in

the future ranking senior to our Common Stock or otherwise incur additional indebtedness, it is possible that these securities or indebtedness

will be governed by an indenture or other instrument containing covenants restricting our operating flexibility and limiting our ability

to pay dividends to stockholders.

Additionally, any convertible or exchangeable securities that we issue in the future may have rights,

preferences, and privileges, including with respect to dividends, more favorable than those of our Common Stock and may result

in dilution to stockholders.

Because our decision to issue debt or equity securities in any future offering or otherwise incur

indebtedness will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing,

or nature of our future offerings or financings, any of which could reduce the market price of our Common Stock and dilute its

Raising additional capital may

cause dilution to our existing stockholders, restrict our operations, or require us to relinquish rights to our technologies, if

any, or Products.

preferences, and privileges, including with respect to dividends, more favorable than those of our Common Stock and may result in dilution

(perhaps significant) to our stockholders.

Because our decision to issue debt or equity securities in any future offering or otherwise

incur indebtedness will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing,

or nature of our future offerings or financings, any of which could reduce the market price of our Common Stock and dilute its value.

Raising additional capital may cause

dilution to our existing stockholders, restrict our operations, or require us to relinquish rights to our technologies, if any,

We may seek additional capital through a combination of private and public equity offerings, debt financings,

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liquidation or other preferences that adversely affect the rights of existing stockholders.

Debt financings may be coupled with

Debt financing may be coupled with

an equity component, such as warrants to purchase shares, which could also result in dilution of our existing stockholders’

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not favorable to us.

We may issue preferred stock whose

terms could adversely affect the voting power or value of our Common Stock.

Our Certificate of Incorporation authorizes

us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations,

preferences, limitations, and relative rights, including preferences over our Common Stock respecting dividends and distributions,

as our Board may determine.

The terms of one or more classes or series of preferred stock could adversely impact the voting power

or value of our Common Stock.

For example, we might grant holders of preferred stock the right to elect some number of our directors

in all events or on the happening of specified events or the right to veto specified transactions.

Similarly, the repurchase or

redemption rights or dividend or liquidation preferences we might assign to holders of preferred stock could affect the residual

value of our Common Stock.

The market prices for our Common

Stock are volatile and will fluctuate.

The market price for shares of our Common Stock may be volatile and subject to wide

fluctuations in response to numerous factors, many of which are beyond our control, including the following:

(i) actual or anticipated

fluctuations in our quarterly financial results;

We may issue preferred stock whose terms

could adversely affect the voting power or value of our Common Stock.

Our Certificate of Incorporation authorizes us to

issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences,

limitations, and relative rights, including preferences over our Common Stock respecting dividends and distributions, as our Board

may determine.

The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of

our Common Stock.

For example, we might grant holders of preferred stock the right to elect some number of our directors in all

events or on the happening of specified events or the right to veto specified transactions.

Similarly, the repurchase or redemption

rights or dividend or liquidation preferences we might assign to holders of preferred stock could affect the residual value of

our Common Stock.

The market prices for our Common Stock

are volatile and will fluctuate.

The market price for shares of our Common Stock may be volatile and subject to wide fluctuations

in response to numerous factors, many of which are beyond our control, including the following:

(i) actual or anticipated fluctuations

in our quarterly financial results;

(ii) recommendations by securities research analysts;

(iii) changes in the economic

performance or market valuations of other issuers that investors deem comparable to ours;

(iv) addition or departure of our executive

officers or members of our Board and other key personnel;

(v) release or expiration of lock-up or other transfer restrictions on

outstanding shares of Common Stock;

(iii) changes in the economic performance

or market valuations of other issuers that investors deem comparable to ours;

(iv) addition or departure of our executive officers

or members of our Board and other key personnel;

(v) release or expiration of lock-up or other transfer restrictions on outstanding

shares of Common Stock;

(vi) sales or perceived sales of additional shares of our Common Stock;

(vii) liquidity of

our Common Stock;

(viii) significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital

commitments by or involving us or our competitors;

and (ix) news reports relating to trends, concerns, technological or competitive

developments, regulatory changes, and other related issues in our industry or target markets.

Financial markets often experience

significant price and volume fluctuations that affect the market prices of equity securities of public entities and that are, in

many cases, unrelated to the operating performance, underlying asset values or prospects of such entities.

Accordingly, the market

price of our shares of our Common Stock may decline even if our operating results, underlying asset values or prospects have not

In fiscal 2021, our Common Stock

became listed on the Nasdaq Capital Market (“Nasdaq”) and there can be no assurance that we will be able to comply

with the continued listing standards of Nasdaq in the future.

cannot assure you that we will be able to comply with the standards that we are required to meet in order to maintain a listing

of our Common Stock on Nasdaq in the future.

Nasdaq listing rules require us to maintain certain closing bid price, stockholders’

equity, and other financial metric criteria, as well as certain corporate governance requirements, in order for our Common Stock

to continue trading on Nasdaq.

(vii) liquidity of our Common Stock;

(viii) significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or

involving us or our competitors;

and (ix) news reports relating to trends, concerns, technological or competitive developments,

regulatory changes, and other related issues in our industry or target markets.

Financial markets often experience significant

price and volume fluctuations that affect the market prices of equity securities of public entities and that are, in many cases,

unrelated to the operating performance, underlying asset values or prospects of such entities.

Accordingly, the market price of

our shares of Common Stock may decline even if our operating results, underlying asset values or prospects have not changed.

Our Common Stock is listed on the Nasdaq Capital

Market (“Nasdaq”) but there can be no assurance that we will be able to comply with the continued listing standards of Nasdaq

in the future.

We cannot assure you that we will be able to comply with the standards that we are required to meet in order to

maintain a listing of our Common Stock on Nasdaq in the future.

Nasdaq listing rules require us to maintain certain closing bid price,

stockholders’ equity, and other financial metric criteria, as well as certain corporate governance requirements, for our Common

Stock to continue trading on Nasdaq.

If we fail to comply with the continued listing standards, our Common Stock could be delisted.

A failure to maintain listing on Nasdaq could have a material adverse effect on the liquidity and price of the Common Stock.

On January 26, 2022, The Nasdaq Stock

Market LLC (“Nasdaq”) notified the Company that it is not in compliance with the requirement to maintain a minimum

closing bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2), because the closing bid price of the Company’s

common stock (the “Common Stock”) was below $1.00 per share for 30 consecutive business days.

The notification does

not impact the listing of the Company’s Common Stock on Nasdaq at this time.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A),

the Company has a period of 180 calendar days from the date of notification, or until July 25, 2022, to regain compliance with

the minimum bid price requirement.

During this period, the Company’s Common Stock will continue to trade on Nasdaq.

any time before July 25, 2022, the bid price of the Company’s Common Stock closes at or above $1.00 per share for a minimum

of 10 consecutive trading days, Nasdaq will provide written notification that the Company has achieved compliance with this minimum

bid price requirement.

In the event the Company does not regain compliance by July 25, 2022, the Company may be eligible for an

additional 180 calendar day compliance period to demonstrate compliance with the bid price requirement.

To qualify for the additional

180-day period, the Company will be required to meet the continued listing requirement for market value of publicly held shares

and all other initial listing standards for Nasdaq, with the exception of the bid price requirement, and will need to provide written

notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split,

if necessary.

If the Company does not qualify for the second compliance period or fails to regain compliance during the second

180-day period, then Nasdaq will notify the Company of its determination to delist the Company.

Future sales of shares of our

Common Stock by officers and directors may negatively impact the market price for our Common Stock.

Subject to compliance

with applicable securities laws, our directors and officers and their affiliates may sell some or all of their shares of our Common

Stock in the future.

No prediction can be made as to the effect, if any, such future sales of shares of our Common Stock may have

on the market price of the shares of our Common Stock prevailing from time to time.

However, the future sale of a substantial number

of shares of our Common Stock by our directors and officers and their affiliates, or the perception that such sales could occur,

could adversely affect prevailing market prices for our shares of our Common Stock.

Concentration of ownership among

our officers, directors, and principal stockholders may prevent other stockholders from influencing significant corporate decisions

and depress our stock price.

Based on the number of shares

outstanding as of February 11, 2022, our officers, directors, and stockholders who hold at least 5% of our stock beneficially

own a combined total of approximately 72.3% percent of our outstanding Common Stock, including shares of our Common Stock subject

to stock options that are currently exercisable or are exercisable and restricted stock units (“RSUs”) that vest within

60 days after February 11, 2022.

If these officers, directors, and principal stockholders or a group of our principal stockholders

act together, they will be able to exert a significant degree of influence over our management and affairs and control matters

requiring stockholder approval, including the election of directors and approval of mergers, business combinations, or other significant

transactions.

The interests of one or more of these stockholders may not always coincide with our interests or the interests of

other stockholders.

For instance, officers, directors, and principal stockholders, acting together, could cause us to enter into

transactions or agreements that we would not otherwise consider.

Similarly, this concentration of ownership may have the effect

of delaying or preventing a change in control of our company otherwise favored by our other stockholders.

This, in turn, could

have a negative effect on the market price of our Common Stock.

It could also prevent our stockholders from realizing a premium

over the market price for their shares of our Common Stock.

The concentration of ownership also may contribute to the low trading

volume and volatility of our Common Stock.

Our Common Stock may become the

target of a “short squeeze.” In 2021, the securities of several companies have increasingly experienced significant

and extreme volatility in stock price due to short sellers of shares of common stock and buy-and-hold decisions of longer investors,

resulting in what is sometimes described as a “short squeeze.” Short squeezes have caused extreme volatility in those

companies and in the market and have led to the price per share of those companies to trade at a significantly inflated rate that

is disconnected from the underlying value of the company.

Sharp rises in a company’s stock price may force traders in a short

position to buy the stock to avoid even greater losses.

Many investors who have purchased shares in those companies at an inflated

rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as

interest in those stocks have abated.

We may be a target of a short squeeze, and investors may lose a significant portion or all

of their investment if they purchase our shares at a rate that is significantly disconnected from our underlying value.

If securities or industry analysts

fail to continue publishing research about our business, if they change their recommendations adversely or if our results of operations

have been subject to Nasdaq listing deficiency issues in the past on January 26, 2022, Nasdaq notified the Company that it was not in

compliance with the requirement to maintain a minimum closing bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2),

because the closing bid price of the Company’s common stock (the “Common Stock”) was below $1.00 per share for 30 consecutive

business days.

While this listing deficiency was cured during 2022, we may become subject to potential delisting if the price of our Common

Stock again falls below $1.00, or for other reasons.

A failure to maintain listing on Nasdaq could have a material adverse effect on the

liquidity and price of the Common Stock

Future sales of shares of our Common Stock

by our controlling shareholder H or by our officers and directors may negatively impact the market price for our Common Stock.

to compliance with applicable securities laws, our controlling shareholder KH as well as our directors and officers and their affiliates

may sell some or all of their shares of our Common Stock in the future.

No prediction can be made as to the effect, if any, such future

sales of shares of our Common Stock may have on the market price of the shares of our Common Stock prevailing from time to time.

the future sale of a substantial number of shares of our Common Stock by our directors and officers and their affiliates, or the perception

that such sales could occur, could adversely affect prevailing market prices for our shares of our Common Stock.

The concentration

of ownership among our officers, directors, and principal stockholders may prevent other stockholders from influencing significant corporate

decisions and depress our stock price.

Based on the number of shares outstanding as of January 27, 2023, our officers, directors,

and stockholders who hold at least 5% of our stock beneficially own a combined total of approximately 77.1% percent of our outstanding

Common Stock, including shares of our Common Stock subject to stock options that are currently exercisable

or are exercisable and that vest within 60 days after January 27, 2023.

If these officers, directors, and principal stockholders or a

group of our principal stockholders act together, they will be able to exert a significant degree of influence over our management and

affairs and control matters requiring stockholder approval, including the election of directors and approval of mergers, business combinations,

or other significant transactions.

The interests of one or more of these stockholders may not always coincide with our interests or the

interests of other stockholders.

For instance, officers, directors, and principal stockholders, acting together, could cause us to enter

into transactions or agreements that we would not otherwise consider.

Similarly, this concentration of ownership may have the effect of

delaying or preventing a change in control of our company otherwise favored by our other stockholders.

This, in turn, could have a negative

effect on the market price of our Common Stock.

It could also prevent our stockholders from realizing a premium over the market price

for their shares of our Common Stock.

The concentration of ownership also may contribute to the low trading volume and volatility of our

Common Stock.

Stock may become the target of a “short squeeze.” Beginning in 2021, the securities of several companies have

increasingly experienced significant and extreme volatility in stock price due to short sellers of shares of common stock and

buy-and-hold decisions of longer investors, resulting in what is sometimes described as a “short squeeze.” Short

squeezes have caused extreme volatility in those companies and in the market and have led to the price per share of those companies

trading at a significantly inflated rate that is disconnected from the underlying value of the company.

Sharp rises in a

company’s stock price may force traders in a short position to buy the stock to avoid even greater losses.

Many investors who

have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original

investment as the price per share has declined steadily as interest in those stocks has abated.

We may be a target of a short

squeeze, and investors may lose a significant portion or all their investment if they purchase our shares at a rate that is

significantly disconnected from our underlying value.

If securities or industry analysts fail

to continue publishing research about our business, if they change their recommendations adversely or if our results of operations

do not meet their expectations, our stock price and trading volume could decline.

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who cover us downgrade our Common Stock, or if our results of operations do not meet their expectations, our stock price could

We do not currently pay dividends

on our shares of our Common Stock and have no intention to pay dividends on shares of our Common Stock for the foreseeable future.

No dividends on shares of our Common Stock have been paid by us to date.

We do not intend to declare or pay any cash dividends

in the foreseeable future.

Payment of any future dividends will be at the discretion of our Board, after taking into account a

multitude of factors appropriate in the circumstances, including our operating results, financial condition, and current and anticipated

In addition, the terms of any future debt or credit facility may preclude us from paying any dividends unless certain

consents are obtained and certain conditions are met.

There is no assurance that future dividends will be paid, and, if dividends

are paid, there is no assurance with respect to the amount of any such dividend.

Unless our Board determines to pay dividends,

our stockholders will be required to look at appreciation of our Common Stock to realize a gain on their investment.

be no assurance that this appreciation will occur.

We do not currently pay dividends on

our shares of our Common Stock and have no intention of paying dividends on shares of our Common Stock for the foreseeable future.

No dividends on the shares of our Common Stock have been paid by us to date.

We do not intend to declare or pay any cash

dividends in the foreseeable future.

Payment of any future dividends will be at the discretion of our Board, after considering

a multitude of factors appropriate in the circumstances, including our operating results, financial condition, and current and

anticipated cash needs.

In addition, the terms of any future debt or credit facility may preclude us from paying any dividends

unless certain consents are obtained, and certain conditions are met.

There is no assurance that future dividends will be paid,

and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

Unless our Board decides to

pay dividends, our stockholders will be required to look at appreciation of our Common Stock to realize a gain on their investment.

There can be no assurance that this appreciation will occur.

For as long as we are an “emerging

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are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required

to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding

executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding

advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Investors may find our Common Stock

less attractive because we rely on these exemptions, which could contribute to a less active trading market for our Common Stock

or volatility in our share price.

In addition, we may be less attractive to investors and it may be difficult for us to raise additional

capital as and when we need it.

Investors may be unable to compare our business with other companies in our industry if they believe

that our financial accounting is not as transparent as other companies in our industry.

If we are unable to raise additional capital

as and when we need it, our financial condition and results of operations may be materially and adversely affected.

We may take advantage of these reporting

exemptions until we are no longer an emerging growth company.

We have previously identified material

weaknesses in our system of internal control over financial reporting and, if we cannot remediate these material

weaknesses, we may not be able to accurately report our financial condition, results of operations, or cash flows, which may adversely

affect investor confidence in us and, as a result, the value of our Common Stock.

A material weakness is a deficiency,

or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility

that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) also generally requires an attestation from our independent

registered public accounting firm on the effectiveness of our internal control over financial reporting.

However, for as long

as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption permitting us

not to comply with the independent registered public accounting firm attestation requirement.

management has previously identified, and we have disclosed, material

weaknesses in our internal control over financial reporting.

Specifically, our management has found that our internal control over

financial reporting was ineffective as of October 31, 2021 based on a determination that there was a lack of resources to provide

segregation of duties consistent with control objectives, the lack of sufficient and consistent real time remote communications,

and the lack of a fully developed formal review process that includes multiple levels of review over financial disclosure and reporting

To address these material weaknesses,

and subject to the receipt of additional financing or cash flows, we have undertaken, and intend to continue to undertake, remediation

measures to address such material weaknesses, including implementing procedures pursuant to which we can ensure segregation of

duties and hire additional resources to ensure appropriate review and oversight.

to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”),

reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from

the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute

payments not previously approved.

Investors may find our Common Stock less attractive

because we rely on these exemptions, which could contribute to a less active trading market for our Common Stock or volatility in our

In addition, we may be less attractive to investors, and it may be difficult for us to raise additional capital as and when

Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting

is not as transparent as other companies in our industry.

If we are unable to raise additional capital as and when we need it, our financial

condition and results of operations may be materially and adversely affected.

We may take advantage of these reporting exemptions

until we are no longer an emerging growth company.

We have identified material weaknesses in our

system of internal controls over financial reporting and, if we cannot remediate these material weaknesses, we may

not be able to accurately report our financial condition, results of operations, or cash flows, which may adversely affect investor confidence

in us and, as a result, the value of our Common Stock.

A material weakness is a deficiency, or combination of deficiencies, in

internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or

interim financial statements will not be prevented or detected on a timely basis.

Section 404 of Sarbanes-Oxley also generally requires

an attestation from our independent registered public accounting firm on the effectiveness of our system of internal controls over financial

However, if we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption

permitting us not to comply with the independent registered public accounting firm attestation requirement.

Our management has identified, and we have disclosed,

certain material weaknesses in our system of internal controls over financial reporting as of our fiscal year ended October 31, 2022.

Specifically, our management has found that our internal control system over financial reporting was ineffective as of October 31, 2022,

based on a determination that there was a lack of sufficient resources to provide adequate segregation of duties consistent with control

objectives, the lack of sufficient and consistent real time remote communications, and the lack of a fully developed formal review process

that includes multiple levels of review over financial disclosure and reporting processes.

To address these material weaknesses, and subject

to the receipt of additional financing or cash flows, we have undertaken, and intend to continue to undertake, remediation measures

to address such material weaknesses, including implementing prevent and detect internal control procedures pursuant to which we

can ensure segregation of duties and hire additional resources to ensure appropriate review and oversight.

Our compliance with Section 404 of Sarbanes-Oxley

will require that we incur substantial accounting expenses and expend significant management efforts.

will require that we incur substantial accounting expenses and spend significant management efforts.

We may not be able to complete

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During the evaluation and testing process, if we identify

one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal

control over financial reporting is effective.

We cannot assure you that there will not be material weaknesses or significant deficiencies

in our internal control over financial reporting in the future.

Any failure to maintain internal control over financial reporting

could severely inhibit our ability to accurately report our financial condition, results of operations, or cash flows.

expose us, including individual executives, to potential liability which could significantly affect our business.

We cannot assure you that we will, in

the future, identify areas requiring improvement in our internal control over financial reporting.

one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our system of

internal control over financial reporting is effective.

We cannot assure you that there will not be material weaknesses or significant

deficiencies in our internal control over financial reporting in the future.

Any failure to maintain internal control over financial

reporting could severely inhibit our ability to accurately report our financial condition, results of operations, or cash flows.

This may expose us, including individual executives, to potential liability which could significantly affect our business.

We cannot assure you that we will, in the future,

identify areas requiring improvement in our system of internal controls over financial reporting.

We cannot assure you that the

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If we are unable to establish appropriate

internal financial reporting controls and procedures, if we are unable to conclude that our internal control over financial reporting

is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency

in our internal control over financial reporting once that firm begins its audits of internal control over financial reporting,

it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating

results, cause investors to lose confidence in the accuracy and completeness of our financial reports, the market price of our

common shares could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities.

Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective

control systems required of public companies, could also restrict our future access to the capital markets.

Our disclosure controls and procedures

may not prevent or detect all errors or acts of fraud.

Our disclosure controls and procedures are designed to reasonably

assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated

to management, recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC.

We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated,

can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

internal financial reporting controls and procedures, if we are unable to conclude that our system of internal controls over financial

reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant

deficiency in our system of internal controls over financial reporting once that firm begins its audits of our systems of internal

controls over financial reporting, it could cause us to fail to meet our reporting obligations, result in the restatement of our

financial statements, harm our operating results, cause investors to lose confidence in the accuracy and completeness of our financial

reports, the market price of our common shares could decline, and we could be subject to sanctions or investigations by Nasdaq,

the SEC, or other regulatory authorities.

Failure to remedy any material weakness in our system of internal controls over financial

reporting, or to implement or maintain other effective internal control systems required of public companies, could also restrict

our future access to the capital markets.

Our disclosure

controls and procedures may not prevent or detect all errors or acts of fraud.

Our disclosure controls and procedures are designed

to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated

and communicated to management, recorded, processed, summarized, and reported within the time periods specified in the rules and forms

We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and

operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

As of October 31, 2022,

our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were not effective

as of such date due to material weaknesses in internal controls identified above.

These inherent limitations include the

realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

our President and Chief Operating Officer and our

Interim Chief Financial Officer concluded that the disclosure controls and procedures were not effective as of such date due to material

weaknesses in internal controls identified above.

These inherent limitations include the realities

that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes.

Additionally,

1 unchanged sentence

of the controls.

Accordingly, because of the inherent limitations in our control system, misstatements, or insufficient disclosures

due to error or fraud may occur and not be detected.

We have incurred, and will continue

to incur, increased costs as a result of operating as a public company, and our management has been required, and will continue

to be required, to devote substantial time to new compliance initiatives.

As a public company, we have incurred and are

continuing to incur significant legal, accounting, and other expenses and these expenses may increase even more after we are no

longer an “emerging growth company” and “smaller reporting company.” We are subject to the reporting requirements

Accordingly, because of the inherent limitations in our internal controls system, misstatements, or insufficient

disclosures due to error or fraud may occur and not be detected.

We have incurred, and will continue to

incur, increased costs as a result of operating as a public company, and our management has been required, and will continue to

be required, to devote substantial time to new compliance initiatives.

As a public company, we have incurred and are continuing

to incur significant legal, accounting, and other expenses and these expenses may increase even more after we are no longer an

“emerging growth company” and “smaller reporting company.” We are subject to the reporting requirements

of the Exchange Act and the rules adopted, and to be adopted, by the SEC.

1 unchanged sentence

amount of time to these compliance initiatives.

Moreover, these rules and regulations have substantially increased our legal and financial compliance costs

and made some activities more time-consuming and costly.

The increased costs can result in our reporting a net loss.

and regulations may make it more difficult and more expensive for us to maintain sufficient directors’ and officers’

liability insurance coverage.

We cannot predict or estimate the amount or timing of additional costs we may continue to incur to

respond to these requirements.

The ongoing impact of these requirements could also make it more difficult for us to attract and

retain qualified persons to serve on our Board, our Board committees, or as executive officers.

Moreover, these rules and regulations have

substantially increased our legal and financial compliance costs and made some activities more time-consuming and costly.

The increased

costs can result in our reporting a net loss.

These rules and regulations may make it more difficult and more expensive for us

to maintain sufficient directors’ and officers’ liability insurance coverage.

We cannot predict or estimate the amount

or timing of additional costs we may continue to incur to respond to these requirements.

The ongoing impact of these requirements

could also make it more difficult for us to attract and retain qualified people to serve on our Board, our Board committees, or

as executive officers.

Unresolved Staff Comments.

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 1A. Risk Factors