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Item 7. Management’s Discussion and Analysis

2023-01-30 compared with 2022-02-16 · 337 added, 389 removed, 41 unchanged (95% of the section changed)

Management’s Discussion

and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis

Management’s Discussion and

Analysis of Financial Condition and Results of Operations.

This management’s Discussion and Analysis

of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report

9 unchanged sentences

regarding forward-looking statements.

Potential Impact of COVID-19

2020, the World Health Organization (the “WHO”) announced a global health emergency because of COVID-19, a new coronavirus

We are focused on growing and incubating innovative

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

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

Our business plan is to diversify into distributing other

delivery system products.

Our principal business activity is presently

focused around our A&R Distribution Agreement with Bidi, pursuant to which Bidi granted us an exclusive worldwide right to

distribute Bidi’s ENDS as well as non-electronic nicotine delivery systems and related components

for sale and resale to both retail level customers and non-retail level customers.

Currently, such products consist solely of the

“ BIDI ® Stick ”, Bidi’s disposable, tamper resistant

ENDS product made with medical-grade components, a UL-certified battery and technology designed

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

We presently distribute products to wholesalers

and retailers of ENDS products, having ceased all direct-to-consumer sales in February 2021.

Impact of COVID-19

In March 2020, the

World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”)

originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin.

In March 2020, the WHO declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure.

continues to spread throughout the world, including the United States.

Our business operations, which commenced during this pandemic,

continue to be operational and, to date, we have not seen any significant direct negative impact of COVID-19 to our business.

impairments have been recorded and no triggering events or changes in circumstances have occurred.

However, the COVID-19 pandemic

continues to impact economic conditions, which could impact the short-term and long-term demand from our customers and, therefore,

has the potential to negatively impact our results of operations, cash flows, and financial position in the future.

is actively monitoring this situation and any impact on our financial condition, liquidity, and results of operations.

given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not presently able to estimate

the effects of the COVID-19 pandemic on our future results of operations, financial condition, or liquidity for fiscal year 2022

and, possibly, beyond.

being directly impacted by COVID-19, we were indirectly impacted by supply chain issues and regulatory oversight as a result of

Bidi’s direct impact.

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

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

Throughout the year and during the PMTA process, the FDA reiterated their enhanced scrutiny over ENDS products and raised

We have not only invested significant financial resources into developing state of the art procedures, policies and technology

around compliance but have also refused to relax our own internal standards when we observed some distributors and retailers relaxing

their standards.

We believe that retailers and distributors relaxed their standards for two reasons:

(i) due to COVID-19, government

enforcement of regulations were very limited due to imposed social restrictions, resulting in less in-person monitor enforcement

by government officials and (ii) retail stores experienced light foot traffic from customers due to COVID-19 restrictions and fears,

which resulted in relaxed compliance in an effort to generate revenue.

The relaxation of standards by certain retailers significantly

impacted our revenues.

Impact of the FDA PMTA Decision

During fiscal 2021, we were

impacted by the FDA’s PMTA process.

In September 2021, in connection with the PMTA process, the FDA effectively

“banned” flavored ENDS by denying nearly all then-pending PMTAs for such products.

Following the issuance of an

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

As of September 10, 2021, the FDA

announced that it has taken action on over 93% of applications and issued MDOs for more than 1,167,000 flavored ENDS

products, while issuing zero marketing authorizations.

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

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

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

it should not be subject to the MDO.

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

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

a result, beginning in September 2021, Bidi pursued three avenues to challenge the MDO.

First, on September 21, 2021, separate

from the judicial appeal of the MDO in its entirety, Bidi filed a 21 C.F.R.

§ 10.75 internal FDA review request specifically

of the decision to include the Arctic (menthol) BIDI® Stick in the MDO.

We anticipate a decision from the FDA on the internal

review in the second or third quarter of 2022, although we cannot provide any assurances as to the timing or outcome.

Separately, on September 29, 2021, Bidi petitioned

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

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

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

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

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

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

1, 2022, the Eleventh Circuit Court of Appeals granted Bidi’s motion to stay (put on hold) the MDO, pending the litigation

on the merits.

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

Accordingly, we anticipate being able to continue

marketing and selling the Products, subject to the FDA’s enforcement discretion, while Bidi continues with its merits case

challenging the legality of the MDO.

FDA has indicated that it is prioritizing enforcement against companies that have either not

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

Oral arguments

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

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

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

In light of this request, on October 22,

2021 pursuant to 21 C.F.R.

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

Subsequently,

FDA lifted its administrative stay on December 17, 2021.

Following the lifting of the FDA’s administrative stay, Bidi filed

a renewed motion to stay the MDO with the Eleventh Circuit Court of Appeals, which was granted on February 1, 2022.

In the event that the Eleventh Circuit Court of Appeals issues a

ruling adverse to Bidi, or if FDA otherwise chooses to enforce against Bidi, Bidi will be forced to cease the continued sale of

its non-tobacco flavored BIDI® Stick products in the United States, thereby resulting in our being unable to distribute such

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

We cannot provide any assurances as to the

timing or outcome of the merits-based case.

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 fiscal 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.

For additional information, please refer

to the section entitled “Item.

1 – Business” in this Report.

Future Strategic Opportunities

In addition to the continued domestic

opportunity, we believe that international markets provide an exciting growth opportunity for us.

The estimated total addressable

global market for ENDS products is approximately $36.7 billion.

Bidi has received approval to market and distribute products within

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

Bidi has also secured significant

intellectual property protections similar to those received in the United States from the European Union, China, and several other

regions and countries.

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

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

These international market approvals Bidi has

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

Because the FDA’s PMTA restrictions and guidelines

do not pertain to international markets, Bidi intends to continue manufacturing its full product lineup, for distribution by us

in these international markets.

Accordingly, in light of the pending MDO appeal and uncertainty regarding FDA’s review of

the PMTA, as well as the ongoing threat of FDA enforcement, Bidi intends to expedite the planned product launches into foreign

markets starting with the United Kingdom.

The Company is also actively exploring potential partnerships with international distribution

companies in order to possibly expand Product distribution more rapidly in these international markets.

Reverse Stock Split

We effected the 1-for-12 Reverse Stock

Split of our Common Stock on July 20, 2021.

As a result of the Reverse Stock Split, every twelve (12) shares of our pre-Reverse

Stock Split Common Stock were combined and reclassed into one share of our Common Stock.

No fractional shares were issued in connection

with the Reverse Stock Split.

Any fractional shares of Common Stock that would have otherwise resulted from the Reverse Stock Split

were rounded up to the nearest whole number.

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

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

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

All historical share and per-share amounts

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

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

The par value per share of the Common

Stock was not affected by the Reverse Stock Split.

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

We were indirectly impacted by supply chain issues

and regulatory oversight in the fiscal year 2022.

We believe that many retailers and distributers relaxed their compliance standards as

an indirect result of COVID-19 for two reasons:

(i) government enforcement of regulations was very limited due to imposed social restrictions,

resulting in less in-person monitor enforcement by government officials and (ii) retail stores experienced light foot traffic from customers

due to COVID-19 restrictions and fears, which resulted in relaxed compliance in an effort to generate additional revenue.

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

As the principal manufacturer

of the products we distribute, Bidi’s interactions with FDA and related legal proceedings are of significant importance to our business.

Please see Item 1 – Business – FDA PMTA Determinations, 11 th Circuit Decision and Impact on Our Business for information

on this important topic.

Phillip Morris License Agreement

On June 13, 2022, we, through our wholly owned subsidiary,

KBI, entered into the PMI License Agreement with PMPSA, a wholly owned affiliate of PMI, for the development and distribution of ENDS

products in certain markets outside of the United States, subject to market (or regulatory assessment).

The PMI License Agreement grants

to PMPSA a license of certain intellectual property rights relating to Bidi’s ENDS device, known as the BIDI® Stick in the

United States, as well as potentially newly developed devices, to permit PMPSA to manufacture, promote, sell, and distribute such ENDS

device and newly developed devices, in international markets, outside of the United States.

On July 25, 2022, we announced the launch of PMPSA’s custom-branded

self-contained e-vapor product, pursuant to the licensing agreement.

The product, a self-contained e-vapor device, VEEBA, has been custom

developed and is now being distributed in Canada and in the United Kingdom, with additional market launches planned this fiscal year.

We effected the 1-for-12 Reverse Stock Split of our

Common Stock on July 20, 2021.

As a result of the Reverse Stock Split, every twelve (12) shares of our pre-Reverse Stock Split Common

Stock were combined and reclassed into one share of our Common Stock.

No fractional shares were issued in connection with the Reverse

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

the nearest whole number.

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

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

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

All historical share and per-share amounts reflected throughout our consolidated

financial statements and other financial information in this Report have been adjusted to reflect the Reverse Stock Split as if the split

occurred as of the earliest period presented.

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

Going Concern

A recent court ruling on behalf of Bidi in

the Eleventh Circuit Court of Appeals, granted a judicial stay of the MDO previously issued by the FDA to Bidi in September 2021.

The ruling, which was issued on February 1, 2022, 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

Oral arguments in the merits case are currently

scheduled in May 2022.

If the Eleventh Circuit Court of Appeals

agrees with Bidi in the merits case, we anticipate that the FDA will be compelled to place the flavored ENDS back into the

PMTA scientific review process.

If this is the outcome of the merits case, we anticipate being able to continue marketing and

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

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

If the Eleventh Circuit Court of appeals disagrees

with Bidi on the merits case, or if the FDA re-issues the MDO after completing its scientific review process for each of Bidi’s

PMTAs for its flavored ENDS, or if The DA otherwise chooses to enforce against Bidi, we will be forced to cease sales on the flavored

BIDI ® Sticks in the United States market, leaving only the Tobacco (Classic) and Menthol (Arctic) BIDI ®

Sticks products for sale in the United States (which, with respect to the Menthol (Arctic) BIDI ® Stick, depends

on the outcome of the specific PMTA filings and the administrative review request for the classification of “Arctic”

as a standard menthol ENDS).

If this is the outcome of the merits case, this combined with a negative cash flow from

operations would raise substantial doubt on our ability to continue as a going concern.

Management plans to continue similar

operations with increased marketing, which we believe will result in increased revenue and net income.

However, there is no assurance

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

The audited consolidated financial statements

filed as part of this Report do not include any adjustments relating to the recoverability and classification of recorded assets,

or the amounts and classification of liabilities that might be necessary in the event that we cannot continue as a going concern.

Liquidity and Capital Resources

We believe we have sufficient cash on hand as of February 14, 2022.

However, we are awaiting the outcome of

Bidi’s merit-based case pending in the Eleventh Circuit Court of Appeals with respect to the MDO issued by the FDA in September

If the Eleventh Circuit Court of Appeals rules against Bidi, our business and financial condition will be materially adversely

affected, including our ability to generate revenues and our liquidity.

Other than the ongoing MDO matters, we have no known current

demands or commitments and are not aware of any events or uncertainties as of October 31, 2021 that will result in or that are

reasonably likely to materially increase or decrease our current requirements for cash and resulting improved liquidity.

On October 31, 2021, we had working

capital of approximately $16.3 million and total cash of approximately $7.8 million.

We intend to generally rely on cash

from operations and equity and debt offerings, to the extent necessary and available, to satisfy our liquidity needs.

a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated

sales growth and increased costs.

Our financial statements are prepared in accordance

GAAP applicable to a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal

course of business within one year after the date the consolidated financial statements are issued.

In accordance with Financial Accounting Standards

Board (the “FASB”), Accounting Standards Update (“ASU”) No.

2014-15, Presentation of Financial Statements –

Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise

substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

As shown in the accompanying consolidated financial statements, the Company has incurred significant recurring losses and negative cash

flows from operations.

These factors raised substantial doubt about our ability to continue as a going concern.

In response to the above, we assessed our management’s

plans to alleviate that doubt.

We had positive working capital as of October 31, 2022 of $7.5 million.

We considered that our losses and

negative cash flows were due to various factors such as:

(i) uncertainty surrounding the PMTA process with FDA and (ii) the MDO that was

issued to Bidi Vapor on its flavored ENDS product.

However, the MDO was set aside and remanded by the 11 th Circuit and the

ability to appeal such decision has passed thereby facilitating the advancement of the flavored BIDI® Sticks for sale in the United

States (pending FDA’s review of the flavored PMTAs).

Concurrently, the PMTA of the tobacco-flavored (Classic) BIDI® Sticks

for sale in the United States continues to move through scientific review (pending FDA’s review of that PMTA).

assessment included the preparation of cash flow forecasts which considered increases in revenues considering the favorable ruling obtained

on the MDO as disclosed above.

We believe that our available cash and the cash to

be provided by future operating activities should enable us to meet our estimated liquidity needs for the next 12 months after the date

that the financial statements are issued.

Because of the above factors, we believe that this alleviates the substantial doubt in connection

with our ability to continue as a going concern.

However, there is no

assurance that our plans will be achieve their desired results due to the current economic climate

in the United States and globally.

The accompanying consolidated financial statements do not include any adjustments to reflect the possible

future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from

the outcome of these uncertainties.

and Capital Resources

We believe we have

sufficient cash on hand as of January 20, 2023.

We had been awaiting the outcome of Bidi’s merit-based case pending in the Eleventh

Circuit Court of Appeals with respect to the MDO issued by the FDA in September 2021.

The Eleventh Circuit Court of Appeals finally ruled

in favor of Bidi on August 23, 2022, so our business and financial condition will not be materially adversely affected, including our

ability to generate increased revenues from sales of all Bidi stick flavors and our liquidity in Fiscal year (“FY”) 2023

and likely FY 2024 and beyond.

Bidi’s scientific

study has now gone into review by the FDA, which can take a considerable length of time, in which period allows us to market and sell.

Other than the ongoing PMTA reviews, we have no known current demands or commitments and are not aware of any events or uncertainties

as of October 31, 2022 that will result in or that are reasonably likely to materially increase or decrease our current requirements

for cash and resulting improved liquidity.

As of October 31, 2022, we had working capital of

approximately $7.5 million and total cash of approximately $3.7 million.

We intend to generally rely on cash from operations

and equity and debt offerings to the extent necessary and available, to satisfy our liquidity needs.

There are several factors that could

result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth and increased costs.

Our efforts are directed toward generating positive cash flow and profitability.

If these efforts

are not successful, we may need to raise additional capital.

Should capital not be available to us at reasonable terms, other actions

may become necessary in addition to cost control measures and continued efforts to increase sales.

These actions may include exploring

strategic options for the sale of the Company, the creation of joint ventures or strategic alliances under which we will pursue

business opportunities, or other alternatives.

We believe we have the financial resources to weather any short-term impacts of

however, we are unable to presently estimate any potential future impacts from COVID-19 and an extended impact could

have a material and adverse effect on our sales, earnings, and liquidity.

We have also been impacted by Bidi’s receipt of

a MDO from the FDA.

For additional information regarding the impact to our revenues during the last two quarters of fiscal 2021,

please see the section entitled “Revenues” below.

At this time, we do not foresee the need for further strategic financing

for the next twelve months, given the financing we completed in September 2021, as indicated below, and our continual sales efforts

In September 2021, we completed a firm commitment

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

333-258339) (the “Registration

If these efforts are not successful, we may need to raise

additional capital.

Should capital not be available to us at reasonable terms, other actions may become necessary in addition to cost

control measures and continued efforts to increase sales.

These actions may include exploring strategic options for the sale of the Company,

the creation of joint ventures or strategic alliances under which we will pursue business opportunities, or other alternatives.

believe we have the financial resources to weather any short-term impacts of COVID-19;

however, we are unable to presently estimate any

potential future impacts from COVID-19 and an extended impact could have a material and adverse effect on our sales, earnings, and liquidity.

Company was indirectly impacted by supply chain issues and regulatory oversight.

In FY 22 , the Company believes that many retailers

and distributers relaxed their compliance standards as an indirect result of COVID-19 for two reasons:

(i) government enforcement of

regulations was very limited due to imposed social restrictions, resulting in less in-person monitor enforcement by government officials

and (ii) retail stores experienced light foot traffic from customers due to COVID-19 restrictions and fears, which resulted in relaxed

compliance in an effort to generate additional revenue.

had also been impacted by Bidi’s receipt of a MDO from the FDA.

However, in the fiscal fourth quarter of FY 2022 that MDO was eliminated

for Bidi by the Eleven Circuit Court of Appeals decision.

For additional information regarding the impact to our revenues during the

last fiscal quarter of fiscal year 2022, please see the section entitled “Revenues” below.

At this time, we do not foresee

the need for further strategic financing for the next twelve months, given the financing we completed in September 2021, as indicated

below, other working capital financing that will be available to us in FY 2022 and our continual and increasing sales efforts and results.

In September 2021, we completed a firm

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

(the “Registration Statement”).

The SEC declared the Registration Statement effective on August 10, 2021.

We sold 4,700,000 million shares

of our Common Stock and warrants to purchase an additional 3,525,000 shares of our Common Stock.

We sold each share of our Common

Stock and warrants to purchase 0.75 shares of our Common Stock at a combined public offering price of $1.70.

We also granted the

underwriter the option to purchase an additional 705,000 shares of our Common Stock and warrants to purchase an additional 528,750

shares of our Common Stock.

4,700,000 shares of our Common Stock and warrants to purchase an additional 3,525,000 shares of our Common Stock.

We sold each share

of our Common Stock and warrants to purchase 0.75 shares of our Common Stock at a combined public offering price of $1.90.

granted the underwriter the option to purchase an additional 705,000 shares of our Common Stock and warrants to purchase an

additional 528,750 shares of our Common Stock.

We received net proceeds from the offering of approximately $8.3 million.

We have also received approximately

$1.7 million from the exercise of the warrants.

also received approximately $1.7 million from the exercise of the warrants.

We used the proceeds for general corporate

flow used in operations was approximately ($9.3) million for fiscal year 2021, compared to cash flow provided by operations of

approximately $7.6 million for fiscal year 2020.

The decrease in cash flow from operations for the fiscal year 2021 was primarily

due to the decrease in net income, year-over-year.

We anticipate that our cash flows provided by operations in fiscal year 2022

will improve based on the minimum purchase obligations set forth in the Sub-Distribution Agreements, partially offset by increases

in costs as we ramp up our sales and marketing efforts.

Additionally,

we conducted a public financing in September 2021 to raise capital for short term sales opportunities with major sub-distributors,

expand our sales territories, and invest cash in enlarging our corporate infrastructure to adequately support the intended growth.

Cash flow provided from financing activities

was approximately $9.7 million for fiscal year 2021, compared to cash flow used in financing activities of approximately ($180,000)

for fiscal year 2020.

The increase in cash flow from financing activities for the fiscal year 2021 was primarily due to the $8.3

million in net proceeds from the firm commitment underwritten offering in September 2021, which consisted of shares of Common Stock

and warrants to purchase shares of Common Stock, and the approximately $1.7 million in cash received from the exercise of warrants,

offset by approximately $254,000, which was the cash amount that was paid in connection with the withholding of 92,871 shares to

satisfy tax obligations due upon such issuances to certain employees.

Results of Operations

Year ended October 31, 2021, compared

to year ended October 31, 2020

fiscal year 2021 were approximately $58.7 million ,

compared to approximately $64.3 million in the prior fiscal year.

Revenues decreased in fiscal year 2021, primarily in the last

two fiscal quarters, generally due to (i) increased competition, which we believe was the result of the lack of enforcement by

federal and state authorities against sub-par and low-priced vaping products that continued to enter the market illegally without

FDA authorization and (ii) Bidi’s receipt of the MDO ,

which limited our ability towards the end of fiscal year 2021 to sell flavored BIDI ® Sticks in the United States.

A recent court ruling in favor of Bidi granted a judicial stay on the MDO previously issued by the FDA banning the marketing and

sale of flavored BIDI ® Sticks, amongst banning these flavored sticks with other industry competitors.

of the judicial stay of Bidi’s MDO, we expect an upturn in sales of all of the BIDI ® Sticks ,

which sales remain subject to FDA’s enforcement discretion, anticipated to begin in the second quarter of fiscal year 2022

(and assuming that Bidi is successful in its currently pending merits-based case).

We also anticipate that if the FDA begins enforcement

against illegally-marketed or synthetic-nicotine vaping products, there may be an increased demand for compliant and legal vaping

products, such as the BIDI ® Stick.

of Revenue and Gross Profit:

Gross profit in fiscal year 2021 was approximately

$11.9 million, compared to approximately $10.0 million for fiscal year 2020.

Total cost of revenue was approximately $46.8 million

for fiscal year 2021, compared to approximately $54.3 million for fiscal year 2020.

The decrease in gross profit volume is primarily

driven by the downturn in sales of the Products, beginning in the third quarter and continuing through the end of fiscal year

2021, primarily the result of the negative impact the PMTA and the impact the regulatory landscape had on our business.

Additionally,

the cost of the discounts, coupons and promotions programs, that we implemented in the third quarter of fiscal year 2021 to assist

in growing and retaining the customer base and store shelf space, contributed a lower gross profit margin per unit of Products

sales for that period of time, as these discounts, coupons and promotions decreased our revenues.

However, there is no assurance that our plans will

be achieve their desired results due to the current economic climate in the United States and globally.

The accompanying consolidated

financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of

assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

Cash flow used in operations

was approximately ($5.7) million for fiscal year 2022, compared to cash flow used in operations of approximately ($9.3) million for fiscal

The decrease in cash flow used in operations for the fiscal year 2022 was primarily due to the

decrease in inventory purchases and inventory deposits in the current year, partially offset by the decrease in accounts payable –

related party .

We anticipate that our cash

flows from operations and sales in fiscal year 2023 will improve based on the minimum purchase obligations set forth in the Sub-Distribution

Agreements, partially offset by minimal increases in costs as we ramp up our sales and marketing efforts.

Additionally, we are in the

process of developing a working capital line of credit with a third-party financial firm, which can supply us with short-term cash needs

as our customer growth requires many more orders of product for interim short time intervals.

flow provided by financing activities was approximately $1.6 million for fiscal year 2022, compared to cash flow provided

by financing activities of approximately $9.7 for fiscal year 2021.

The decrease in cash flow from financing activities for the fiscal

year 2022 was primarily due to the $8.3 million in net proceeds from the firm commitment underwritten offering in September 2021, which

consisted of shares of Common Stock and warrants to purchase shares of Common Stock, and the approximately $1.7 million in cash received

from the exercise of warrants, offset by approximately $0.3 million, which was the cash amount that was paid in connection

with the withholding of 92,871 shares to satisfy tax obligations due upon such issuances to certain employees.

of Operations

ended October 31, 2022, compared to year ended October 31, 2021

Revenues for fiscal

year 2022 were approximately $12.8 million, compared to approximately $58.8 million in the prior fiscal year.

Revenues decreased

in fiscal year 2022, primarily in the first two fiscal quarters, generally

due to (i) increased competition, which we believe was the result of the lack of enforcement by federal and state authorities against

sub-par and low-priced vaping products that continued to enter the market illegally without FDA authorization and (ii) Bidi’s receipt

of the MDO, which limited our ability in most of fiscal year 2022 to sell flavored BIDI ® Sticks in the United

On August 23, 2022, the 11 th Circuit set aside (i.e., vacated) the MDO issued to the non-tobacco flavored BIDI®

Sticks and remanded Bidi’s PMTA back to the FDA for further review.

In light of the 11 th Circuit decision, the Company

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

discretion, for the duration of the PMTA scientific review.

We also anticipate that if the FDA begins enforcement against illegally marketed

or synthetic-nicotine vaping products, there may be an increased demand for compliant and legal vaping products, such as the BIDI ®

Cost of Revenue and Gross Profit:

profit in fiscal year 2022 was approximately $1.2 million, compared to approximately $11.9 million for fiscal year 2021.

Total cost of

revenue was approximately $11.5 million for fiscal year 2022, compared to approximately $46.8 million for fiscal year 2021.

decrease in gross profit volume is primarily driven by the downturn in sales of the Products, beginning in the fiscal year 2021 and

continuing through the end of fiscal year 2022, which was primarily the result of the negative impact the PMTA and the impact the regulatory

landscape had on our business.

Additionally, the cost of the discounts, coupons and promotions programs, that we implemented in the third

quarter of fiscal year 2021 to assist in growing and retaining the customer base and store shelf space, which continued through

current year contributed a lower gross profit margin per unit of Products sales, as these discounts, coupons and promotions

decreased our revenues.

Operating Expenses:

Total operating expenses were approximately $22.4 million for fiscal year 2021, compared to approximately $4.7 million for fiscal year 2020.

For the fiscal year 2021, operating expenses consisted of advertising and promotional expenses of approximately $3.2 million, which included

commissions paid to QuikfillRx pursuant to the Service Agreement dated March 31, 2020, as amended on June 2, 2020 (the “Amended

Service Agreement”), and general and administrative expenses of approximately $19.2 million.

General and administrative expenses

in the fiscal year 2021 consisted primarily of legal fees, salaries, professional fees, merchant fees, and other service fees, and were

necessary for our Reverse Stock Split process, the process for the uplisting to Nasdaq, and to a lesser degree some of the indirect costs

incurred relating to our Common Stock and warrants offering in September 2021.

Additionally, we incurred legal and other costs related

to the FDA’s PMTA/MDO process for limiting the sales of flavored BIDI sticks.

In fiscal 2020, we paid commissions to QuikfillRx

in the amount of approximately $2.3 million and our general and administrative expenses were approximately $2.4 million.

Total General

and administrative expenses in the fiscal year 2020 consisted primarily of legal fees, salaries, professional fees, merchant fees, and

other service fees.

We expect future operating expenses to continue to increase while we generate increased sales growth and invest in

the Company infrastructure to support the planned business growth.

Total operating expenses were approximately

$15.6 million for fiscal year 2022, compared to approximately $22.4 million for fiscal year 2021.

For the fiscal year 2022, operating

expenses consisted primarily of advertising and promotion fees of approximately $2.7 million, stock option compensation expense

of approximately $6.0 million, professional fees of approximately $3.2 million, salaries and wages of $1.7 million, and all other

general and administrative expenses of approximately $2.0 million.

In fiscal year 2021, operating expenses consisted of advertising

and promotional expenses of approximately $3.2 million, which included commissions paid to QuikfillRx pursuant to the Service Agreement

dated March 31, 2020, as amended on June 2, 2020 (the “Amended Service Agreement”), and general and administrative

expenses of approximately $10.2 million.

General and administrative expenses in the fiscal year 2021 consisted primarily of legal

fees, salaries, professional fees, merchant fees, and other service fees, and were necessary for our Reverse Stock Split process,

the process for the uplisting to Nasdaq, and to a lesser degree some of the indirect costs incurred relating to our Common Stock

and warrants offering in September 2021.

Additionally, we incurred legal and other costs related to the FDA’s PMTA/MDO process

for limiting the sales of flavored BIDI sticks.

We expect future operating expenses to increase while we generate increased sales

growth and invest in the Company’s infrastructure to support the planned business growth.

Income Taxes:

We have Federal net operating loss (“NOL”)

carryforwards of approximately $4.0 million and state NOL carryforwards of approximately $1.8 million.

With the changes instituted

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

Our federal and state tax returns for the 2018

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

We have Federal net

operating loss (“NOL”) carryforwards of approximately $12.3 million and state NOL carryforwards of approximately $85 thousand.

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

Our federal and state tax

returns for the 2020 and 2021 tax years generally

remain subject to examination by U.S.

and various state authorities.

A valuation allowance is recorded

to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all of

the deferred tax asset will not be realized.

Management determined that a valuation allowance of approximately $1.3 million for

the year ended on October 31, 2021 was necessary to reduce the deferred tax asset to the amount that will more likely than not

During the year ended October 31, 2020, we generated taxable income of

approximately $6.0 million.

During the year ended October 31, 2020, the Company paid approximately $183,000 in income taxes and reported

an income tax accrual of approximately $1.3 million.

Please refer to Note 8, Income Tax,

in the Notes to the Consolidated Financial Statements in this Report for additional information related to our income taxes.

A valuation allowance is recorded to reduce the deferred tax asset

if, based on the weight of the evidence, it is more likely than not that some portion or all the deferred tax assets will not be realized.

Management determined that a valuation allowance of approximately $4.2 million for the year ended on October 31, 2022, was necessary to

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

refer to Note 7, Income Tax, in the Notes to the Consolidated Financial Statements in this Report for additional information

related to our income taxes.

Net Income (Loss):

Net loss for fiscal year 2021 was approximately ($9.0) million, or $(0.38)

basic and diluted net loss per share, compared to net income of approximately $3.8 million, or $0.9 basic and diluted net income

per share, for fiscal year 2020.

The increase in net loss for the fiscal year 2021, as compared to net income in fiscal year 2020, is

attributable to the factors noted above with respect to the decline of revenues from Product sales and increase in marketing and sales

expenses to grow our revenue, as well as other expenses for our growth, the Reverse Stock Split and a capital raise for funds to invest

in our continued structural growth.

Weighted-average

common stock shares outstanding were 24,000,246 at October 31, 2021 as compared to 43,017,745 at October 31, 2020.

decrease in the weighted-average shares in fiscal year 2021 was primarily attributable to the shares issued in connection

with the public underwritten offering, shares issued upon the exercise of outstanding warrants, and equity compensation

granted to third-party service providers in exchange for providing services to us.

fiscal year 2022 was approximately $(14.4) million, or $(0.36) basic and diluted net loss per share, compared to a net loss of

approximately $(9.0) million, or $(0.38) basic and diluted net loss per share, for fiscal year 2021.

The increase in net loss

for the fiscal year 2022, as compared to net loss in fiscal year 2021, is attributable to the revenues and expenses factors noted

Weighted-average common stock shares outstanding were 39,710,389 on October 31, 2022, as compared to 24,000,246 on October

The increase in the weighted-average shares in fiscal year 2022 was primarily attributable to the conversion of 3,000,000

shares of Series A Convertible Preferred Stock to 25,000,000 shares of common stock and the exercise of 855,605 common stock

warrants issued in connection with our 2021 public underwritten offering.

Accrued Expenses:

During fiscal year 2022, we accrued approximately

$3,800 for a quarterly bonus and approximately $180,000 for a monthly retainer plus approved expenses payable to QuikfillRx based on our

applicable gross quarterly sales for the three months ended October 31, 2021.

During fiscal year 2020, we accrued approximately $80,000

for a quarterly bonus and $132,000 for a monthly retainer plus approved expenses payable to QuikfillRx based on our applicable gross quarterly

sales for the three months ended October 31, 2020.

Because certain revenues benchmarks were not achieved

during the three months ended October, 31, 2021, we did not accrue any bonuses payable to our executive officers during the three months

ended October 31, 2021.

During fiscal year 2020, we accrued approximately $165,000 for bonuses payable to our executive officers based

on the revenues benchmark achieved during the three months ended October 31, 2020.

Excise taxes totaling approximately $2,200 were accrued based on

taxable sales during the fourth quarter of fiscal year 2021, compared to excise taxes of approximately $502,000 that were accrued in fiscal

year 2020 based on taxable sales during the fourth quarter of fiscal year 2020.

$33,900 for a quarterly bonus and approximately $18,000 for approved expenses payable to QuikfillRx based on our applicable gross

quarterly sales for the three months ended October 31, 2022.

During fiscal year 2021, we accrued approximately $3,800 for a quarterly

bonus and approximately $180,000 for a monthly retainer plus approved expenses payable to QuikfillRx based on our applicable gross

quarterly sales for the three months ended October 31, 2021.

Excise taxes totaling approximately $6,600 were

accrued based on taxable sales during the fourth quarter of fiscal year 2022, compared to excise taxes of approximately $2,200

that were accrued in fiscal year 2021 based on taxable sales during the fourth quarter of fiscal year 2021.

Concentrations:

Financial instruments, which potentially

subject us to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable,

Concentration of Purchases and Accounts

Payable- Related Party:

For the fiscal year 2021, 100% of the inventories

of Products, consisting solely of the BIDI ® Stick, were purchased from Bidi, a related party company that is owned by Nirajkumar

Patel, our Chief Executive Officer, in the amount of approximately $61.9 million, as compared to approximately $54.0 million for

fiscal year 2020.

In fiscal year 2021, such inventories accounted for 100% of the total accounts payable, compared to 100% of the total

accounts payable for fiscal year 2020.

Financial instruments, which potentially subject

us to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and

Concentration of

Purchases and Accounts Payable- Related Party:

For the year ended October 31, 2022, 100% of the inventories

of Products, consisting solely of the BIDI ® Stick, were purchased from Bidi, a related party company that is owned by

Nirajkumar Patel, our Chief Science and Regulatory Officer and director, in the amount of approximately $1.5 million, as compared

to $61.9 million for the year ended October 31, 2021.

There was no related party accounts payable balance as of October 31, 2022.

year 2021, such inventories accounted for 100% of the total related party accounts payable.

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

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

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

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

A credit of $2.9 million was applied

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

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

An additional credit of $1.5 million

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

of October 31, 2022, we had a related-party receivable balance due from Bidi of $3.7 million, in which $1.5 million of the receivable

is classified as current and $2.2 million is classified as non-cur rent .

receivable balance will be realized through Bidi applying 5% credits on all future orders of Product until the entire balance is extinguished.

Concentration of Revenues and Accounts Receivable:

For the fiscal year

2020, (i) approximately 23% of the revenue from the sale of Products, solely consisting of the BIDI ® Stick, was generated

from Favs Business in the amount of approximately $13.9 million, (ii) approximately 16% of the revenue from the sale of the Products

was generated from MMS Distro in the amount of approximately $9.6 million, and (iii) approximately 14 %

of the revenue from the sale of Products, solely consisting of the BIDI Stick, was generated from C Store Master, in the amount of approximately

$8.2 million.

In fiscal 2020, approximately 41% of the revenue from the sale of Products, solely consisting of the BIDI ®

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

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

Favs Business with an outstanding balance of approximately $1.0 million

and C Store Master, with an outstanding balance of approximately $322,000, accounted for approximately 50% and 16% of the total accounts

receivable from customers, respectively, as of October 31, 2021.

Go Brands, with an outstanding balance of approximately $319,000, and

GPM, with an outstanding balance of approximately $551,200, accounted for approximately 33% and 56% of the total accounts receivable from

customers, respectively, as of October 31, 2020.

Cash and Restricted Cash

We consider all highly liquid investments

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

There were no cash equivalents at October

For the fiscal year 2022, (i) approximately 31% of

the revenue from the sale of Products, solely consisting of the BIDI ® Stick, was generated from Favs Business in the amount

of approximately $3.9 million, (ii) approximately 15% of the revenue from the sale of the Products was generated from H.T.

in the amount of approximately $1.9 million, and (iii) approximately 12% of the revenue from the sale of Products, solely consisting

of the BIDI Stick, was generated from GPM, in the amount of approximately $1.5 million.

In Fiscal year 2021, approximately 23% of the

revenue from the sale of Products, solely consisting of the BIDI ® Stick, was generated from Favs Business in the amount

of approximately $13.9 million and approximately 16% of the revenue from the sale of the Products was generated from MMS Distro in the

amount of approximately $9.6 million.

Favs Business with an outstanding balance of approximately $375,000

and QuikTrip Corporation, with an outstanding balance of approximately $85,000, accounted for approximately 65% and 15% of the

total accounts receivable from customers, respectively, as of October 31, 2022.

Favs Business with an outstanding balance of approximately

$1.0 million and C Store Master, with an outstanding balance of approximately $322,000, accounted for approximately 50% and 16%

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

and Restricted Cash

We consider all highly liquid investments with

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

There were no cash equivalents on October 31,

2022, or October 31, 2021.

Cash and restricted cash at October 31, 2021 and October 31, 2020 were $7.8 million and $7.4 million,

Cash and restricted cash on October 31, 2022, and October 31, 2021, were $3.7 million and $7.8 million,

respectively.

Restricted consists of cash held short-term

Restricted cash consists of cash held short-term

in escrow as required.

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amounts held in escrow.

Critical Accounting Policies and

Accounting Policies and Estimates

Our financial statements are prepared in accordance

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The preparation of the consolidated financial statements

in conformity with accounting principles, generally accepted in the United States of America (“GAAP”) requires our management

to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure or inclusion

of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses

during the period.

We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to allowance

for doubtful accounts, and income tax provisions.

We base our estimates on historical experience and on various other assumptions that

we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of

assets and liabilities that are not readily apparent from other sources.

Actual results could differ from those estimates.

We believe that

the assumptions associated with our revenue recognition have the greatest potential impact on our financial statements.

we consider this to be our only critical accounting policy and we do not consider any of our estimates to be critical accounting

However, we consider Revenue Recognition the most

critical accounting policy for the Company that could create a material misevaluation of Product Revenue if not adhered to and implemented

in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets

and liabilities, the disclosure or inclusion of contingent assets and liabilities at the date of the consolidated financial statements,

and the reported amounts of revenue and expenses during the period.

We evaluate our significant estimates on an ongoing basis, including,

but not limited to, estimates related to allowance for doubtful accounts, and income tax provisions.

We base our estimates on historical

experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis

for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results could

differ from those estimates.

We believe that the assumptions associated

with our revenue recognition have the greatest potential impact on our financial statements.

Therefore, we consider this to be

our only critical accounting policy and we do not consider any of our estimates to be critical accounting estimates.

we consider Revenue Recognition the most critical accounting policy for the Company that

could create a material misevaluation of Product Revenue if not adhered to and implemented

successfully.

We adopted ASC 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), in the second quarter of

fiscal year 2020, as this was the first quarter that we generated revenues.

We adopted ASC 606, Revenue from Contracts with Customers (Topic 606)

(“ASC 606”), in the second quarter of fiscal year 2020, as this was the first

quarter that we generated revenues.

Under ASC 606, we recognize revenue when a customer obtains

control of promised goods, in an amount that reflects the consideration that we expect to receive in exchange for the goods.

revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps:

control of promised goods, in an amount that reflects the consideration that we expect to

receive in exchange for the goods.

To determine revenue recognition for arrangements within

the scope of ASC 606, we perform the following five steps:

(1) identify the contracts with

(2) identify the performance obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction

price to the performance obligations in the contract;

(3) determine the transaction

(4) allocate the transaction price to the performance obligations in the contract;

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

We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in

exchange for the goods it transfers to the customer.

Background and Revenue Recognition Policy:

We generate product revenue from the sale of the Products (as defined above)

to non-retail customers.

We recognize revenue at a point in time based on management’s evaluation of when performance

obligations under the terms of a contract with the customer are satisfied and control of the Products has been transferred to

the customer.

In most situations, transfer of control is considered complete when the products have been shipped to the customer.

We determined that a customer obtains control of the Product upon shipment when title of such product and risk of loss transfer

apply the five-step model to contracts when it is probable that the entity will collect the

consideration it is entitled to in exchange for the goods it transfers to the customer.

Revenue Recognition Policy

Products Revenue

We generate product revenue from the sale of the

Products (as defined above) to non-retail customers.

We recognize revenue at a point in time based on management’s evaluation of

when performance obligations under the terms of a contract with the customer are satisfied and control of the Products has been transferred

to the customer.

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

The advance payment is

not considered a significant financing component because the period between when we transfer a promised good to a customer and

when the customer pays for that good is short.

We offer credit sales arrangements to non-retail (or wholesale) customers and monitor

the collectability of each credit sale routinely.

Quantitative and Qualitative

Disclosures about Market Risk.

In most situations, transfer of control is considered complete when the products have been shipped to the customer.

However, when we enter a consignment agreement with a new customer, once we ship and deliver the requested amount of the Products the

customer ordered to it distribution center for its retail sales location, we retain ownership of the delivered Products until they are

delivered to their retail stores.

When the Products are sold in the stores and the funds, as stated in the consignment agreement, are

remitted to us, then we record the revenues in our financial records.

We determined that a customer obtains control of the Product upon

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

Our shipping and handling costs are fulfillment costs,

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

The advance payment is not considered a significant financing component

because the period between when we transfer a promised good to a customer and when the customer pays for that good is short.

credit sales arrangements to non-retail (or wholesale) customers and monitor the collectability of each credit sale routinely.

Quantitative and Qualitative Disclosures

about Market Risk.

We qualify as a smaller reporting company,

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What changed 10-K

Item 7. Management’s Discussion and Analysis