What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-14 compared with 2023-01-30 · 366 added, 355 removed, 23 unchanged (97% of the section changed)

Management’s Discussion and

Analysis of Financial Condition and Results of Operations.

This management’s Discussion and Analysis

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

on our financial condition, results of operations, and liquidity.

Discussion and Analysis of Financial Condition and Results of Operations.

This management’s Discussion

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

report on our financial condition, results of operations, and liquidity.

This discussion and analysis should be read in conjunction with

the audited Financial Statements and notes thereto for the year ended October 31, 2022, included under Item 8 – Financial

Statements and Supplementary Data in this Report.

The following discussion contains forward-looking statements that involve risks

and uncertainties, such as statements of our plans, objectives, expectations, and intentions.

Our actual results could differ materially

from those discussed in the forward-looking statements.

Please also see the cautionary language at the beginning of this Report

regarding forward-looking statements.

We are focused on growing and incubating innovative

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

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

Our business plan is to diversify into distributing other

delivery system products.

Our principal business activity is presently

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

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

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

Currently, such products consist solely of the

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

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

the audited Financial Statements and notes thereto for the year ended October 31, 2023, included under Item 8 – Financial Statements

and Supplementary Data in this Report.

The following discussion contains forward-looking statements that involve risks and uncertainties,

such as statements of our plans, objectives, expectations, and intentions.

Our actual results could differ materially from those discussed

in the forward-looking statements.

Please also see the cautionary language at the beginning of this Report regarding forward-looking

business is focused on the sales, marketing and distribution of ENDS products, also known as “e-cigarettes”, in a variety

Our primary product is the Bidi ® Stick as well as other products manufactured by our affiliate Bidi.

the exclusive worldwide right to market and distribute the Bidi ® Stick and certain other products manufactured by Bidi.

We intend to drive revenue growth primarily through wholesale and traditional retail channels, including convenience stores.

to the A&R Distribution Agreement, Bidi granted us an exclusive worldwide right to distribute Bidi’s ENDS and related components

(as more particularly set forth in the A&R Distribution Agreement and referred to herein as the products) for sale and resale to

both retail level customers and non-retail level customers.

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

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

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

We presently distribute products to wholesalers

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

Impact of COVID-19

In March 2020, the

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

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

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

We were indirectly impacted by supply chain issues

and regulatory oversight in the fiscal year 2022.

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

an indirect result of COVID-19 for two reasons:

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

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

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

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

As the principal manufacturer

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

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

on this important topic.

Phillip Morris License Agreement

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

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

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

The PMI License Agreement grants

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

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

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

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

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

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

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

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

Common Stock on July 20, 2021.

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

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

No fractional shares were issued in connection with the Reverse

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

the nearest whole number.

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

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

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

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

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

occurred as of the earliest period presented.

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

We presently distribute products to wholesalers and retailers

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

Nirajkumar Patel, our Chief Science and Regulatory Officer

and director and an indirect controlling stockholder of our company, owns Bidi.

comes in a variety of flavor options for adult cigarette smokers.

We do not manufacture any of the products we resell.

Stick is manufactured by Bidi.

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

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

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

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

We ceased all direct-to-consumer

sales in February 2021 in order to better ensure youth access prevention and to comply with the Prevent All Cigarette Trafficking (or

We provide all customer service and support at our own expense through QuikfillRx as described below.

We set the minimum prices

for all sales made by us.

We maintain adequate inventory levels of products in order to meet the demands of our non-retail customers and

deliver the products sold to these customers.

third party collaborator of ours is QuikfillRx, which does business as “Kaival Marketing Services” to reflect its contributions

to our company.

QuikfillRx provides us with certain services and support relating to sales management, website development and design,

graphics, content, public communication, social media, management and analytics, and market and other research.

QuikfillRx provides these

services to us pursuant to a Services Agreement, most recently amended on November 9, 2022, which has a current term ending on October

31, 2025 (subject to potential one-year extensions) and pursuant to which QuikfillRx receives monthly cash compensation and was granted

certain equity compensation in the form of options.

also maintain key international licensing agreements with Philip Morris and its affiliates as described under Item 1 – Business.

Material Items, Trends

and Risks Impacting Our Business

We believe that the following

items and trends may be useful in better understanding the results of our operations.

Dependence on Bidi

and Nirajkumar Patel

We are wholly dependent on Bidi

to supply the BIDI® Sticks to us for distribution.

Accordingly, any supply or other issues that impact Bidi indirectly impact us

and our ability to operate our business.

Moreover, and while we are seeking to diversify our product offerings, the loss of our relationship

with Bidi would substantially harm the viability of our business, which constitutes an on-going risk factor to our business.

Bidi is controlled by Nirajkumar

Patel, our Chief Science and Regulatory Officer and a director of our company.

Moreover, Kaival Holdings, an entity controlled by Mr.

Patel, is our majority stockholder.

In addition, our corporate headquarters is leased to us by an affiliate of Mr.

Therefore, Mr.

Patel has the power and ability to control or influence our business.

As of October 31, 2023 our company had an accounts payable to Mr.

Patel and Bidi in the amount of $2,474,817.

Dependence on QuikfillRx,

LLC and Distributors

substantially dependent on QuikfillRx, LLC (d/b/a Kaival Marketing Services, or KMS) to provide key marketing, sales and other support

services to us.

In addition, we rely on third-party brokers and distributors to introduce and place our products into our historic foundation

of convenience stores and more recently into new retail channels, including dollar, grocery and mass-merchandisers.

The loss of one or

more of these key relationships would have a material adverse effect on our business.

PMI Licensing Agreement and International Distribution

On June 13, 2022, we, through

our wholly owned subsidiary, KBI, entered into the PMI License Agreement with PMPSA, a wholly owned affiliate of PMI, for the development

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

PMI License Agreement grants to PMPSA a license of certain intellectual property rights relating to Bidi’s ENDS device, known as

the BIDI® Stick in the United States, as well as potentially newly developed devices, to permit PMPSA to manufacture, promote, sell,

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

On July 25, 2022, we announced

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

The product, a self-contained

e-vapor device initially called VEEBA and more recently rebranded as VEEV NOW, has been custom developed and was initially distributed

VEEV NOW was then commercially launched by PMPSA in Europe in February 2023, with additional market launches planned this

On August 12, 2023, we executed and entered into a Deed of Amendment No.

1 (the “PMI License Amendment”) with PMPSA,

Bidi and KBI.

Pursuant to the PMI License Amendment (which was effective on June 30, 2023), resulting in a Net Reconciliation Payment

to KBI and ongoing quarterly royalty payments.

The ability of PMPSA to generate

sales of its licensed products is important to our results of operations since we derive royalty revenue from PMPSA sales.

relationship with PMPSA deteriorate or terminate, or if PMPSA is unable to generate meaningful sales of its licensed products, our business

and results of operations would be materially harmed.

Ability to Develop and Monetize the GoFire Intellectual

purchased certain vaporizer and inhalation-related technology from GoFire in May 2023 with the goal of diversifying our business and

lessening our dependence on BIDI.

We do not expect that the acquired assets will generate immediate revenue for us, and while we believe

this to be a transformative acquisition for us and we are already seeking to develop and monetize the acquired assets, we can give no

assurances at this time that either (i) the patent applications we acquired will eventuate in issued patents or (ii) we will be able

to enter into successful monetizing arrangements with respect to these assets.

of our Products and Regulation

products (including both our core Bidi Stick products and any products that we may develop from the GoFire assets) are and will be heavily

regulated by the FDA, which has broad regulatory powers.

As described under Item 1 – Business – FDA PMTA and MDO Determinations,

Related Court Actions and the Impact on Our Business, the outcome FDA actions and related proceedings against or by Bidi (including the

January 2024 MDO regarding Classic Bidi Sticks) could have a material adverse impact on our ability to operate our business given our

reliance on Bidi.

In addition to the de facto FDA flavor ban that has resulted from the denial of nearly all PMTAs for flavored ENDS,

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

and attorneys general push for bans or request the FDA to deny PMTAs for flavored ENDS.

In addition, a number of states and localities

have banned the sale of non-tobacco flavored tobacco products.

For example, in November 2022 California passed Proposition 31, which

prohibits the sale of non-tobacco flavored tobacco products, including e-cigarettes, in retail locations.

Thus, the non-tobacco flavored

BIDI® Sticks are not permitted to be sold in California retail locations.

We anticipate more states and localities will take this

Several other states have banned flavored ENDS, including New York, New Jersey, Rhode Island, and Massachusetts, with several

more considering similar bans (e.g., Maryland, and Connecticut).

competition in the market for e-cigarettes from illicit sources may have an adverse effect on our overall sales volume, restricting our

ability to increase selling prices and damaging our brand equity and reputation.

Illicit trade and tobacco trafficking in the form of

counterfeit products, smuggled genuine products, and locally manufactured products on which applicable taxes or regulatory requirements

are evaded, represent a significant and growing threat to the legitimate tobacco industry, including the Bidi products we sell.

addition, the market for ENDS products is subject to a great deal of uncertainty and is still evolving.

ENDS products, having recently

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

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

Rapid growth in the use

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

With respect to the GoFire assets, the underlying

technology touches on hemp/cannabis, nutraceutical and healthcare applications in addition to nicotine, all of which are heavily regulated

by the FDA and other federal and state agencies.

The demand and market acceptance for all of these products is subject to a high level

of uncertainty.

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

Some of our product offerings

through Bidi are subject to developing and unpredictable regulation.

Our products are sold through our distribution network and may be

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

consumable products.

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

We anticipate

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

timing, and impact of such regulations remains uncertain.

With respect to CBD in particular, on January 26, 2023, the FDA announced that

it would not initiate rulemaking to regulate CBD as a dietary food ingredient.

Rather, after careful review, the FDA has concluded that

a new regulatory pathway for CBD is needed and has further indicated that it is prepared to work with Congress to create a new regulatory

pathway for CBD through legislation.

to Meet Demand for our Products

Increased demand for our products

and have opened new distribution channels for us through which we can sell our products.

However, a sharp increase in demand for products

will require us to use cash and/or obtain financing in order to purchase products from Bidi for resale in the marketplace.

we are faced with the risk that such cash or financing will not be available in sufficient amounts or on terms acceptable to us (or at

all) to meet the market demand for products.

Our inability to fulfill this demand will damage our reputation and could materially impact

on our ability to increase sales of products which, in turn, would adversely impact the results of our operations.

purchases of tobacco products are historically affected by economic conditions, such as changes in employment, salary and wage levels,

the availability of consumer credit, inflation, interest rates, fuel prices, sales taxes, and the level of consumer confidence in prevailing

and future economic conditions.

has been experiencing an environment of material inflation in recent quarters, and this condition

may impact discretionary consumer purchases, such as the BIDI® Stick.

Demand for our products may also decline during recessionary

periods or at other times when disposable income is lower, and taxes may be higher.

of COVID-19 throughout the world as well as increasing tensions with China over the past several years and Russia’s February 2022

invasion of Ukraine has created global economic uncertainty, which may cause partners, suppliers, and potential customers to closely

monitor their costs and reduce activities.

Any of the foregoing could materially adversely affect the supply chain for Bidi and our products,

and any supply chain distribution for products could have a materially adverse effect on the results of operations.

Going Concern

Our financial statements are prepared in accordance

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

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

In accordance with Financial Accounting Standards

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

2014-15, Presentation of Financial Statements –

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

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

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

flows from operations.

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

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

plans to alleviate that doubt.

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

We considered that our losses and

negative cash flows were due to various factors such as:

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

issued to Bidi Vapor on its flavored ENDS product.

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

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

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

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

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

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

on the MDO as disclosed above.

We believe that our available cash and the cash to

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

that the financial statements are issued.

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

with our ability to continue as a going concern.

However, there is no

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

in the United States and globally.

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

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

the outcome of these uncertainties.

and Capital Resources

We believe we have

sufficient cash on hand as of January 20, 2023.

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

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

The Eleventh Circuit Court of Appeals finally ruled

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

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

and likely FY 2024 and beyond.

Bidi’s scientific

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

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

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

for cash and resulting improved liquidity.

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

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

We intend to generally rely on cash from operations

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

There are several factors that could

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

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

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

additional capital.

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

control measures and continued efforts to increase sales.

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

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

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

however, we are unable to presently estimate any

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

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

In FY 22 , the Company believes that many retailers

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

(i) government enforcement of

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

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

compliance in an effort to generate additional revenue.

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

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

for Bidi by the Eleven Circuit Court of Appeals decision.

For additional information regarding the impact to our revenues during the

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

At this time, we do not foresee

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

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

In September 2021, we completed a firm

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

(the “Registration Statement”).

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

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

We sold each share

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

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

additional 528,750 shares of our Common Stock.

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

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

We used the proceeds for general corporate

However, there is no assurance that our plans will

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

Our 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 (or FASB), Accounting Standards Update (or 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, we will need significant additional funds to satisfy our outstanding payables, fund our working capital, and fully

implement our business plan as we seek to grow our revenues and ultimately achieve positive cash flow and profitability.

our ability to continue as a going concern is adversely affected by the uncertainty surrounding Bidi’s PMTA process with FDA and

outcome of Bidi’s petition with the 11th Circuit Court of Appeals regarding the FDA’s January 2024 MDO relating to Classic

Bidi ® Stick as well as our negative cash flows from operations, significant recurring losses and present need for additional

All of these factors raise substantial doubt regarding our ability to continue as a going concern.

Our management plans to continue

similar operations with increased marketing and enhanced efforts to increase sales, which we believe will result in increased revenue

and ultimately net income and positive cash flow from operations.

However, there is no assurance

that our plans will be able to generate expected or greater amounts of revenues or ever achieve profitability due to the factors listed

above as well as the regulation and public perception of ENDS products and the various other risks we face.

The accompanying consolidated

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

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

Cash flow used in operations

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

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

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

related party .

We anticipate that our cash

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

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

Additionally, we are in the

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

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

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

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

The decrease in cash flow from financing activities for the fiscal

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

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

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

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

of Operations

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

Revenues for fiscal

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

Revenues decreased

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

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

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

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

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

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

In light of the 11 th Circuit decision, the Company

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

discretion, for the duration of the PMTA scientific review.

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

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

Cost of Revenue and Gross Profit:

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

Liquidity and Capital Resources

We believe we will not have sufficient

cash on hand as of the date of this Report to support our operations for at least 12 months.

As of October 31, 2023, we had working capital

of approximately $2 million and total cash of approximately $0.5 million.

As discussed above, this condition and other factors raise substantial

doubt regarding our ability to continue as a going concern.

We intend to generally rely on

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

There are several

factors that could result in the need to raise additional funds, including a decline in revenue, a lack of anticipated sales growth, increased

costs and our potential plan to redeem for cash the shares of our Series B Preferred Stock issued in connection with our GoFire asset

purchase in May 2023.

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

As our efforts during

our fiscal 2023 and since have not generated positive cash flows, we will need to raise additional capital.

Should capital not be available

to us at reasonable terms, other actions will become necessary, including implementing cost control measures and additional efforts to

increase sales.

We may also be required to take more strategic actions such as exploring strategic options for the sale of our company,

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

we have, or have access to, the financial resources to weather the impacts of the FDA’s PMTA process and Bidi’s receipt of

MDOs from the FDA in 2021 and 2024, which are subject to additional FDA action and ongoing court proceedings, respectively.

will require further financing for the next twelve months, given our operating results.

Net cash flows used in operations

was approximately $3.0 million for fiscal year ended 2023, compared to cash flow used in operations of approximately $5.7 million for

fiscal year ended 2022.

The decrease in cash flows used in operations for the fiscal year ended 2023 compared to the fiscal year ended

2022 was primarily due to changes in Other receivable – related party, Income tax receivable, and Accounts payable – related

party (such related party being our affiliate, Bidi, as described further below under Results of Operations).

Net cash flows used in investing

activities was $315,769 for the fiscal year ended 2023, compared to zero cash flow used in investing activities for the fiscal year ended

The cash used in investing activities for the fiscal year ended 2023 consisted of cash used for the purchase of warehouse equipment

and used for the transaction acquisition costs associated with the purchase of the GoFire, intellectual property.

Net cash flows provided by financing

activities was $136,789 for the fiscal year ended 2023, compared to $1.6 million provided by financing activities for the fiscal year

The cash provided by financing activities for the fiscal year ended 2023 consisted primarily of short-term financing.

Results of Operations

Fiscal year ended

October 31, 2023, compared to fiscal year ended October 31, 2022

for fiscal year 2023 were approximately $13.1 million, compared to

approximately $12.8 million in fiscal year 2022.

Revenues slightly increased in fiscal year 2023, primarily due to royalties received

Cost of Revenue,

Net and Gross Profit (Loss):

profit in fiscal year 2023 was approximately $2.6 million, compared to approximately $1.2 million for fiscal year 2022.

1 unchanged sentence

revenue was approximately $10.5 million for fiscal year 2023, compared to approximately $11.5 million for fiscal year 2022.

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

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

landscape had on our business.

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

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

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

decreased our revenues.

increase in gross profit volume is primarily driven by the decrease in cost of revenue.

Operating Expenses:

Total operating expenses were approximately

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

For the fiscal year 2022, operating

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

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

Total operating expenses

were approximately $13.2 million for fiscal year 2023, compared to approximately $15.6 million for fiscal year 2022.

For the fiscal year

2023, operating expenses consisted primarily of advertising and promotion fees of approximately $2.5 million, stock option compensation

expense of approximately $3.2 million, professional fees of approximately $2.7 million, salaries and wages of $2.0 million, and all other

general and administrative expenses of approximately $2.0 million.

In fiscal year 2021, operating expenses consisted of advertising

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

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

expenses of approximately $10.2 million.

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

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

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

and warrants offering in September 2021.

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

for limiting the sales of flavored BIDI sticks.

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

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

In fiscal year 2022, operating expenses consisted primarily of advertising

and promotion fees of approximately $2.7 million, stock option compensation expense of approximately $6.0 million, professional fees of

approximately $3.2 million, salaries and wages of $1.7 million, and all other general and administrative expenses of approximately $2.0

We expect future operating expenses to increase as we seek to generate increased sales growth and invest in our infrastructure

to support the planned business growth.

Income Taxes:

We have Federal net

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

have Federal net operating loss (“NOL”) carryforwards of approximately $23.8 million and state NOL carryforwards of approximately

$186 thousand.

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

Our federal and state tax

returns for the 2020 and 2021 tax years generally

remain subject to examination by U.S.

and state tax returns for the 2021 and 2022 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 the deferred tax assets will not be realized.

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

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

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

related to our income taxes.

Net Income (Loss):

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

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

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

Management determined that a valuation allowance of approximately

$7.3 million for the year ended on October 31, 2023, was necessary to reduce the deferred tax asset to the amount that will more likely

than not be realized.

refer to Note 10, Income Tax, in the Notes to the Consolidated Financial Statements in this Report for additional information related

to our income taxes.

loss for fiscal year 2023 was approximately $11.1 million, or $(4.13) basic and diluted net loss per share, compared to a net loss of

approximately $(14.4) million, or $(7.60) basic and diluted net loss per share, for fiscal year 2022.

The increase in net loss

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

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

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

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

warrants issued in connection with our 2021 public underwritten offering.

The decrease in net loss for

the fiscal year 2023, as compared to net loss in fiscal year 2022, is attributable to the revenues and expenses factors noted above.

Weighted-average Common Stock outstanding were 2,721,080 on October 31, 2023, as compared to 1,890,971 on October 31, 2022.

in the weighted-average shares in fiscal year 2023 was primarily attributable to the issuance of 118,668 shares of Common Stock.

Accrued Expenses:

During fiscal year 2022, we accrued approximately

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

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

During fiscal year 2023, we accrued

approximately $81,300 for two quarterly bonuses and approximately $58,400 for approved expenses payable to QuikfillRx based on our applicable

gross quarterly sales for the six months ended October 31, 2023.

During fiscal year 2022, we accrued approximately $33,900 for a quarterly

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

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

Excise taxes totaling approximately $6,600 were

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

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

bonus and approximately $18,000 for approved expenses payable to QuikfillRx based on our applicable gross quarterly sales for the three

months ended October 31, 2022.

Excise taxes totaling approximately $5,800 were accrued based on taxable sales during the fourth

quarter of fiscal year 2023, compared to excise taxes of approximately $6,600 that were accrued in fiscal year 2022 based on taxable

sales during the fourth quarter of fiscal year 2022.

Concentrations:

Financial instruments, which potentially subject

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

Concentration of

Purchases and Accounts Payable- Related Party:

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

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

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

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

Financial instruments, which potentially

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

Concentration of Purchases and Accounts Payable-

Related Party:

For the year ended October 31,

2023, 100% of the inventories of products, consisting solely of the BIDI ® Stick, were purchased from Bidi, a related party

company that is owned by Nirajkumar Patel, our Chief Science and Regulatory Officer and director, in the amount of approximately $12.8 million,

as compared to $1.5 million for the year ended October 31, 2022.

October 31, 2023, a credit of $3.0 million was applied from the related-party receivable balance to the related part accounts payable

After this was applied, we had no related party receivable balance.

As of October 31, 2023, the related party accounts payable

balance related to purchases of inventories was $1.5 million.

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

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

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

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

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

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

A credit of $2.9 million was applied

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

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

An additional credit of $1.5 million

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

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

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

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

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

due from Bidi of $3,704,132 of which $1,539,486 and $2,164,646 were classified as current and non-current respectively.

Concentration of Revenues and Accounts Receivable:

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

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

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

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

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

In Fiscal year 2021, approximately 23% of the

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

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

amount of approximately $9.6 million.

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

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

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

Favs Business with an outstanding balance of approximately

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

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

and Restricted Cash

We consider all highly liquid investments with

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

There were no cash equivalents on October 31,

2022, or October 31, 2021.

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

respectively.

Restricted cash consists of cash held short-term

in escrow as required.

As of October 31, 2022, and October 31, 2021, we had $0 and $65,007 in restricted cash, respectively, for

amounts held in escrow.

Accounting Policies and Estimates

Our financial statements are prepared in accordance

with generally accepted accounting principles in the United States, (or GAAP).

The preparation of the consolidated financial statements

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

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

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

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

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

We base our estimates on historical

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

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

Actual results could

differ from those estimates.

We believe that the assumptions associated

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

Therefore, we consider this to be

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

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

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

successfully.

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

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

quarter that we generated revenues.

Under ASC 606, we recognize revenue when a customer obtains

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

receive in exchange for the goods.

To determine revenue recognition for arrangements within

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

(1) identify the contracts with

For the fiscal year 2023, (i)

approximately 15% of the revenue from the sale of Products, solely consisting of the BIDI ® Stick, was generated from GPM

Investments, LLC in the amount of approximately $2.0 million, (ii) approximately 14% from H.T.

Hackney Co in the amount of $1.8 million,

(iii) approximately 14% from FAVS Business, LLC in the amount of $1.8 million, (iv) approximately 13% from C Store Master in the amount

of $1.8 million, and (v) approximately 11% from QuikTrip Corporation in the amount of $1.5 million.

For the fiscal year 2022, (i) approximately

31% of the revenue from the sale of Products, solely consisting of the BIDI ® Stick, was generated from Favs Business

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

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

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

FAVS Business LLC with an outstanding

balance of approximately $302,000, C Store Master with an outstanding balance of approximately $301,000, and QuikTrip Corporation with

an outstanding balance of approximately $165,000 accounted for approximately 35%, 35%, and 19% of the total accounts receivable from customers,

respectively, as of October 31, 2023.

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

an outstanding balance of approximately $85,000, accounted for approximately 65% and 15% of the total accounts receivable from customers,

respectively, as of October 31, 2022.

Cash and cash equivalents

We consider all highly liquid

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

There were no cash equivalents on

October 31, 2023, or October 31, 2022.

Cash on October 31, 2023, and October 31, 2022, were $0.5 million and $3.7 million, respectively.

Critical Accounting Policies and Estimates

Our financial statements are prepared

in accordance with generally accepted accounting principles in the United States, (“GAAP”).

The preparation of the consolidated financial

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

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

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

We evaluate our significant estimates on an ongoing basis,

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

We base our estimates

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

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

Actual results could differ from those estimates.

We believe that the assumptions

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

Therefore, we consider this to

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

However, we consider Revenue Recognition

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

implemented successfully.

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

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

Under ASC 606, we recognize revenue when

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

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

the contracts with a customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction

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

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

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

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

(3) determine the transaction price;

the transaction price to the performance obligations in the contract;

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

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

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

Revenue Recognition Policy

Products Revenue

We generate product revenue from the sale of the

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

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

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

We generate product revenue from the sale of our products to non-retail customers.

We recognize revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract

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

In most situations, transfer of control

is considered complete when the products have been shipped to the customer.

However, when we enter a consignment agreement with a new

customer, once we ship and deliver the requested amount of the products the customer ordered to it distribution center for its retail

sales location, we retain ownership of the delivered products until they are delivered to their retail stores.

When the products are sold

in the stores and the funds, as stated in the consignment agreement, are remitted to us, then we record the revenues in our financial

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

to the customer.

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

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

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

delivered to their retail stores.

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

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

We determined that a customer obtains control of the Product upon

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

Our shipping and handling costs are fulfillment costs,

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

The advance payment is not considered a significant financing component

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

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

Quantitative and Qualitative Disclosures

about Market Risk.

We qualify as a smaller reporting company,

as defined by Item 10 of Regulation S-K and, thus, are not required to provide the information required by this Item.

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

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

and when the customer pays for that good is short.

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

the collectability of each credit sale routinely.

Quantitative and

Qualitative Disclosures about Market Risk.

We qualify as a smaller reporting

company, as defined by Item 10 of Regulation S-K and, thus, are not required to provide the information required by this Item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis