What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-01-30 compared with 2022-02-16 · 1255 added, 958 removed, 120 unchanged (95% of the section changed)

Financial Statements and

Supplementary Data.

Financial Statements and Supplementary

BRANDS INNOVATIONS GROUP, INC.

FINANCIAL STATEMENTS

TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets

Statements of Operations

Statements of Changes in Stockholders’ Equity

Statements of Cash Flows

to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

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sheets of Kaival Innovations Group, Inc.

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

statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred

to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the

financial position of the Company as of October 31, 2021 and 2020, and the results of their operations and their cash flows for the years

then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements have been prepared

assuming that the Company will continue as a going concern.

As discussed in Note 3 to the financial statements, the Company has negative

operating cash flows.

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

new laws and regulations

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

in additional costs.

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

marketing its products in the United States.

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

These matters raise substantial

doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 3.

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

and its subsidiaries (collectively, the “Company”) as of October 31, 2022, and 2021,

and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related

notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in

all material respects, the financial position of the Company as of October 31, 2022, and 2021, and the results of their operations and

their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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of the Company’s management.

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

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

on our audits.

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

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

We conducted our audits in accordance with the standards

of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control

over financial reporting.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required

to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

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

to those risks.

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

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

the overall presentation of the financial statements.

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

Our audits included performing procedures to

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

that respond to those risks.

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

in the financial statements.

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

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

We believe that our audits provide a

reasonable basis for our opinion.

/s/ MaloneBailey, LLP

www.malonebailey.com

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

Houston, Texas

February 15, 2022

Kaival Brands Innovations Group,

have served as the Company’s auditor since 2018.

Kaival Brands Innovations Group, Inc.

Consolidated Balance Sheets

receivable – related parties

deposit – related party

tax receivable

CURRENT ASSETS:

of use asset- operating lease

AND STOCKHOLDERS’ EQUITY

payable- related party

lease obligation, short term

Restricted cash

Accounts receivable

Other receivable – related parties – short term

Inventory deposit – related party

Prepaid expenses

Income tax receivable

Total current assets

Other receivable – related party – net of current portion

Right of use asset- operating lease

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

TERM LIABILITIES

lease obligation, net of current portion

STOCKHOLDERS’

stock 5,000,000 shares authorized;

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

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

Common stock ($ 0.001

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

31, 2020, respectively)

paid-in capital

earnings (accumulated deficit)

( 5,260,841 )

Accounts payable

Accounts payable- related party

Accrued expenses

Customer deposits

Deferred revenue

Operating lease obligation, short term

Customer refund due

Total current liabilities

LONG TERM LIABILITIES

Operating lease obligation, net of current portion

TOTAL LIABILITIES

STOCKHOLDERS’ EQUITY:

LIABILITIES & STOCKHOLDERS’ EQUITY

The accompanying notes are an

integral part of these audited consolidated financial statements.

Kaival Brands Innovations Group,

Preferred stock 5,000,000 shares authorized;

Series A Convertible Preferred stock ($ 0.001 par value, 3,000,000 shares authorized, 0 and 3,000,000 shares issued and outstanding as of October 31, 2022, and October 31, 2021, respectively)

Common stock ($ 0.001 par value, 1,000,000,000 shares authorized, 56,169,090 and 30,195,312 issued and outstanding as of October 31, 2022, and October 31, 2021, respectively)

Additional paid-in capital

Accumulated deficit

Total Stockholders’ Equity

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

The accompanying notes

are an integral part of these consolidated financial statements.

Kaival Brands Innovations Group, Inc.

Consolidated Statements of Operations

For the Years

Ended October 31,

- related parties

tax on products

Revenues, net

of revenue - related party

of revenue – other

Revenues – related parties

Royalty revenue

Excise tax on products

Total revenues, net

Cost of revenue

and promotions

& Administrative expenses

Cost of revenue – related party

Cost of revenue – other

Total cost of revenue

Operating expenses

(loss) before income taxes provision

( 10,468,636 )

(benefit) for income taxes

( 1,435,198 )

income (loss)

$ ( 9,033,438 )

income (loss) per common share - basic and diluted

average number of common shares outstanding - basic and diluted

The accompanying notes are an integral

part of these audited consolidated financial statements.

Advertising and promotions

administrative expenses

Total operating expenses

Interest income

Total other income

Loss before income taxes

Provision (benefit) for income taxes

Net loss per common share – basic and diluted

Weighted average number of common shares outstanding – basic and diluted

The accompanying notes are an integral part

of these consolidated financial statements.

Kaival Brands Innovations Group, Inc.

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For the years ended October 31, 2022 and 2021

Convertible Preferred Shares (Series A)

Par Value Convertible Preferred Shares (Series A)

Convertible Preferred Shares

Par Value Convertible Preferred Shares

Common Shares

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Additional Paid-in Capital

Retained Earnings (Accumulated Deficit)

Balances, October 31, 2019

Common stock issued for employee compensation

Common stock issued for compensation

Common stock settled and canceled

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

Expenses paid on behalf of the Company and contributed to capital

Accumulated Deficit

Balances, October 31, 2020

Common stock issued for employee compensation

Stock issued for services – RSUs

Common stock settled and canceled

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Balances, October 31, 2021

( 5,260,841 )

The accompanying notes are an integral

part of these audited consolidated financial statements.

the Year Ended October 31, 2021

the Year Ended October 31, 2020

FLOWS FROM OPERATING ACTIVITIES

income (loss)

$ ( 9,033,438 )

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

based compensation

option expense

operating lease expense

contributed to capital

in current assets and liabilities:

( 1,401,562 )

receivable – related parties

( 15,319,987 )

deposit – related party

( 2,925,000 )

tax receivable

( 1,753,594 )

payable – related party

( 1,331,856 )

on operating lease obligation

cash (used in) provided by operating activities

( 9,313,241 )

FLOWS FROM FINANCING ACTIVITIES:

stock issued for cash, net of financing cost

from the exercise of warrants

RSU shares with cash

cash provided by (used in) financing activities

change in cash and restricted cash

cash and restricted cash balance

DISCLOSURE OF CASH FLOW INFORMATION:

INVESTING AND FINANCING ACTIVITIES:

Recognition of ROU Asset and Liability

of common shares into Series A Preferred

The accompanying notes are an integral

part of these audited consolidated financial statements.

KAIVAL BRANDS INNOVATIONS GROUP,

NOTES TO THE CONSOLIDATED FINANCIAL

Stock issued for services – RSUs

Common shares settled and cancelled

Common stock issued for compensation

Exercise of common stock warrants

Converted Series A Convertible Preferred Stock

Stock option expense

Balances, October 31, 2022

The accompanying notes are an integral part

of these consolidated financial statements.

Kaival Brands Innovations Group, Inc.

Consolidated Statements of Cash Flows

For the Year Ended

October 31, 2022

October 31, 2021

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash provided by operating activities:

Stock based compensation

Stock options expense

ROU operating lease expense

Write off of inventory

Changes in current assets and liabilities:

Accounts receivable

Other receivable – related party

Prepaid expenses

Inventory deposit – related party

Income tax receivable

Accounts payable

Accounts payable – related party

Accrued expenses

Deferred revenue

Income tax accrual

Customer deposits

Customer refund due

Payments on operating lease liability

Net cash used in operating activities

CASH FLOWS FROM FINANCING ACTIVITIES

Common stock issued for cash, net of financing cost

Proceeds from the exercise of warrants

Settled RSU shares with cash

Net cash provided by financing activities

Net change in cash and restricted cash

Beginning cash and restricted cash balance

Ending cash and restricted cash balance

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid

Income taxes paid

NON-CASH INVESTING AND FINANCING ACTIVITIES:

of Series A Preferred Stock Shares to Common Stock Shares

ROU asset and operating lease obligation recognized under Topic 842

The accompanying notes are an integral part

of these consolidated financial statements.

KAIVAL BRANDS INNOVATIONS GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization and Description of Business

Kaival Brands Innovations Group, Inc.

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

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

(the “Company,”

the “Registrant,” “we,” “us,” or “our”), formerly known as Quick Start Holdings, Inc.,

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

Current Description of Business

The Company is focused on growing and incubating

innovative and profitable products into mature, dominant brands.

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

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

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

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

The Distribution Agreement was

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

in order to clarify some of the provisions.

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

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

Currently, the Products consist

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

In connection with the A&R Distribution

Agreement, the Company entered into non-exclusive sub-distribution agreements, some of which were subsequently amended and restated

by the parties in order to clarify certain provisions (all such agreements, as amended and restated, are collectively referred

to as the “A&R Sub-Distribution Agreements”), whereby the Company appointed the counterparties as non-exclusive

sub-distributors.

Pursuant to the A&R Sub-Distribution Agreements, the sub-distributors agreed to purchase for resale the Products

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

On August 31, 2020 the Company formed

Kaival Labs, Inc., a Delaware corporation (herein referred to as “Kaival Labs”) as a wholly owned subsidiary of the

On July 16, 2021, the Company filed

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

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

common stock, par value $ 0.001 per share (the “Common Stock”).

The Company is focused

on growing and incubating innovative and profitable products into mature, dominant brands.

On March 9, 2020, the Company entered into

an exclusive distribution agreement (the “Distribution Agreement”) of certain electronic nicotine delivery systems (“ENDS”)

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

related party company that is also owned by Nirajkumar Patel, the Chief Science and Regulatory Officer and director of the Company.

Distribution Agreement was amended and restated on May 21, 2020, again on April 20, 2021, again on June 10, 2022 ,

and again on November 17, 2022 (collectively the

“A&R Distribution Agreement”), in order to clarify some of the provisions.

Pursuant to the A&R Distribution Agreement,

Bidi granted the Company an exclusive worldwide right to distribute the Products for sale and resale to non-retail level customers.

the Products consist primarily of the “Bidi Stick.” The Company ceased all direct-to-consumer

sales in February 2021.

In connection with the A&R Distribution Agreement,

the Company entered into non-exclusive sub-distribution agreements, some of which were subsequently amended and restated by the parties

in order to clarify certain provisions (all such agreements, as amended and restated, are collectively referred to as the “A&R

Sub-Distribution Agreements”), whereby the Company appointed the counterparties as non-exclusive sub-distributors.

Pursuant to the

A&R Sub-Distribution Agreements, the sub-distributors agreed to purchase for resale the Products in such quantities as they should

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

On August 31, 2020, the Company formed Kaival Labs,

Inc., a Delaware corporation (herein referred to as “Kaival Labs”), as a wholly owned subsidiary of the Company, for the purpose

of developing Company-branded and white-label products and services The Company has not yet launched any Kaival-branded product, nor has

it begun to provide white label wholesale solutions for other product manufacturers.

On March 11, 2022, the Company formed Kaival Brands

International, LLC, a Delaware limited liability company (herein referred to as “KBI”), as a wholly owned subsidiary of the

Company, for the purpose of entering into an international licensing agreement with Philip Morris Products S.A.

a wholly owned affiliate of Philip Morris International Inc.

On July 16, 2021, the Company filed a Certificate

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

1-for-12 reverse stock split (the “Reverse Stock Split”) of the shares of the Company’s common stock, par value $0.001

per share (the “Common Stock”).

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

Eastern time on July 20, 2021.

No fractional shares were issued in connection with the Reverse Stock Split.

Any fractional shares

of Common Stock that would have otherwise resulted from the Reverse Stock Split will be rounded up to the nearest whole number.

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

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

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

All historical share and per-share amounts

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

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

The par value per share of the Common Stock

was not affected by the Reverse Stock Split.

No fractional

shares were issued in connection with the Reverse Stock Split.

Any fractional shares of Common Stock that would have otherwise resulted

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

In connection with the Reverse Stock Split, the Board of

Directors (the “Board”) approved appropriate and proportional adjustments to all outstanding securities or other rights convertible

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

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

herein have been adjusted to reflect the Reverse Stock Split as if the split occurred as of the earliest period presented.

The par value

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

On June 13, 2022, the

Company’s 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.

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, the

Company announced the launch of PMPSA’s custom-branded self-contained e-vapor product, pursuant to the licensing agreement.

product, a self-contained e-vapor device, VEEBA, has been custom developed and is now being distributed in Canada and in the United Kingdom.

Current Product Offerings

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

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

The sole Product the Company

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

of flavor options for adult cigarette smokers.

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

Stick is manufactured by Bidi.

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

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

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

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

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

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

The Company has not

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

Pursuant to the A&R Distribution Agreement, The

Company sells and resells electronic nicotine delivery systems, which it may refer to herein as “ENDS Products”, or “e-cigarettes”,

to non-retail level customers.

The sole Product the Company resells is the “BIDI ® Stick,” a disposable,

tamper-resistant ENDS product that comes in a variety of flavor options for adult cigarette smokers.

The Company does not manufacture

any of the Products it resells.

The BIDI ® Stick is manufactured by Bidi.

Pursuant to the terms of the A&R Distribution

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

its marketing and promotion of the Products.

In January 2020, the World

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

The Company’s operations

have not been significantly impacted by COVID-19.

No impairments were recorded as of October 31, 2021 and no triggering events or changes

in circumstances had occurred.

However, the full impact of the COVID-19 pandemic continues to evolve subsequent to the fiscal year ended

October 31, 2021 and as of the date these consolidated financial statements are issued.

As such, the full magnitude of the COVID-19 pandemic,

and the resulting impact, if any, on the Company’s financial condition, liquidity, and future results of operations is uncertain.

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

regulatory oversight.

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

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

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

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

Impact of FDA PMTA Decision

As of September 10, 2021, the FDA announced that it

has taken action on over 93% of applications and issued Marketing Denial Orders (“MDOs”) for more than 1,167,000 flavored

ENDS products, while issuing zero marketing authorizations.

Bidi, along with nearly every other company

in the ENDS industry, received a MDO for its non-tobacco flavored ENDS products.

With respect to Bidi, the MDO covered all non-tobacco

flavored BIDI® Sticks, including its Arctic (menthol) BIDI® Stick, which Bidi believes the FDA mischaracterized as “flavored.”

BIDI believes that because its Arctic BIDI® Stick is menthol, it should not be subject to the MDO.

Bidi and the Company believe

this position is aligned with the FDA’s public statements and press releases stating that tobacco and menthol ENDS are not

deemed flavored products subject to the MDOs.

As a result, beginning in September 2021, Bidi

pursued three avenues to challenge the MDO.

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

Bidi filed a 21 C.F.R.

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

Stick in the MDO.

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

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

Separately, on September 29, 2021, Bidi petitioned

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

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

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

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

The Company was indirectly

impacted by supply chain issues and regulatory oversight.

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

Impact of FDA PMTA

Determinations and August 2022 11 th Circuit Decision

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 Marketing Denial Orders (“MDO”), manufacturers are required to stop selling non-tobacco flavored

ENDS products.

Bidi, along with nearly

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

With respect to Bidi, the MDO covered

all non-tobacco flavored BIDI® Sticks, including its Arctic (menthol) BIDI® Stick.

As a result, beginning in September 2021,

Bidi challenged the MDO.

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

§10.75 internal the FDA review request specifically

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

In May 2022, the FDA issued a determination that it views

the Arctic BIDI® Stick as a flavored ENDS product, and not strictly a menthol flavored product.

On September 29, 2021, Bidi petitioned the U.S.

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

non-tobacco flavored BIDI® Stick ENDS, arguing that it was arbitrary and capricious under the Administrative Procedure Act (“APA”),

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

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

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

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

1, 2022, U.S.

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

litigation on the merits.

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

Accordingly, we anticipate being able

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

merits case challenging the legality of the MDO.

FDA has indicated that it is prioritizing enforcement against companies that have

either not submitted PMTAs, or whose PMTAs have been refused acceptance or filing by FDA, or whose PMTAs remain subject to MDOs.

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

Finally, on October

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

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

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

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

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

Following the lifting of the FDA’s administrative

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

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

February 1, 2022.

In the event that the U.S.

Court of Appeals

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

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

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

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

new requirement for ENDS companies to conduct long-term comparative smoking cessation studies for their flavored products, and that the

FDA should have gone through the notice and comment rulemaking process for this requirement.

On October 14, 2021, Bidi requested

that the FDA re-review the MDO and reconsider its position that Bidi did not include certain scientific data in its applications sufficient

to allow the PMTAs to proceed to scientific review.

In light of this request, on October 22, 2021, pursuant to 21 C.F.R.

the FDA issued an administrative stay of Bidi’s MDO pending its re-review.

Subsequently, the FDA decided not to rescind the MDO

and lifted its administrative stay on December 17, 2021.

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

motion to stay the MDO with the 11th Circuit.

On February 1, 2022, the appellate court granted Bidi’s motion to stay (i.e., put

on hold) the MDO, pending the litigation on the merits.

Oral arguments in the merits-based proceeding were held on May 17, 2022.

On August 23, 2022, the U.S.

of Appeals for the Eleventh Circuit set aside the MDO issued to the non-tobacco flavored BIDI® Sticks and remanded Bidi’s

Premarket Tobacco Product Application (“PMTA”) back to the 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 decision.

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 11 th 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, the

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

discretion, for the duration of the PMTA scientific review.

Separately, on or about

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

Risks and Uncertainties

Historically, substantially all of the Company’s

revenues were derived from sales of flavored BIDI® Sticks, including the Arctic (menthol) BIDI® Stick, sales of which constituted

approximately 18.4% and 12.9% of its total sales of BIDI® Sticks for the fiscal years ended October 31, 2021 and 2020, respectively.

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

the last two quarters of fiscal 2021.

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

In addition, Bidi has received approval to market

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

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

and several other regions and countries.

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

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

These international market approvals Bidi has previously

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

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

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

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

Stick distribution more rapidly in these international markets.

Note 2 – Basis of Presentation

and Significant Accounting Policies

The FDA has indicated that it is prioritizing enforcement

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

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

13, 2022, cutoff.

Subject to FDA’s enforcement discretion, until the scientific review process is complete on each of Bidi’s

PMTA’s, the Company views the risk of FDA enforcement against Bidi as low.

The Company anticipates FDA will move forward with a

review of Bidi’s PMTA on remand, as directed by the Court;

however, the Company cannot provide any assurances as to the timing or

Accordingly, the Company

anticipates FDA will move forward with a review of Bidi’s PMTA on remand, as directed by the Court.

Moreover, Bidi’s

application is particularly comprehensive, and now includes, among other things, a randomized, crossover, clinical study to assess nicotine

pharmacokinetics and subjective effects of the BIDI® Stick, several behavioral, perception and intention studies, as well as a nationally-representative

population prevalence study.

A complete scientific review of the PMTA would require FDA to review all of this information before making

an APPH determination, and while FDA could narrowly interpret the Court’s ruling as an order to review only Bidi’s marketing

and sales-access restrictions plans, the 11 th Circuit’s opinion, in the Company’s view, makes clear that all “relevant

evidence” in an application must be considered.

For applications that are in scientific review, FDA typically issues a deficiency

letter identifying its questions before making a marketing authorization decision and gives the applicant at least 90 days to respond.

This further solidifies the Company’s belief that the scientific review of Bidi’s non-tobacco flavored applications could

take 1-2 years or longer.

However, the Company cannot provide any assurances as to the timing or outcome.

Note 2 – Basis of Presentation and Significant

Accounting Policies

Principles of Consolidation

The consolidated financial statements include the financial

statements of the Company’s wholly-owned subsidiary, Kaival Labs.

Intercompany transactions are eliminated.

consolidated financial statements include the financial statements of the Company’s

wholly-owned subsidiaries, Kaival Labs and Kaival Brands International.

transactions are eliminated.

Basis of Presentation

This summary of significant accounting

policies is presented to assist in understanding the Company’s consolidated financial statements.

These accounting policies

conform to accounting principles, generally accepted in the United States of America (“GAAP”), and have been consistently

applied in the preparation of the consolidated financial statements.

This summary of significant accounting policies is

presented to assist in understanding the Company’s consolidated financial statements.

These accounting policies conform to accounting

principles, generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation

of the consolidated financial statements.

Use of Estimates

The preparation of financial statements

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

and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues

and expenses during the reporting period.

In the opinion of management, all adjustments necessary in order to make the financial

statements not misleading have been included.

The preparation of financial statements in conformity

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

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during

the reporting period.

In the opinion of management, all adjustments necessary in order to make the financial statements not misleading

have been included.

Actual results could differ from those estimates.

Cash and Restricted Cash

The Company considers all highly liquid

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

There were no cash equivalents

at October 31, 2021and October 31,2020.

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

respectively.

Cash and restricted

The Company considers all highly liquid investments

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

There were no cash equivalents on October 31,

2022, and October 31, 2021.

Cash and restricted cash as of October 31, 2022, and October 31, 2021, were $ 3,685,893 and $ 7,825,235 , respectively.

Cash and restricted cash

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

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

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

The following

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

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

Restrictions on Cash and Cash Equivalents

Restricted cash

Total cash and restricted cash shown in statement of cash flows

As of October 31, 2022, and October 31, 2021, the Company had $0 and $ 65,007

in restricted cash, respectively, for amounts held in escrow.

The following table sets

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

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

on Cash and Cash Equivalents

cash and restricted cash shown in statement of cash flows

Advertising and Promotion

All advertising, promotion and marketing expenses, including

commissions, are expensed when incurred.

All advertising, promotion and marketing expenses, including commissions,

are expensed when incurred.

Accounts Receivable and Allowance for Doubtful Accounts

Receivables are stated at cost, net of an allowance for doubtful accounts.

The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of accounts receivables.

A considerable amount of judgment is required in assessing the amount of the allowance and the Company considers the historical level

of credit losses and collection history and applies percentages to aged receivable categories.

The Company makes judgments about the creditworthiness

of debtors based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the

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

may be required.

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

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

The Company had an allowance for doubtful

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

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

are stated at the lower of cost and net realizable value.

Cost includes all costs of purchase and other costs incurred in bringing the

inventories to their present location and condition.

The Company determines cost based on the FIFO method.

Net realizable value is

the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary

to make the sale.

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

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

Favs Business LLC (“Favs Business”).

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

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

No inventory allowance was required as of

October 31, 2020 either.

Inventory deposit – related

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

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

Once complete the

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

As of the date these

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

the Company and this remains a deposit.

Receivables are stated at cost, net of an allowance

for doubtful accounts.

The Company establishes an allowance for doubtful accounts based on the management’s assessment of the collectability

of accounts receivable.

A considerable amount of judgment is required in assessing the amount of the allowance and the Company considers

the historical level of credit losses and collection history and applies percentages to aged receivable categories.

The Company makes

judgments about the creditworthiness of debtors based on ongoing credit evaluations and monitors current economic trends that might impact

the level of credit losses in the future.

If the financial condition of the debtors were to deteriorate, resulting in their inability

to make payments, a larger allowance may be required.

As of October 31, 2022, based upon management’s assessment of the accounts

receivable aging and the customers’ payment history, the Company has determined that no allowance for doubtful accounts is required.

The Company also had no allowance for doubtful accounts as of October 31, 2021.

product inventory is purchased from a related party, Bidi.

Inventories are stated at the lower of cost and net realizable value.

includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition.

determines cost based on the first-in, first-out (“FIFO”) method.

Net realizable value is the estimated selling price

in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

As of October

31, 2022, the inventories only consisted of finished goods and were located in three locations;

the Kaival main warehouse and two customer warehouses whose service agreements are on a consignment basis with Kaival.

The Company had

a write-off of $ 259,563

related to short-coded Bidi sticks that were

no longer able to be sold.

Based upon fiscal year 2022 inventory management procedures and their results, the Company has determined

allowance for inventory is required as of October

31, 2022 and 2021.

Inventory deposit – related party

During the fiscal year 2021, the

Company paid $ 2,925,000 million from its

capital financing raise to Bidi, a related party, to have BIDI ® Sticks manufactured with regulatory product

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

The parties originally contemplated that

delivery of the BIDI® Sticks to the Company would occur by the end of April 2022.

On April 29, 2022, the Company and Bidi

agreed to cancel the order due to an internal change of approach to international distribution, and Bidi agreed to credit the $ 2,925,000 against

the accounts payable balance owed by the Company to Bidi.

As of October 31, 2022, the Company has on its balance sheet a zero

balance for inventory deposits and inventory deposits related party.

Revenue Recognition

The Company adopted ASC 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”),

in the second quarter of fiscal year 2020, as this was the first quarter that the Company generated revenues.

Under ASC 606, the

Company recognizes revenue when a customer obtains control of promised goods, in an amount that reflects the consideration that

the Company expects to receive in exchange for the goods.

To determine revenue recognition for arrangements within the scope of

ASC 606, the Company performs the following five steps:

(1) identify the contracts with a customer;

(2) identify the performance

obligations in the contract;

The Company adopted ASC 606, Revenue from

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

quarter that the Company generated revenues.

Under ASC 606, the Company recognizes revenue when a customer obtains control of promised

goods, in an amount that reflects the consideration that the Company expects to receive in exchange for the goods.

To determine revenue

recognition for arrangements within the scope of ASC 606, the Company performs the following five steps:

(1) identify the contracts with

(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;

(4) allocate the transaction

price to the performance obligations in the contract;

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

The Company only applies the

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

the goods it transfers to the customer.

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

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

The Company has evaluated revenues recognized

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

Stick, sales of which constituted approximately 18.4% and 12.9% of our total sales of BIDI® Sticks for the fiscal years ended

October 31, 2021 and 2020, respectively.

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

a Consignment Agreement.

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

was $2,556,930.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled

to in exchange for the goods it transfers to the customer.

Under ASC 606, disaggregated revenue from contracts with customers depicts

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

The Company has evaluated revenues

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

Stick, sales of which constituted approximately 13.4 % and 18.4 % of our total sales of BIDI® Sticks for the fiscal years ended October

31, 2022, and 2021, respectively.

Deferred Revenue

The Company accepts partial payments

for orders from wholesale customers, which it holds as deposits or deferred revenue, until the Company has received full payment

and orders are shipped to the customer.

Revenue for these orders is recognized at time of shipment to the customer.

As of October

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

included with the Company’s current liabilities.

The Company accepts partial payments for orders from

wholesale customers, which it holds as deposits or deferred revenue, until the Company has received full payment and orders are shipped

to the customer.

Revenue for these orders is recognized at the time of shipment to the customer.

As of October 31, 2022, and October 31,

2021, the Company has received $ 44,973 and $ 0 in deposits from customers, respectively, which is included with the Company’s current

As of October 31, 2022, and October 31, 2021, the Company has received $ 235,274 and $0 in deferred income from PMI guaranteed

royalty revenue prepayments, respectively, which is included with the Company’s current liabilities.

Customer Refunds

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

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

The Company infrequently has a need to adjust the

size of an order after it has been shipped, received and paid for, due to the customer oversizing the order for more product that it can

realistically sell at that time.

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

Once received and inspected,

the Company will issue a refund for the product return.

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

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

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

Products Revenue

The Company generates products revenue

from the sale of the Products (as defined above) to non-retail customers.

The Company recognizes revenue at a point

in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer

are satisfied and control of the Products has been transferred to the customer.

In most situations, transfer of control is considered

complete when the products have been shipped to the customer.

The Company determined that a customer obtains control of the Product

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

The Company’s shipping and handling costs

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

The Company’s sales arrangements for retail

sales usually require full prepayment before delivery of the Products.

The advance payment is not considered a significant financing

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

good is short.

received and inspected, the Company will issue a refund for the product return.

As of October 31, 2022 and October 31, 2021, the Company

had $ 0 and $ 316,800 refunds due to one customer, which was the result of one of the Company’s sub-distributor customers returning

Product that had become defective in storage.

The Company generates products revenue from the sale

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

The Company recognizes revenue at a point in time based on management’s

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

been transferred to the customer.

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

the customer.

The Company determined that a customer obtains control of the Product upon shipment when title of such product and risk

of loss transfer to the customer.

The Company’s shipping and handling costs are fulfillment costs, and such amounts are classified

as part of cost of sales.

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

of each credit sale routinely.

Revenue is measured by the transaction price,

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

The transaction

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

offers and promotional discounts on current orders.

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

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

These estimates are

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

Variable consideration related to incentive offers

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

Estimates are

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

In many cases,

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

short-term durations.

Amounts billed and due from customers

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

to credit terms is required before payments are due.

Revenue is measured by the transaction price, which

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

The transaction price

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

and promotional discounts on current orders.

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

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

These estimates are established in the

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

Variable consideration related to incentive offers and promotional programs

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

Estimates are regularly updated, and the impact

of any adjustments are recognized in the period the adjustments are identified.

In many cases, key sales terms such as pricing and quantities

ordered are established at the time an order is placed and incentives have very short-term durations.

Amounts billed and due from customers are short term

in nature and are classified as receivable since payments are unconditional and only the passage of time related to credit terms is required

before payments are due.

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

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

Concentration of Revenues and Accounts

For the fiscal year ended October 31, 2021,

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

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

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

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

Favs Business and C Store Master had outstanding

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

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

For the year ended October 31, 2020, approximately

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

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

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

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

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

as of October 31, 2020.

Payments received in advance of revenue

recognition are recorded as deferred revenue, as noted above.

On June 13, 2022, KBI entered into the PMI License

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

Pursuant to the PMI License Agreement, KBI

granted PMPSA an exclusive irrevocable license to use its technology, documentation, and intellectual property to make, distribute, and

sell disposable nicotine e-cigarettes Products based on the intellectual property in certain international markets set forth in the PMI

License Agreement (the “PMI Markets”).

The Company has the exclusive international distribution rights to the Products and,

in order to allow KBI to fulfill its obligations set forth in the PMI License Agreement, has contributed the international distribution

rights for the PMI Markets to KBI as set forth in a Capital Contribution Agreement, dated June 10, 2022.

The sublicense granted to PMPSA

is exclusive in the PMI Markets and neither KBI nor any of its affiliates can sell, promote, use, or distribute any competing products

in the PMI Markets for the duration of the term of the PMI License Agreement and any Sell-Out Period (as defined in the PMI License Agreement).

PMSPA will be responsible for any regulatory filings necessary to sell the Products in the PMI Markets.

Both KBI and PMPSA agree to work

together in the registration and maintenance of the Intellectual Property, but KBI will bear all cost and expense to implement the registration

Finally, PMPSA has agreed to potential future development services with KBI in the PMI Markets and has been granted certain

rights with respect to potential future products.

The initial term of the PMI License Agreement is five

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

indicators set forth in the PMI License Agreement, in which case the PMI License Agreement will automatically terminate at the end of

the initial license term.

In consideration for the grant of the licensed rights,

PMPSA agreed to pay to KBI a royalty equal to a percentage of the base price of the first sale of each unit of Product manufactured.

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

minimum royalty based on the estimated royalties payable by PMPSA to KBI in relation to all markets in the twelve (12)-month period following

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

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

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

Agreement to be modified for a PMI Market.

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

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

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

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

Royalty revenue earned from the PMI License

Agreement is recognized in the period the sales of the Product manufactured occurs.

PMI License Agreement contains customary representations, warranties, covenants, and indemnification provisions;

however, KBI’s

liability under the PMI License Agreement is capped at the greater of:

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

or (ii) an amount equal

to the total of the royalties due to KBI (but not yet paid) plus the royalties (including the guaranteed royalty payment) paid to KBI

pursuant to the PMI License Agreement during the immediately preceding twelve (12) consecutive months, provided that such amount shall

not exceed Thirty Million Dollars ($ 30,000,000 ).

These royalties may be initially offset on a limited basis by jointly agreed upon costs

such as development costs incurred for entry to specific international markets.

Concentration of Revenues and Accounts Receivable

the fiscal year 2022, (i) approximately 30% or $ 3,945,534 of the revenue from the sale of Products, solely consisting of the BIDI ®

Stick, was generated from Favs Business, (ii) approximately 15% or $ 1,892,245 of the revenue from the sale

of the Products was generated from H.T.

Hackney Co., and (iii) approximately 11% or $ 1,472,888 of the revenue from the sale of Products,

solely consisting of the BIDI Stick, was generated from GPM.

In Fiscal year 2021,

approximately 23% or $ 13,888,376 of the revenue from the sale of Products, solely consisting of the BIDI ® Stick, was generated

from Favs Business, approximately 16% or $ 9,575,711 of the revenue from the sale of the Products was generated from MMS Distro, and approximately

14% or $ 8,206,792 of the revenue from the sale of the Products was generated from C Store Master.

Favs Business with an outstanding balance of $ 375,425

and QuikTrip Corporation, with an outstanding balance of $ 85,510 ,

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 $ 1,000,000

and C Store Master, with an outstanding balance of $ 321,534 , accounted for approximately 50% and 16% of the total accounts receivable

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

Share-Based Compensation

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

grant-date fair value of the award.

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

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

For SBP awards subject to conditions, compensation

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

The Company uses the Black-Scholes option-pricing

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

.Compensation expense

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

The fair value

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

The Company measures the

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

of the award.

That cost is recognized over the period during which a recipient is required to provide service in exchange for the SBP

award—the requisite service period (vesting period).

For SBP awards subject to conditions, compensation is not recognized until

the performance condition is probable of occurrence.

The Company uses the Black-Scholes option-pricing model to estimate the fair value

of stock-based awards on the date of grant and on each modification date.

Compensation expense for SBP awards granted to non-employees

is re-measured each period as the underlying options vest.

The fair value of each

option granted during the year ended October 31, 2022 and 2021 was estimated on the date of grant using the Black-Scholes

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

4 unchanged sentences

279.81 %- 288.93 %

294.55 %- 301.53 %

Risk-free interest rate

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

The expected volatility

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

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

rate for US Treasury bills.

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

and $ 0 , respectively.

The Company’s stock-based compensation for the fiscal

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

Income taxes are provided for the tax

effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily

to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting.

Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable

or deductible when the assets and liabilities are recovered or settled.

Deferred taxes are also recognized for operating losses

that are available to offset future taxable income and tax credits that are available to offset future federal income taxes.

Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments

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

The Company has Federal net operating

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

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

The Company’s federal

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

1.74 %- 3.13 %

1.19 %- 1.63 %

The expected term of options

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

The expected volatility was based on the volatility

in the trading of the Common Stock.

The assumed discount rate was the default risk-free ten-year interest rate for US Treasury bills.

The Company's stock

option expense for the year ended October 31, 2022, and October 31, 2021, was $ 6,043,312

and $ 1,773,947 ,

respectively.

The Company’s stock-based compensation for common stock issued for

services for the fiscal years ended October 31, 2022 and October 31, 2021, was $ 237,702 and $ 9,449,421 , respectively.

Income taxes are provided for the tax effects of transactions

reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the

recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting.

Deferred tax assets and liabilities

represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities

are recovered or settled.

Deferred taxes are also recognized for operating losses that are available to offset future taxable income and

tax credits that are available to offset future federal income taxes.

The Company believes that its income tax filing positions and deductions

will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s

financial condition, results of operations, or cash flow.

Company has Federal net operating loss (“NOL”) carryforwards, consisting of total deferred tax assets, totaling approximately

$ 4.5 million and state NOL carryforwards, consisting of total deferred tax liabilities, totaling approximately $ 0.4 million.

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

The Company’s federal and state

tax returns for the 2019, 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.

After consideration of all

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

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

pursuant to ASC 740 .

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

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

After consideration of all the evidence, both positive and negative, management

has determined that a valuation allowance of $ 4,286,289 for the -year ended

on October 31, 2022, and a valuation allowance of $ 1,256,059 for the year ended on October 31, 2021 were necessary to reduce the total

net deferred tax asset to the amount that will more likely than not be realized pursuant to ASC 740 for those fiscal years.

Fair Value of Financial Instruments

The Company’s balance sheet includes

certain financial instruments.

The carrying amounts of current assets and current liabilities approximate their fair value because

of the relatively short period of time between the origination of these instruments and their expected realization.

ASC 820, Fair Value Measurements

and Disclosures (“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid

to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction

between market participants on the measurement date.

ASC 820 also establishes a fair value hierarchy that distinguishes between

(1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and

(2) an entity’s own assumptions about market participant assumptions developed based on the best information available

in the circumstances (unobservable inputs).

The fair value hierarchy consists of three broad levels, which gives the highest priority

to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable

inputs (Level 3).

The three levels of the fair value hierarchy are described below:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates);

and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

Fair value estimates discussed herein

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

The respective

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

these instruments.

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

and accrued expenses.

Accounting Pronouncements

The Company does not believe that any recently issued effective

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

The Company’s balance sheet includes certain

financial instruments.

The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively

short period of time between the origination of these instruments and their expected realization.

ASC 820, Fair Value Measurements and Disclosures

(“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability

(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants

on the measurement date.

ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions

developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about

market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).

value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical

assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy

are described below:

1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets

or liabilities.

2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly

or indirectly, including quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar

assets or liabilities in markets that are not active;

inputs other than quoted prices that are observable for the asset or liability

(e.g., interest rates);

and inputs that are derived principally from or corroborated by observable market data by correlation or

Level 3 – Inputs that are both significant to the fair value measurement

and unobservable.

Fair value estimates discussed herein are based upon

certain market assumptions and pertinent information available to management as of October 31, 2022.

The respective carrying value of

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

financial instruments include cash, restricted cash, accounts receivable, inventory, accounts payable and accrued expenses.

As of October

31, 2022 and 2021, the Company did not have any financial assets or liabilities measured and recorded at fair value on a recurring

Recent Accounting Pronouncements

The Company does not believe that any recently issued effective pronouncements,

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

Note 3 – Going Concern

A recent court ruling on behalf of Bidi in

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

September 2021.

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

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

the legality of the MDO.

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

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

Oral arguments in the merits

case are currently scheduled in May 2022.

Court of Appeals for the Eleventh

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

into the PMTA scientific review process.

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

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

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

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

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

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

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

If this is the outcome of the merits case,

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

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

Management plans to continue similar operations with

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

However, there is no assurance that management’s

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

These audited consolidated financial statements do

not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of

liabilities that might be necessary in the event that we cannot continue as a going concern.

The Company capitalizes all leased assets pursuant to ASU

2016-02, “Leases (Topic 842),” which requires lessees to recognize right-of-use assets and lease liability, initially

measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified

as either financing or operating leases.

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

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

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

The adoption of the amended ASU 2016-02 did not have any impact

on the Company’s previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment

to retained earnings

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

The operating lease is

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

payable monthly.

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

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

As the operating lease

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

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

The initial recognition of the ROU operating lease was $ 73,749 for both the ROU asset and ROU liability.

The amortization expense

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

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

liability were $ 2,836 .

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

Schedule of Future Minimum Rental Payments for Operating Leases

Lease payments

Less discount imputed interest

Present value of future payments

Less current obligations

Long term lease obligations

On November 1, 2021 the Company entered

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

this satellite location.

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

On November 11,

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

additional product inventory at this satellite location.

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

December 15, 2021.

Note 5 – Stockholder Equity

Additional Paid-In Capital

The Company’s Chief Executive

Nirajkumar Patel, paid expenses on behalf of the Company totaling $ 16,257 during the year ended October 31, 2020, which

is considered a contribution to the Company with no expectation of repayment and is recorded as additional paid-in capital.

The Company’s Chief Operating

Eric Mosser, paid expenses on behalf of the Company totaling $ 10,900 during the year ended October 31, 2020, which

is considered a contribution to the Company with no expectation of repayment and is recorded as additional paid-in capital.

Preferred Shares Issued

On August 19, 2020, the Company issued

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

No cash consideration was paid during this exchange.

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

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

The authorized preferred stock of the

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

A Preferred Stock .

Each share of the Series A Preferred Stock is initially convertible

into 100 shares of Common Stock.

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

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

All 3,000,000 shares of Series A

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

Common Shares Issued

The Company’s financial statements are prepared

in accordance with U.S.

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

In response to the above, the Company assessed its

management’s plans to alleviate that doubt.

The Company has positive working capital as of October 31, 2022 of $ 7,487,941 .

The Company considered that its 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).

Management’s assessment included the preparation of cash flow forecasts which considered increases in revenues

considering the favorable ruling obtained on the MDO as disclosed above.

The Company believes that its available cash and the

cash to be provided by future operating activities should enable the Company to meet its estimated liquidity needs for the next 12 months

after the date that the financial statements are issued.

Because of the above factors, the Company believes that this alleviates the substantial

doubt in connection with the Company’s ability to continue as a going concern.

However, there is no assurance that the Company’s

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

The 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.

Note 4 – Leases

The Company capitalizes all leased assets pursuant

to ASU 2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees to recognize right-of-use (“ROU”) assets

and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than

12 months and classified as either financing or operating leases.

The Company excludes short-term leases having initial terms of 12 months

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

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

as of October 31, 2022.

Certain of the Company’s leases, have and may in the future, include renewal options, which have been and

might be in the future, included in the calculation of the lease liabilities and right of use assets when the Company is reasonably certain

to exercise the option.

On August 1, 2020, we began leasing office space consisting

of 1,595 square feet as our main corporate office in Grant, Florida for $1,000 per month.

The five-year lease agreement is with a related

party, Just Pick, LLC (“Just Pick”).

Nirajkumar Patel, our Chief Science and Regulatory Officer and director, is also an officer

of Just Pick.

We believe our office space is sufficient to meet our current needs.

On November 1, 2021 the Company entered into a month-to-month

lease agreement with Ranger Enterprises, LLC, located in Seymour, Indiana, to store product inventory at this satellite location.

Company made payments on this lease in the amount of $19,959.

The lease was terminated in June 2022.

On November 11, 2021 the Company entered into a month-

to-month lease agreement with FFE Solutions Group, located in Salt Lake City Utah, to store additional product inventory at this satellite

The Company made payments on this lease in the amount of $19,108 .

This lease was terminated in April 2022.

On June 10, 2022, the Company entered into a Lease

Agreement (the “2022 Lease”) with Just Pick for approximately 21,332 rentable square feet combined in the office building

and warehouse located at 4460 Old Dixie Highway, Grant-Valkaria, Florida 32949 (the “Premises”), together with all improvements

Just Pick is considered a related party to the Company because the Company’s Chief Science and Regulatory Officer and director,

Nirajkumar Patel, owns and controls Just Pick.

The Company must pay Just Pick base rent equal to

per month during the first year of the Lease Term with a five-year lease renewal option.

Thereafter, the monthly base rent will be increased

annually with a monthly base rent of $ 18,665 .50

in the second year, $ 19,554 .33

in the third year, $ 20,443 .17

in the fourth year, $ 22,220 .83

in the fifth year, $ 23,998 .50

in the sixth year, and one twelfth (1/12th) of the market annual rent for the seventh through eleventh years, if applicable.

to the base rent, the Company must pay one hundred percent (100%) of operating expenses, insurance costs, and taxes for each calendar

year during the Lease term.

For both the ROU asset and ROU liability, the lease renewal option was considered in the calculation with

an incremental borrowing rate of 4.5 %

The Company has $ 118,633 and $ 11,708 in operating lease expense for the years ended October 31, 2022 and 2021, respectively.

Cash flow information related to leases

was as follows:

Schedule of cash flow information related to leases

Lease Information

paid for amounts included in the measurement of lease liabilities:

cash flows from operating leases

The following table summarizes the lease-related assets

and liabilities recorded in the consolidated balance sheets on October 31, 2022, and 2021:

Of Condensed Balance Sheet

lease right-of-use assets

of use liability operating lease, current portion

of use liability operating lease, long term

operating lease liabilities

The following table provides the future minimum operating

lease payments as of October 31, 2022:

Schedule of Lessee Operating Lease Liability Maturity

Future minimum operating lease liabilities on October 31, 2022

2027 and thereafter

Total future undiscounted lease payments

Imputed interest

Present value of lease liabilities

As of October 31, 2022, the Company had no additional

leases which had not yet commenced.

Note 5 – Stockholders’ Equity

the fiscal year ended October 31, 2022:

the year, the Company issued 39,637 common shares for services rendered with a fair value of $ 65,323 .

There were 25,000,000 common shares

issued for the conversion of Series A Convertible Preferred Stock to Common Stock, see preferred shares converted below.

issued 855,605 for $ 1,625,650 proceeds for the exercise of warrants.

the fiscal year ended October 31, 2021:

During the year ended October 31, 2021, 674,803 shares

of Common Stock were issued to 8 non-employee vendors as compensation for professional services rendered to the Company and two officers

as additional compensation.

These shares were expensed to the Company using the closing share price on the grant dates to compute an aggregate

fair market value total of $ 8,944,100 , of which 308,333 shares and $ 1,597,667 compensation is related to shares issued to Inflection Partners

disclosed above.

In September 2021, the Company completed a

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

333-258339) (the “Registration Statement”).

The Securities and Exchange Commission (the “SEC”) declared the

Registration Statement effective on August 10, 2021.

The Company sold 4,700,000

million shares of our Common Stock and warrants, with an exercise price of $ 1.90

per share and an expiration of five years, to purchase an additional 3,525,000

shares of its Common Stock.

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

at a combined public offering price of $ 1.70 .

Company also granted the underwriter the option to purchase an additional 705,000

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

of its Common Stock.

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

net of offering cost.

The Company had also received approximately $ 1,665,113

from the exercise of 879,828

On November 1, 2020, the Company entered into

8 unchanged sentences

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

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

Services”, in exchange for a $ 45,000

which replaced the original Consulting Agreement, pursuant to which the Company engaged Inflection Partners to provide “the Inflection Services”, in exchange for a $ 45,000

deposit, a $ 60,000

3 unchanged sentences

Common Stock.

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

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

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

The Company implemented the Reverse

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

The Reverse Stock Split was implemented by

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

As a result of the Reverse

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

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

The authorized Common Stock of the Company

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

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

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

In September 2021, the Company completed a firm

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

(the “Registration Statement”).

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

The Company sold 4,700,000

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

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

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

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

The Company also granted the underwriter the option to purchase

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

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

The Company had also

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

During the year ended October 31, 2020,

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

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

The Consulting Agreement was terminated on October 31, 2021 and

no further compensation is due.

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

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

to the Company and two officers as additional compensation.

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

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

issued to Inflection Partners disclosed above.

Warrants Shares Issued

The weighted average remaining

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

As part of the underwritten offering,

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

warrants expire in the year 2026.

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

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

The following is a summary of the stock warrant plan activity

during the years ended October 31, 2021 and 2020.

Share-based Payment Arrangement, Option, Activity

Number of Warrants

Weighted Average Exercise Price

Number of Warrants

Weighted Average Exercise Price

Warrants Outstanding at Beginning of the year

Canceled, forfeited, expired

Warrants Outstanding and Exercisable at End of Year

Restricted Stock Unit Awards

During the fiscal year October 31, 2021:

During the twelve months ended October

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

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

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

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

Additionally, one employee resigned

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

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

On January 1, 2021, the Board of Directors

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

Plan”) and made a grant to one employee.

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

The RSUs were awarded

pursuant to restricted stock unit agreements (“RSU Agreement”), which provide for vesting over the course of three

years, with a portion of the RSUs vesting every three months.

The vesting schedules are set forth in the applicable RSU Agreements.

shares of restricted Common Stock were issued to Inflection Partners as

compensation for services provided to the Company.

The fair value of the shares of Common Stock issued was $ 1,597,667 .

Preferred Shares Converted

The authorized preferred stock of the Company consists

of 5,000,000 shares with a par value of $ 0.001 per share, of which 3,000,000 shares were designated as Series A Convertible Preferred

Stock (the “Series A Preferred Stock”).

Each share of the Series A Preferred Stock was initially convertible into 100 shares

of Common Stock;

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

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

On June 24, 2022, all 3,000,000 shares of Series A Preferred

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

The conversion of 3,000,000 shares of Series

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

As a result, the authorized, preferred stock

of the Company consists of 5,000,000 shares with a par value of $0.001 per share, with 0 shares of preferred stock issued or outstanding

as of October 31, 2022.

Stock Unit Awards

During the fiscal year October 31, 2022:

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

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

The RSUs were awarded pursuant to RSU Agreements, which provide

for vesting over the course of three years, with a portion of the RSUs vesting every three months.

The vesting schedules are set forth

in the applicable RSU Agreements.

On June 1, 2020, the Board of Directors

approved the award of 83,333 RSUs under the Incentive Plan to one newly-hired employee.

The RSUs were awarded pursuant to a RSU

Agreement, which provide for vesting over the course of three years, with a portion of the RSUs vesting every three months.

vesting schedules are set forth in the applicable RSU Agreement.

On July 26, 2020, the Company amended

the RSU award agreements previously entered into with employees to include the option for employees of receiving a combination

of cash and shares for their bonus, at the discretion of the Company.

Any cash portion paid will be equal to the fair market value

of the vested RSUs.

The Company evaluated the amendments under ASC 718 and determined the amendment did not qualify as a modification.

Any difference in the amount paid in cash and the fair market value of the shares purchased is recorded as additional compensation.

These shares were valued at fair market

value on the grant dates, using the closing share price for those dates, for a total of $ 1,359,600 , which is to be vested over

the vesting period.

During the year ended October 31, 2020, 110,000 shares of Common Stock were issued to seven employees of the

Company under the RSU agreements, resulting in $ 158,260 of share-based compensation.

As of October 31, 2020, 702,500 RSUs remain

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

Of the shares issued to employees, 18,833

shares were withheld by the Company to satisfy tax withholding obligations equal to $ 223,763 .

The shares had a fair market value

on the settlement date of $179,922.

The difference in the amount paid and fair market value was $49,743 and was recorded as additional

compensation .

Stock Option Awards

During fiscal year 2021, the Company

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

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

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

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

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

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

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

The aggregate intrinsic value of these outstanding options as of

October 31, 2021 was $0.

The Company fair valued the options

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

stock price range of

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

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

The Company is amortizing the expense over the

vesting terms of each.

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

The total unamortized

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

Note 6 – Related-Party Transactions

Revenue and Accounts Receivable

During the fiscal year ended October

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

of the Company, and/or his wife.

the twelve months ended October 31, 2022, 123,256 shares of Common Stock were issued to seven employees of the Company pursuant

to restricted stock unit (“RSU”) agreements, resulting in $ 172,379 of share-based compensation.

Of the shares issued

to employees, 44,720 shares were withheld by the Company to satisfy tax withholding obligations equal to $ 59,862 .

March 4, 2022, the Company’s Board approved the termination of the RSU agreements with the consent of the employees.

these agreements were terminated, there remained 1,564,166 unvested RSUs with approximately $ 4,457,875 of related unvested compensation.

Stock Compensation Transition Plan below for additional details.

the fiscal year October 31, 2021:

the twelve months ended October 31, 2021, 221,666 shares

of Common Stock were issued to eight employees of the Company pursuant to restricted stock unit (“RSU”) agreements,

resulting in $ 505,321 of

share-based compensation.

Of the shares issued to employees, 92,871 shares

were withheld by the Company to satisfy tax withholding obligations equal to $ 254,110 as

of October 31, 2021.

Additionally, one employee resigned her employment from the Company and forfeited 23,333 RSUs Accordingly,

there remains 499,167 unvested employee RSUs corresponding to $ 1,011,019 of

unamortized stock expenses as of October 31, 2021.

January 1, 2021, the Board of Directors approved the award of 41,667 “RSUs” under the 2020 Stock and Incentive

Compensation Plan (the “Incentive Plan”) and made a grant to one employee.

The RSUs had a fair value of $ 315,000 at

the time of grant.

The RSUs were awarded pursuant to restricted stock unit agreements (“RSU Agreement”), which provide for

vesting over the course of three years, with a portion of the RSUs vesting every three months.

The vesting schedules are set forth in

the applicable RSU Agreements.

Stock Options

Summary of stock options information is as follows:

Schedule Of Stock holders Equity

Outstanding, October

forfeited, or expired

Outstanding, October

forfeited, or expired

Outstanding, October

October 31, 2022

During the fiscal year ended October 31, 2021,

31, 2020, the Company recognized revenue of $ 233,955 from seven companies owned by Nirajkumar Patel, the Chief Executive Officer

and Chief Financial Officer of the Company, and/or his wife.

As of October 31, 2020, the Company had accounts receivable from the

related party in the amount of $ 15,360 .

the Company recognized $ 1,773,947 related

to outstanding stock options.

On October 31, 2021, the Company had $ 1,314,055 of

unrecognized expenses related to options.

The weighted average remaining contractual life is approximately 9.43 years for stock

options outstanding on October 31, 2022.

The aggregate intrinsic value of these outstanding options as of October 31, 2021 was

During fiscal year

2021, the Company granted options exercisable for up to 150,000 shares of Common Stock of which 15,000 fully vested on March 17,

2021, 7,500 fully vested on June 30, 2021, 41,667 fully vested on December 1, 2021, 17,500 vested on March 17, 2022, 8,750 vest on

June 30, 2022, and 1,248 vest over the next year on March 17, 2023, and June 30, 2023.

The options have exercise prices ranging from

$9.12 to $28.68 per share.

On July 19, 2021, two of the stock option agreements, exercisable for an aggregate of 50,000 shares of

Common Stock, were modified to accelerate the full vesting period from 3 years to 2 years.

The Company fair valued the options on

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

stock price range

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

of 294.55% to 301.53%, expected term of 10 years, and a risk-free interest rate range of 1.19%

The Company is amortizing the expense over the vesting terms of each.

On June 24, 2022, 33,333 of the stock options

referenced above were canceled and a further 25,002 were cancelled.

The unamortized expense when cancelled was $214,398.

During the year ended

October 31, 2022, the Company recognized stock option expense of $ 6,043,312 related to outstanding stock options.

On October 31, 2022,

the Company had $ 1,716,795 of unrecognized expenses related to options.

The weighted average remaining contractual life is approximately

9.52 years for stock options outstanding on October 31, 2022.

As of October 31, 2022 and 2021, the intrinsic

value was $ 50,000 and $0, respectively, to the outstanding stock options.

On February 27, 2022, non-qualified stock options

exercisable for up to 200,000

shares of Common Stock were awarded to two consultants of the Company.

These stock options have a ten-year term from the grant

date, with one-half of the shares vesting on the grant date and the remaining one-half of the shares vesting on the first anniversary

of the grant date.

The fair value of the options on the grant dates was $ 489,998

using a Black-Scholes option pricing model with the following assumptions:

stock price $ 2.45

per share (based on the quoted trading price on the date of grant), a computed volatility of 288.93 %,

expected term of 10

years, and a risk-free interest rate of 1.83 %.

On April 22, 2022, non-qualified stock options exercisable

for up to 75,000

shares of Common Stock were awarded to one consultant of the Company.

These stock options have a ten-year term from the grant

date, with one-half of the shares vesting on June 30, 2022 and the remaining one-half of the shares vesting on October 31, 2022.

fair value of the options on the grant date was

using a Black-Scholes option pricing model with the following assumptions:

stock price $ 1.42

per share (based on the quoted trading price on the date of grant), a computed

volatility of 286.00 %,

expected term of 10

years, and a risk-free interest rate of 2.90 %.

On May 18, 2022, non-qualified stock options

exercisable for up to 500,000 shares

of Common Stock were awarded to one consultant of the Company.

These stock options have a ten-year term from the grant date, with

the shares fully vesting on December 1, 2022.

The fair value of the options on the grant date was $ 514,997 using

a Black-Scholes option pricing model with the following assumptions:

stock price $ 1.03 per

share (based on the quoted trading price on the date of grant), a computed volatility of 284.70 %,

expected term of 10 years,

and a risk-free interest rate of 2.89 %.

On August 1, 2022, non-qualified stock options exercisable

for up to 25,000

shares of Common Stock were awarded to one employee of the Company.

These stock options have a ten-year term from the grant date,

with the shares fully vesting on August 1, 2023.

The fair value of the options on the grant date was $ 29,000

using a Black-Scholes option pricing model with the following assumptions:

stock price $ 1.16

per share (based on the quoted trading price on the date of grant), a computed volatility of 281.14 %,

expected term of 10

years, and a risk-free interest rate of 2.60 %.

On August 24, 2022, non-qualified stock options

exercisable for up to 50,000

shares of Common Stock were awarded to one consultant of the Company.

These stock options have a ten-year term from the grant date,

with the shares fully vesting on grant date.

The fair value of the options on the grant date was $ 65,999

using a Black-Scholes option pricing model with the following assumptions:

stock price $ 1.32

per share (based on the quoted trading price on the date of grant), a computed volatility of 279.81 %,

expected term of 10

years, and a risk-free interest rate of 3.11 %.

March 4, 2022, options exercisable for up to an aggregate of 1,385,600 shares of Common Stock were granted from this new stock option

program to the executive officers and employees, as a result of the transition.

The fair values of the options on the grant dates,

as noted above, were approximately $ 3,948,948 using a Black-Scholes option pricing model with the following assumptions:

$ 2.85 per share (based on the quoted trading price on the date of grant), volatility of 294.55 %, expected term of 10 years, and a risk-free

interest rate range of 1.62 %.

The Company is amortizing the expense over the vesting terms of each option.

Please reference the Common Stock Compensation

Transition Plan below.

On June 24, 2022, non-qualified stock options exercisable

for up to 875,000 shares of Common Stock were awarded to two officers and three board members of the Company.

These stock options have

a ten-year term from the grant date, with 375,000 fully vested on June 24, 2022, and 500,000 vest over the next 2 years on June 23, 2023,

and June 23, 2024.

The fair value of the options on the grant dates was $ 1,504,990 using a Black-Scholes option pricing model with the

following assumptions:

stock price $ 1.72 per share (based on the quoted trading price on the date of grant), a computed volatility of

283.12 %, expected term of 10 years, and a risk-free interest rate of 3.13 %.

Common Stock Compensation Transition Plan

During the second quarter of fiscal year 2021 the

Board and executive management began cost reduction discussions, including the reduction of non-cash items such as equity compensation

Those discussions stalled primarily due to the focus on other corporate events of significant value.

In the first and second

fiscal quarters of 2022, the Board resumed discussions,

assessments, and evaluations regarding the equity compensation awarded to its officers and employees.

The Board ultimately approved a

stock option program for equity awards granted to its officers and employees.

The Compensation Committee finalized

the program in February 2022 and approved it in March 2022.

While evaluating and designing this program, the Compensation Committee did

not utilize any aspects of value to the employees or other features.

Therefore, the termination of the RSU program and the newly adopted

stock option program were developed completely independent of each other and terminated and implemented, respectively, distinctly and

simultaneously.

Management concluded under ASC 718

these transactions are a cancelation and replacement whereby total compensation cost measured at the date of a cancellation and replacement

is the portion of the grant-date fair value of the original award for which the service is expected to be rendered at that date plus the

incremental cost resulting from the cancellation and replacement.

Incremental cost is measured as the excess of the fair value of the

replacement award over the fair value of the cancelled award at the cancellation date in which there was none since the fair value of

the replacement award was less than the fair value of the canceled award.

The outcomes of this decision and the transition on

March 4, 2022, resulting in:

(i) the termination of the RSU program for all executive officers and employees, consisting of 1,564,166

unvested RSUs and (ii) the implementation a new stock option program for executive officers and employees.

The stock options granted pursuant

to the program will have ten-year terms from the grant date, with one-half of the shares vesting on the grant date and the remaining one-half

of the shares vesting on the first anniversary of the grant date.

Please reference the Stock Options disclosure above.

Warrants Shares

Summary Warrant Shares information is as follows:

Share-based Payment Arrangement, Option, Activity

Outstanding, October

( 1,671,673 )

forfeited, or expired

Outstanding, October

( 1,625,650 )

forfeited, or expired

Outstanding, October

October 31, 2022

As part of the Company’s underwritten

public offering in September 2021, the Company issued warrants to purchase a total of 4,053,750

shares of Common Stock at an exercise price of $ 1.90

These warrants expire in 2026.

Warrants for 879,828 shares of Common Stock were exercised during the fiscal year ended October 31, 2021 for proceeds

of $ 1,665,113 .

Warrants for 855,605

shares of Common Stock were exercised during the fiscal year ended October 31, 2022, for proceeds of $ 1,625,650 .

The weighted average remaining contractual life is

approximately 3.92 years for stock warrants outstanding as of October 31, 2022.

As of October 31, 2022, there was no intrinsic value of outstanding

stock warrants.

The weighted average remaining contractual life is approximately 4.92 years for stock warrants outstanding as of

October 31, 2021.

As of October 31, 2021, there was no intrinsic value of outstanding stock warrants.

Note 6 – Related-Party

Revenue and Accounts Receivable

During the fiscal year ended October 31, 2022, the

Company recognized revenue of $ 68,139

from five companies owned by Nirajkumar Patel, the Chief Science Officer and Regulatory Officer and director of the Company, and/or

During the fiscal year ended October 31, 2021, the

Company recognized revenue of $ 154,560

from seven companies owned by Nirajkumar Patel, the Chief Science and Regulatory Officer and director of the Company, and/or his

Purchases and Accounts Payable

During the fiscal year ended October 31, 2022,

the Company purchased Products equal

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

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

As of October 31, 2021,

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

During the fiscal year ended October

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

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

warehouse in California, to the Company at no cost.

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

Florida at no cost.

the Company purchased Products equal to $ 1,505,390 from

Bidi, a related party company that is also owned by Nirajkumar Patel, the Company’s Chief Science and Regulatory Officer and

As of October 31, 2022, the Company did not have an accounts payable balance to Bidi.

During the fiscal year ended October 31, 2021, the

Company purchased Products equal to $ 91,149,783 from Bidi, a related party company that is also owned by Nirajkumar Patel,

the Company’s Chief Science and Regulatory Officer and director, and after returns of $ 29,283,452 , resulted in the net amount of

$ 61,866,332 in product purchases.

As of October 31, 2021, the Company had accounts payable to Bidi of $ 12,667,769 .

the fiscal year ended October 31, 2021, Lakshmi Distributors Inc., doing business as C Store Master (“C Store Master”), a

large customer of the Company, elected to return the inventory associated with the consignment order placed on April 1, 2021, which was

located at the staging warehouse in California, to the Company at no cost.

The Company then returned this same inventory to Bidi’s

warehouse in Florida at no cost.

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

During the year ended October 31, 2020,

the Company purchased Products with a value of $ 53,981,351 from Bidi, a related party company, that is also owned by Nirajkumar

Patel, our Chief Executive Officer and Chief Financial Officer.

As of October 31, 2020, the Company had accounts payable to Bidi

of $ 1,409,561

KBI License agreement provides that KBI shall pay Bidi license fees equivalent to 50 %

of the adjusted earned royalty payments, after any offsets due to jointly agreed costs such development costs incurred for entry

to specific international markets.

Consequently, the Company has determined that no license fees are owed to Bidi as of October 31, 2022.

Office Space and Other Leases

On August 1, 2020, the Company began

leasing office space for its main corporate office in Grant, Florida.

The five-year lease agreement is with a related party, Just

Pick, LLC (“Just Pick”).

The Company’s Chief Executive Officer is an officer of Just Pick.

During fiscal year

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

Just Pic k , was not being charged

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

Concentration of Purchases and

Accounts Payable- Related Party

For the years

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

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

It also accounted for 100% of the

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

Concentration of Revenues and

Accounts Receivable

For the fiscal year ended October 31,

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

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

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

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

Favs Business and C Store Master had outstanding

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

receivable from customers as of October 31, 2021.

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

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

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

of approximately $3.9 million.

Go Brands, Inc., with an outstanding

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

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

On June 10, 2022, the Company entered into a Lease

Agreement (the “2022 Lease”) with Just Pick, LLC for approximately 21,332 rentable square feet combined in the office building

and warehouse located at 4460 Old Dixie Highway, Grant-Valkaria, Florida 32949 (the “Premises”), together with all improvements

Just Pick, LLC is considered a related party to the Company because the Company’s Chief Science Officer and director, Mr.

Nirajkumar Patel, owns and controls Just Pick, LLC.

What changed 10-K

Item 8. Financial Statements and Supplementary Data