What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-14 compared with 2023-01-30 · 1214 added, 940 removed, 435 unchanged (83% of the section changed)

Financial Statements and Supplementary

BRANDS INNOVATIONS GROUP, INC.

Financial Statements

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

and Supplementary Data.

KAIVAL BRANDS INNOVATIONS

CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets

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to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

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We have audited the accompanying consolidated balance

sheets of Kaival Innovations Group, Inc.

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.

sheet s of Kaival Brands Innovations Group, Inc.

and its subsidiaries (collectively, the “Company”)

as of October 31, 2023 and 2022, and the related consolidated statements of operations, changes in 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, 2023 and 2022,

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 suffered recurring losses and negative cash flows from operations which 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.

The financial statements do not include any

adjustments that might result from the outcome of this uncertainty.

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 audits.

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

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

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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.

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

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

have served as the Company’s auditor since 2018.

Kaival Brands Innovations Group, Inc.

Consolidated Balance Sheets

We have served as the Company’s auditor since

Houston, Texas

February 13, 2024

Kaival Brands Innovations

Balance Sheets

receivable - related party - short term

Inventories, net

tax receivable

current assets

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

receivable - related party - net of current portion

of use asset - operating lease

AND STOCKHOLDERS’ EQUITY

payable - related party

lease obligation - short term

current liabilities

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

TERM LIABILITIES:

lease obligation, net of current portion

STOCKHOLDERS’

5,000,000 shares authorized

A Convertible Preferred stock ($ 0.001 par value, 3,000,000 shares authorized, none issued and outstanding as

of October 31, 2023 and October 31, 2022, respectively)

B Convertible Preferred stock ($ 0.001 par value, 900,000 shares authorized, 900,000 and none issued and outstanding

as of October 31, 2023 and October 31, 2022, respectively)

par value, 1,000,000,000 shares authorized , 2,793,386 and 2,674,718 shares issued and outstanding as of October 31, 2023 and October

31, 2022, respectively)

paid-in capital

Stockholders’ Equity

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

LIABILITIES & 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,

Kaival Brands Innovations

Statements of Operations

the Years Ended October 31,

- related party

tax on products

revenues, net

Revenues – related parties

Royalty revenue

Excise tax on products

Total revenues, net

of revenue - related party

of revenue - other

cost of revenue

Cost of revenue – related party

Cost of revenue – other

Total cost of revenue

and promotion

and administrative expenses

operating expenses

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.

Consolidated Statements of Changes in Stockholders’ Equity

For the years ended October 31, 2022 and 2021

Convertible Preferred Shares

Par Value Convertible Preferred Shares

Common Shares

Par Value Common Shares

Additional Paid-in Capital

Accumulated Deficit

income (expense)

other income (expense)

before income taxes provision

for (benefit from) income taxes

stock dividend

loss attributable to common shareholders

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 consolidated financial statements.

Brands Innovations Group, Inc.

Statements of Changes in Stockholders’ Equity

the years ended October 31, 2023, and 2022

Preferred Shares

Value Convertible Preferred Shares

Preferred Shares

Value Convertible Preferred Shares

Value Common Shares

Paid-in Capital

Balances, October

Stock issued for services – RSUs

Common stock settled and canceled

Common stock issued for compensation

Stock option expense

Common stock issued for cash, net of financing cost

Common stock issued for warrant exercise

Issued for Services - RSUs

shares settled and cancelled

stock issued for compensation

common stock warrants

Series A Convertible Preferred Stock

option expense

Balances, October

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

shares issued for purchase of intangible assets

series B shares issued for purchase of intangible assets

warrants issued for purchase of intangible assets

shares issued for services

shares issued for loan

option expense

warrant expense

stock dividend

Balances, October

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:

The accompanying notes are an

integral part of these consolidated financial statements.

Kaival Brands Innovations

Statements of Cash Flows

the Year Ended

FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss

to net cash used in operating activities:

Stock based compensation

Stock options expense

Stock warrants expense

Depreciation and amortization

of debt discount

Bad debt expense

ROU operating lease expense

Inventory reserve

Write-off of inventory

Changes in current assets and liabilities:

Changes in current assets and

Accounts receivable

( 1,342,397 )

Other receivable - related party

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Deferred revenue

Income tax accrual

Customer deposits

Customer refund due

Payments on operating lease liability

Customer refunds due

Right of use liabilities - operating

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

FLOWS FROM INVESTING ACTIVITIES

Cash paid for equipment

Transaction acquisition costs

Net cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES

Proceeds from the exercise of

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:

Proceeds from loans payable

Payments on loans payable

Net cash provided by financing

Net change in cash

Beginning cash balance

Ending cash balance

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.

Common shares issued for

acquisition of intangible assets

Common shares issued for services-transaction

Series B preferred stock shares issued for acquisition of intangible assets

Stock warrants issued for acquisition of intangible assets

Preferred stock dividend

Insurance financed by third party

stock issued for note payable financing

Conversion of Series A Preferred

Stock Shares to Common Stock Shares

New ROU leased asset recognized

The accompanying notes are an integral part of these

consolidated financial statements.

KAIVAL BRANDS INNOVATIONS GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL

Note 1 – Organization and Description of Business

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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 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.

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.

The 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 and memorialize the Company’s current business relationship with Bidi.

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”).

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

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.

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

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.

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.

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.

Current Product Offerings

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

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

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

The Company was indirectly

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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.

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 C.F.R.

§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.

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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.

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.

§ 10.35(a), the

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

Subsequently, the FDA decided not to rescind the MDO and

lifted its administrative stay on December 17, 2021.

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

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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.

Court 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.

5 unchanged sentences

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.

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.

In March 2023, FDA issued a deficiency letter regarding the Classic BIDI® Stick PMTA, to which Bidi submitted in June 2023.

Subsequently,

on January 22, 2024, FDA issued a MDO for the Classic BIDI® Stick.

On January 26, 2024, Bidi filed a petition for review of the MDO

with the 11 th Circuit Court of Appeals, followed by a motion to stay the MDO.

Bidi is arguing, among other things, that the

MDO was arbitrary and capricious in violation of the Administrative Procedure Act.

The Company cannot provide any assurances as to the

timing or outcome.

Risks and Uncertainties

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.

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

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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.

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

Note 2 – Basis of Presentation and Significant

1 unchanged sentence

Principles of Consolidation

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

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

transactions are eliminated.

The consolidated financial statements include the

financial statements of the Company’s wholly-owned subsidiaries, Kaival Labs and Kaival Brands International.

Intercompany transactions

are eliminated.

Basis of Presentation

12 unchanged sentences

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 on October 31,

There were no cash equivalents as of October

31, 2023, and October 31, 2022.

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, 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

The Federal Deposit Insurance Corporation

(“FDIC”) insures deposits according to the ownership category in which the funds are insured and how the accounts are

The standard deposit insurance coverage limit is $ 250,000

per depositor, per FDIC-insured bank, per ownership category.

The Company had uninsured cash of $ 252,586

and $ 2,912,793

as of October 31, 2023, and October 31, 2022, respectively.

Advertising and Promotion

16 unchanged sentences

The Company also had no allowance for doubtful accounts as of October 31, 2022.

product inventory is purchased from a related party, Bidi.

On January 22, 2024, the FDA issued an MDO on Bidi

Vapor’s “Classic” BIDI ® Stick PMTA.

The Company evaluated the impact of this MDO to the financial statements

and recorded an estimated accrual for potential customer returns of the “Classic” products of $ 113,243 as of October 31, 2023

which is included in accrued expenses in the consolidated balance sheets in order to comply with ASC 855 Subsequent Events.

All product inventory is purchased from a related

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.

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 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, 2023, 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.

During fiscal year 2023, the Company had a write-off of $ 105,057 related to short-coded Bidi sticks

that were no longer able to be sold.

Based upon fiscal year 2023 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.

that no allowance for inventory is required as of October 31, 2022.

On January 22, 2024, the FDA issued an MDO on Bidi

Vapor’s “Classic” BIDI ® Stick PMTA.

The Company evaluated the impact of this MDO to the financial statements

and recognized a full reserve for all remaining “Classic” products on hand amounting to $381,512 as of October 31, 2023 in

order to comply with ASC 855 Subsequent Events.

Revenue Recognition

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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

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As of October 31, 2023, and October

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.

31, 2022, the Company has $ 0 and $ 44,973 in deposits from customers, respectively, which is included with the Company’s current

As of October 31, 2023, and October 31, 2022, the Company has $ 0 and $ 235,274 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 that time.

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

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.

In the normal course of business, the Company issues

credits for product returns and certain customer incentives related to rebates, discounts and promotions.

When such credits exceed amounts

receivable from customers, the Company recognizes such excess amounts as customer refunds which will be applied against future product

As of October 31, 2023, and October 31, 2022, the Company had $ 392,406 and $ 0 refunds due to various customers, respectively.

Products Revenue

The Company generates products revenue from the sale

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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.

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

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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

Royalty Revenue

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.

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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.

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:

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

guaranteed minimum royalty 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.

As of October 31, 2023,

amounts receivable from PMPSA in connection with the PMI License Agreement totaled $ 1,002,196 of which $ 289,672 and $ 712,524 pertain

to royalties and reimbursement of certain non-recurring engineering costs, respectively.

The PMI License Agreement contains customary representations,

warranties, covenants, and indemnification provisions;

however, KBI’s liability under the PMI License Agreement is capped at the

(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.

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 ).

On June 10, 2022, Bidi entered into a License Agreement

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

intellectual property to the extent necessary for KBI to fulfill its obligations set forth in the PMI Licensing Agreement.

Such irrevocable

license includes:

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

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

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

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

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

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

On August 12, 2023, the Company 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 has an effective date of June 30, 2023), the following material changes have been made to the PMI License Agreement:

Royalty Rate.

The royalty paid

by PMPSA to KBI will no longer be based on sales price of the Product being sold, but rather on the volume of liquid contained within

Product being sold.

The royalty will be on a sliding scale of between $0.08 to $0.16 per sale based on the volume of liquid contained

in the Product, increasing to between $0.10 to $0.20 per sale upon meeting certain sales milestones.

For purposes of determining aggregate

sales threshold, all sales undertaken since commencement of the PMI Licensing Agreement will be counted.

Elimination of Certain Potential

Royalty Adjustments.

Certain potential adjustments to the royalties receivable by KBI as provided for in the PMI License Agreement have

been eliminated.

Guaranteed Royalty.

The guaranteed

royalty payment owed to KBI under the PMI License Agreement has been eliminated.

Instead, royalties will be paid on a quarterly basis

going-forward based on actual sales.

Any unpaid guaranteed royalty has been cancelled.

Insurance Tail Requirements.

KBI’s requirement to keep certain tail insurance after the expiration or termination of the PMI Licensing Agreement was reduced

from 6 years to 2 years.

The identification

of the PMI Markets that PMI may enter has been expanded to cover certain additional territories.

Net Reconciliation Payment

As a result of the changes to the PMI License Agreement described in paragraphs 1 thought 3 above, the value of such changes

was calculated and reconciled as of the date of commencement of the PMI Licensing Agreement through June 30, 2023.

On September 8, 2023,

the Company received the Net Reconciliation Payment from PMPSA of $ 134,981 pursuant to this provision.

The 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.

During the year ended October 31, 2023, the

Company paid license fees of approximately $150,000 to Bidi.

As of October 31, 2023 and 2022, no additional license fees are owed to Bidi.

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.

For the fiscal year 2023, (i) approximately 15% or

$ 1,986,970 of the revenue from the sale of Products, solely consisting of the BIDI® Stick, was generated from GPM Investments, LLC,

(ii) approximately 14% or $ 1,842,511 was generated from H.T.

Hackney Co, (iii) approximately 14% or $ 1,817,310 was generated from FAVS

Business, LLC, (iv) approximately 13% or $ 1,759,563 was generated from C Store Master, and (v) approximately 11% or $ 1,501,439 was generated

from QuikTrip Corporation.

For 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.

FAVS Business LLC with an outstanding balance of

$ 302,400 , C Store Master with an outstanding balance of $ 300,590 , and QuikTrip Corporation with an outstanding balance of $ 164,987 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 $ 375,425

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

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.

Share-Based Compensation

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:

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

Expected dividend yield

Expected option term (years)

Expected volatility

279.81 %- 288.93 %

294.55 %- 301.53 %

Risk-free interest rate

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.

The Company measures the cost

of services received in exchange for an award of equity instruments (share-based payments, referred to herein as “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 performance conditions, compensation

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

The grant-date fair value of share options is estimated using

the Black-Scholes-Merton option-pricing model based on certain assumptions which include the expected term, expected volatility and discount

The expected term of options granted represents the

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

The expected volatility is based on the volatility in the trading

of the Common Stock over the expected term of the award.

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

Treasury bills.

Net Loss Per Share

income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of

common shares outstanding during the period, without consideration of potential common stock equivalents.

Diluted net income

(loss) per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of

common stock outstanding plus common share equivalents from conversion of dilutive stock options and warrants using the treasury

method and preferred stock using the as-converted method, except when antidilutive.

In the event of a net loss, the effects of all

potentially dilutive shares are excluded from the diluted net loss per share calculation as their inclusion would be antidilutive.

For the year ended October 31, 2023 the outstanding common stock equivalents excluded from the computation of diluted net loss were 449,106 shares

for stock options, 242,548 shares

for warrants and 357,120 shares

for series B convertible preferred stock.

For the year ended, October 31, 2022 the outstanding common stock equivalents excluded

from the computation of diluted net loss were 152,489 shares

for stock options and 110,396 shares

for warrants .

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.

The Company has Federal net operating loss (“NOL”)

carryforwards, consisting of total deferred tax assets, totaling approximately $ 23.8 million and state NOL carryforwards, consisting

of total deferred tax liabilities, totaling approximately $ 0.2 million.

With 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 2020, 2021, and 2022 tax years

generally remain subject to examination by U.S.

and various state authorities.

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.

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 $ 7,319,289 for the -year ended on October 31, 2023, and a valuation allowance of $ 4,286,289 for the year ended on October 31, 2022

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

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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.

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

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.

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.

certain market assumptions and pertinent information available to management as of October 31, 2023 and 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.

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

As of October

31, 2023, and 2022, 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.

Recent Accounting

Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”)

issued Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20)

and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and

Contracts in an Entity’s Own Equity (“ASU 2020-06”).

ASU 2020-06 simplified the accounting for certain financial instruments

with characteristics of liabilities and equity.

This ASU (1) simplified the accounting for convertible debt instruments and convertible

preferred stock by removing the existing guidance in ASC 470-20, Debt:

Debt with Conversion and Other Options, that required entities

to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred

(2) revised the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features

that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required

for equity classification;

and (3) revised the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings

per share (“EPS”) for convertible instruments by using the if-converted method.

In addition, entities must presume share settlement

for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

ASU 2020-06 was effective for the Company

for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption was permitted.

The Company has elected to early adopt ASU 2020-06 effective beginning November 1, 2022.

There was no impact on the consolidated financial

statements as a result of adopting this standard.

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.

However, In March 2022, the FASB issued ASU 2022-02, “Financial Instruments-Credit

Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as

part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the current expected credit loss (“CECL”)

The amendments eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have

adopted the CECL model and enhance the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower

is experiencing financial difficulty.

In addition, the amendments require a public business entity to disclose current-period gross write-offs

for financing receivables and net investment in leases by year of origination in the vintage disclosures.

The amendments in this ASU

should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where an entity

has the option to apply a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in

the period of adoption.

This is not effective for the Company until November 1, 2023

Note 3 – Going Concern

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.

The accompanying financial statements

of the Company 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

In accordance with Financial Accounting

Standards Board (“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.

– Going Concern (Subtopic 205-40), the Company’s management evaluates whether there are conditions or events, considered

in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the

date that the accompanying financial statements are issued.

The Company will need significant

additional funds to satisfy its outstanding payables, fund its working capital, and fully implement its business plan as the Company seeks

to grow its revenues and ultimately achieve positive cash flow and profitability.

In addition, the Company’s 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 the Company’s negative cash flows from operations, significant recurring losses and present need for additional funding.

All of these factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

plans to continue similar operations with increased marketing and enhanced efforts to increase sales, which the Company believes will

result in increased revenue and ultimately net income and positive cash flow from operations.

However, there is no assurance

that the Company’s 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 faced by the Company.

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 or other risks

or uncertainties.

Note 4 – Acquisition of GoFire Assets

On May 30, 2023 (the “Closing Date”), the Company and Kaival Labs

entered into an Asset Purchase Agreement (the “GoFire APA”) with GoFire, Inc.

(“GoFire”) to purchase certain intellectual

property assets of GoFire consisting of various patents concerning electronic vaporizers and related technologies (the “Purchased

Assets”) in exchange for equity securities of the Company and certain contingent cash consideration.

The Company participated in

this transaction with the intent to diversify its product offerings and create both near and long-term revenue opportunities.

The Purchased

Assets consist of 19 existing and 47 pending patents with novel technologies related to vaporization and inhalation.

Pursuant to the terms of the GoFire

APA, the Company paid to GoFire, in addition to certain contingent cash consideration described below, consideration in the form of equity

securities of the Company consisting of (i) an aggregate of 95,239 shares of Common Stock (the “APA Shares”); (ii)

900,000 shares of newly-designated Series B Convertible Preferred Stock, par value $ 0.001 per share, (the “Series B Preferred Stock”

and the shares of Common Stock underlying the Series B Preferred, the “Series B Conversion Shares”), the rights, preferences

and terms of which are set forth in a Certificate of Designation of Rights and Preferences of the Series B Preferred Stock (the “Certificate

of Designation”), and (iii) a common stock purchase warrant to purchase 95,239 shares of Common Stock (the “Warrant”

and the shares of Common Stock underlying the Warrant, the “Warrant Shares”).

As additional consideration for the Purchased

Assets, any cannabis-specific (meaning cannabis, hemp or cannabinoid) royalties that are generated by Kaival Labs from or due to the

Purchased Assets, from the Closing Date until January 1, 2027, will be subject to a contingent cash payment (“CCP”).

to the earlier of:

(i) the Company achieving less than or equal to $15,000,000 in aggregate gross cannabis-specific royalties from any

Kaival Labs licensing agreements, and (ii)

January 1, 2027, the Company shall pay GoFire a CCP equal to 50% of the aggregate gross cannabis-specific royalties generated by the

Purchased Assets.

After the earlier of:

(i) the Company achieving greater than $15,000,000 in aggregate gross cannabis-specific royalties,

and (ii) January 1, 2027, the Company shall pay GoFire a CCP equal to 10% of the aggregate gross cannabis-specific royalties generated

by the Purchased Assets until January 1, 2027.

Pursuant to the GoFire APA, the Company is required to use commercially reasonable efforts

to register the APA Shares and Warrant Shares with the SEC for distribution to GoFire’s stockholders and/or public resale by such

stockholders within 180 days of the Closing Date.

In addition, if any Series B Preferred Stock remains outstanding nineteen (19) months

after the Closing Date, the Company shall use commercially reasonable efforts to file with the SEC a subsequent registration statement

registering the distribution to GoFire’s stockholders and/or public resale Series B Conversion Shares by such stockholders.

such subsequent registration statement is required, the Company will use its commercially reasonable efforts to obtain effectiveness

of such subsequent registration statement within nineteen (19) months of the Closing Date, and if the Company does not so register the

Series B Conversion Shares within nineteen (19) months of the Closing Date, the Company will issue to GoFire or its designee an additional

ten percent (10%) of all of the Series B Conversion Shares underlying the then outstanding shares of Series B Preferred Stock.

the securities issued as consideration for the Purchased Assets are subject to a lock-up agreement that terminates one hundred eighty

(180) days from the Closing Date.

The Company has determined that

the acquisition of the Purchased Assets constitutes an asset acquisition and has recorded the assets under a cost accumulation model.

Assets acquired and liabilities assumed are recognized at cost, which is the consideration the acquirer transferred to the seller, as

well as direct transaction costs, on the acquisition date.

The cost of the acquisition is then allocated to the assets acquired based

on their relative fair values.

The cost of acquisition does not include any contingent consideration related to contingent cash payments

as those obligations are contingent in future amount of royalties and will be recognized when the contingency is resolved, and the consideration

is paid or becomes payable.

Goodwill is not recognized in asset acquisition.

The Purchased Assets have been recorded at a cost of $11,795,975

and are included in Intangible Assets in the consolidated balance sheet.

The consideration paid for the GoFire APA was as

follows (see Note 5):

Schedule of consideration paid

B Preferred Stock

Stock Warrants

consideration

The fair value of the Common Stock

is based on the publicly traded share price as of the acquisition date and represents a Level 1 measurement.

The fair value of the Series B

Preferred Stock and Common Stock Warrants were determined using the Black-Scholes Option Pricing model.

The fair value measurements are

based on significant unobservable inputs, including management estimates and assumptions, and thus represent Level 3 measurements.

5 – Intangible Assets, net

The Company’s intangible assets include

patents and technology that were acquired pursuant to the GoFire APA.

The cost and accumulated amortization of the intangible assets

amounted to $ 11,795,975 and

of October 31, 2023, respectively.

Amortizable patents and technology have a useful life of 15 .0 years

with a weighted average remaining useful life of 14.6 years.

The Company recognized an amortization expense of

$327,666 for the year ended October 31, 2023.

Amortization expense is included under general and administrative expenses in the consolidated

statement of operations.

Future amortization expense of intangible assets

is as follows:

Schedule of future amortization expense of intangible assets

Note 6 – Loans Payable

On May 9, 2023, the Company entered into two

loan agreements which are collateralized by all assets of the Company until the loans are repaid in full.

As illustrated in the

following table, under the terms of these agreements, the Company received the disclosed Purchase Price and agreed to repay the

disclosed Purchase Amount, which is collected by the lenders at the disclosed weekly payment rate.

The Company’s former Chief

Executive Officer, Eric Mosser personally guarantees the performance of these loans.

The Company has accounted for these agreements as

loans under ASC 860 because while we provided rights to current and future receipts, we still had control over the receipts.

The difference

between the Purchase Amount and the Purchase Price is imputed interest that is recorded as interest expense when paid.

The following table shows our loan agreements as

of October 31, 2023, and there were none as of October 31, 2022:

of loan agreements

Purchased Amount

Outstanding Balance

On August 9, 2023, the

Company entered into a Securities Purchase Agreement (the “SPA”) with AJB Capital Investments, LLC (“AJB”), pursuant

to which the Company sold a Promissory Note in the principal amount of $650,000 (the “Note”) to AJB in a private transaction

for a purchase price of $585,000 (giving effect to original issue discount of $65,000).

The Note matures on February 8, 2024 (the “Maturity

Date”) and bears interest at the rate of 10% per annum.

Interest shall be payable on a monthly basis beginning on the date that

is one month following the date of issuance of the Note.

Provided no event of default (as defined in the Note) is in effect as of the

Maturity Date, the Company may elect to extend the Maturity Date for a period of six (6) months.

to the terms of the SPA, the Company paid a commitment fee to AJB in the form of 19,048

shares of Common Stock (the “Commitment

Fee Shares”) with

a relative fair value of $130,478 which was recognized as discount to the note.

The debt discount and issuance costs are amortized over

the term of the note.

Amortization expense amounted to $122,273 for the year ended October 31, 2023.

Under the SPA, the Company has the

right to repurchase half of the Commitment Fee Shares if the Note is repaid in full prior to maturity .

As of October 31, 2023 the carrying value of the loan and unamortized debt discount and issuance costs were $513,295 and $136,705 respectively

On May 20, 2023, the Company obtained a nine

month loan from Westfield Bank to finance the annual D&O insurance.

The principal amount was $ 342,001

and subject to an effective interest rate of 7.79 %.

As of October 31, 2023, the remaining balance was $ 152,000 .

Note 7 – Leases

10 unchanged sentences

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.

Office and Storage Space 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 payments on this lease in the amount of $19,959.

The lease was terminated in June 2022.

6 unchanged sentences

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:

The Company must pay Just Pick base rent equal to $ 17,777 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 $ 18,666 in the second

year, $ 19,554 in the third year, $ 20,443 in the fourth year, $ 22,221 in the fifth year, $ 23,999 in the sixth year, and one

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

In addition 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.

both the ROU asset and ROU liability, the lease renewal option was considered in the calculation with an incremental borrowing rate of

The Company had $ 190,541 and $ 118,633 in operating lease expenses for the year ended October 31, 2023, and October 31, 2022, respectively.

Cash flow information related to leases was as follows:

Schedule of cash flow information related to leases

2 unchanged sentences

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

The following table summarizes the lease-related

assets and liabilities recorded in the consolidated balance sheets on October 31, 2023, and 2022:

Schedule of condensed balance sheet

lease right-of-use assets

5 unchanged sentences

Schedule of lessee operating lease liability maturity

Future minimum operating lease liabilities on October 31, 2022

minimum operating lease liabilities on October 31, 2023

and thereafter

Total future undiscounted lease payments

future undiscounted lease payments

Imputed interest

Present value of lease liabilities

value of lease liabilities

As of October 31, 2023, the Company had no additional

1 unchanged sentence

Note 8 – 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:

Common Shares

During the year ended October 31, 2023, the Company

issued 95,239 shares of Common Stock as consideration for the acquisition of the GoFire Purchased Assets.

The Company also issued 4,381

shares of Common Stock as compensation for advisory services rendered in connection with the GoFire APA.

During the year ended October 31, 2023, the Company

issued 19,048 common shares with a value of $ 130,478 as part of a loan issued on August 9, 2023.

During the year ended October 31, 2022, the Company issued 1,888

common shares for services rendered with a fair value of $ 65,323 .

There were 1,190,477

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

The Company issued 40,744

for $ 1,625,650

proceeds for the exercise of warrants.

The Company’s stock-based compensation for Common Stock issued for

services for the fiscal years ended October 31, 2023, and October 31, 2022, was $ 0 and $ 237,702 , respectively.

Restricted Stock Unit Awards

During the year ended October 31, 2022, 5,870 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

a Consulting Agreement with Inflection Partners LLC (“Inflection Partners”), pursuant to which the Company engaged Inflection

Partners to provide investor relations, corporate communication, marketing, strategic advising, and operational activities (collectively,

the “Inflection Services”), in exchange for a $ 45,000

deposit, a $ 60,000

monthly retainer, 83,333

shares of restricted Common Stock due upon the execution of the agreement, and an incentive compensation of 83,333

shares of restricted Common Stock or warrants to purchase 125,000

shares of restricted Common Stock.

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

deposit, a $ 60,000

monthly retainer, 83,333

shares of restricted Common Stock due upon the execution of the agreement, and an incentive compensation of an aggregate of 166,667

shares of restricted Common Stock On October 15, 2021, the Company paid $ 100,000 and 225,000 shares of restricted

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 .

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:

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.

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, 2,130 shares were withheld by the Company

to satisfy tax withholding obligations equal to $ 59,862 .

On March 4, 2022, the Company’s Board approved

the termination of the RSU agreements with the consent of the employees.

At the time these agreements were terminated, there remained

1,564,166 unvested RSUs with approximately $ 4,457,875 of related unvested compensation.

See Common Stock Compensation Transition

Plan below for additional details.

Series A Convertible Preferred Stock

Each share of the Series A Preferred Stock was initially

convertible into 100 shares of Common Stock; However, it was affected by a subsequent reverse stock split also, the conversion rate

was adjusted such that each share of the Series A Preferred Stock is convertible into approximately 0.3968 shares of Common Stock.

24, 2022, all 3,000,000 shares of Series A Preferred Stock were converted into shares of Common Stock by Kaival Holdings.

The conversion

of 3,000,000 shares of Series A Preferred Stock, at a conversion rate of 0.3968 , equaled 1,190,477 shares of Common Stock.

Series B Convertible Preferred Stock

The Company issued 900,000 shares of the Series B

Preferred Stock as consideration for the acquisition of the GoFire Purchased Assets.

The Series B Preferred Stock carries no voting rights

(i) with respect to the ability of the holders of a majority of the then outstanding Series B Preferred Stock (the “Majority

Holders”), to nominate a director to the Company’s board of directors, and (ii) that the vote of the Majority Holders is

necessary for effecting any amendment to the Company’s Certificate of Incorporation or Certificate of Designation that affects

the Series B Preferred Stock.

The Series B Preferred Stock is redeemable at the option of the Company at a redemption price of $ 15 per

share, subject to potential downward adjustments based on the trading price of the Common Stock.

Subject to additional limitations in

the GoFire APA, the Series B Preferred Stock holds seniority over the Common Stock and each other class of series of securities now existing

or hereafter authorized with respect to dividend rights, the distribution of assets upon liquidation, and dissolution and redemption

Upon a liquidation and winding up of the Company, the holders of Series B Preferred Stock are entitled to a liquidation preference

of $ 15 per share (the “Liquidation Preference”), though the redemption may be adjusted downward based on the trading price

of the Common Stock at the time of liquidation.

The holders of Series B Preferred Stock are entitled to receive a dividend equal to 2%

of the Liquidation Preference, accruing from the Closing Date and payable on the eighteen-month anniversary of the Closing Date.

No preemptive

rights are granted to the holders of Series B Preferred Stock.

The Majority Holders have the ability to cause a voluntary conversion

of the Series B Preferred Stock into Common Stock at a conversion rate of 0.3968 shares of Common Stock per share of Series B Preferred

Stock which may only occur on or after the following dates 18 month, 24 month, 36, month, 48 month, and 60 month anniversary of the original

issuance date;

and only up to 180,000 number of shares of Series B Preferred Stock on each of the these dates.

All shares of Series B

Preferred Stock will automatically convert to Common Stock upon the occurrence of a Change of Control (as defined in the GoFire APA).

Stock Options

Summary of stock options information is as follows:

Schedule Of Stock holders Equity

Outstanding, October

Schedule of stock options

October 31, 2021

191.52 - 602.28

21.63 - 59.85

forfeited, or expired

Outstanding, October

191.52 - 545.58

October 31, 2022

21.63 - 602.28

10.08 - 20.72

forfeited, or expired

Outstanding, October

October 31, 2023

During the fiscal year ended October 31, 2021,

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.

10.08 - 602.28

October 31, 2023

12.81 - 602.28

The fair value of each option granted during the

year ended October 31, 2023 and 2022 was estimated on the date of grant using the Black-Scholes option-pricing model with the

weighted average assumptions in the following table:

Schedule of assumptions

Expected dividend yield

Expected option term (years)

Expected volatility

270.98 %- 286.91

279.81 %- 288.93

Risk-free interest rate

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.

During the year ended October 31, 2022, the Company recognized stock option expense

of $ 6,043,312 related to outstanding stock options.

As of October 31, 2022, the Company had $ 1,716,795 of unamortized stock option expense.

The weighted average remaining contractual life is approximately 9.52 years for stock options outstanding on October 31, 2022.

As of October

31, 2022, the outstanding options have an intrinsic value of $ 50,000 .

On February 27, 2022, non-qualified stock options

exercisable for up to 9,524 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 $ 51.45 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 3,571 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 106,499 using a Black-Scholes option pricing model with the following assumptions:

price $ 29.82 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 23,810 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 $ 21.63 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 1,190 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 $ 24.36 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 2,381 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 $ 27.72 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 %.

On March 4, 2022, options exercisable for up to an

aggregate of 65,981 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:

stock price $ 59.85 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 41,667 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 17,858 fully vested on June 24, 2022, and 23,809 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 $ 36.12 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 %.

During the year ended October 31, 2023, the Company

recognized stock option expense of $ 3,168,430 related to outstanding stock options.

As of October 31, 2023, the Company had $ 3,904,525

of unamortized stock option expense.

The weighted average remaining contractual life is approximately 8.99 years for stock options outstanding

on October 31, 2023.

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.

As of October 31, 2023, the outstanding options have an intrinsic value of $ 0 .

On November 9, 2022, non-qualified stock options

exercisable for up to 11,905 shares of Common Stock were awarded to one supplier of the Company.

These stock options have a ten-year

term from the grant date, with the shares fully vested on the issue date.

The fair value of the options on the grant date was $ 246,747

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

stock price $ 20.72 per share (based on the quoted trading

price on the date of grant), a computed volatility of 275.68 %, expected term of 10 years, and a risk-free interest rate of 4.12 %.

On November 9, 2022, non-qualified stock options exercisable

for up to 142,857 shares of Common Stock were awarded to one supplier of the Company.

These stock options have a ten-year term from the

grant date, with the shares fully vesting based on the achievement of certain net revenue and profit margin targets up to $ 180,000,000

in total net revenues over a period of 3 years.

However, the grant provides that if the Company’s gross profit margin in any year

over the 3 year period exceeds 15%, a certain number of options will vest to be calculated based on the Company’s total revenues.

The fair value of the options on the grant date was $ 2,960,968 using a Black-Scholes option pricing model with the following assumptions:

stock price $ 20.72 per share (based on the quoted trading price on the date of grant), a computed volatility of 275.68 %, expected term

of 10 years, and a risk-free interest rate of 4.12 %.

Management determined that it is not probable that the performance condition related

to the net revenue and profit margin to be met over a period of 3 years will be achieved.

However, for the year ended October 31, 2023,

total options of 10,387 vested due to the Company’s gross profit margin exceeding 15 % for the current year.

On February 6, 2023, non-qualified stock options

exercisable for up to 7,141

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

shares of Common Stock were awarded to five employees of the Company.

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

with the shares vesting on 50% on February 6, 2024.

The fair value of the options on the grant date was $ 109,499

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

3 unchanged sentences

years, and a risk-free interest rate of 3.63 %.

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

On February 6, 2023, non-qualified stock options

exercisable for up to 47,620 shares of Common Stock were awarded to two senior executives of the Company.

These stock options have a

ten-year term from the grant date, with the shares fully vesting on February 6, 2023 and the remaining 50 % vesting on February 6, 2024.

The fair value of the options on the grant date

was $ 729,988 using a Black-Scholes option pricing model with the following assumptions:

stock price $ 15.33 per share (based on the quoted

trading price on the date of grant), a computed volatility of 270.98 %, expected term of 10 years, and a risk-free interest rate of 3.63 %.

On February 6, 2023, non-qualified stock options

exercisable for up to 17,856 shares of Common Stock were awarded to three independent board members of the Company.

These stock options

have a ten-year term from the grant date, with the shares fully vesting on February 6, 2024.

The fair value of the options on the grant

date was $ 273,747 using a Black-Scholes option pricing model with the following assumptions:

stock price $ 15.33 per share (based on the

quoted trading price on the date of grant), a computed volatility of 270.98 %, expected term of 10 years, and a risk-free interest rate

On February 6, 2023, non-qualified stock options

exercisable for up to 9,524 shares of Common Stock were awarded to one consultant acting as a sales broker for the Company.

options have a ten-year term from the grant date, with the shares fully vesting based on the achievement of certain net revenue targets

up to $ 100,000,000 in total net revenues over time to be generated from certain customers as listed in the sales broker agreement.

fair value of the options on the grant date was $ 145,998 using a Black-Scholes option pricing model with the following assumptions:

price $ 15.33 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98 %, expected term of 10

years, and a risk-free interest rate of 3.63 %.

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.

Management determined that it would not be probable that the performance conditions will be met

and as such no expense was recognized on this award for the year ended October 31, 2023.

On March 3, 2023, non-qualified stock options

exercisable for up to 2,381

shares of Common Stock were awarded to one interim senior executive of the Company.

These stock options have a ten-year term from

the grant date, with the shares fully vesting on June 30, 2023.

The fair value $12.87 of the options on the grant date was $ 30,650

4 unchanged sentences

years, and a risk-free interest rate of 3.97 %.

On August 24, 2022, non-qualified stock options

On March 19, 2023, non-qualified stock options exercisable

for up to 11,904 shares of Common Stock were awarded to two independent board members of the Company.

These stock options have a ten-year

term from the grant date, with the shares fully vesting on March 19, 2024.

The fair value of the options on the grant date was $ 217,498

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

stock price $ 18.27 per share (based on the quoted trading

price on the date of grant), a computed volatility of 286.15 %, expected term of 10 years, and a risk-free interest rate of 3.47 %.

On July 8, 2023, incentive stock options

exercisable for up to 2,381

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

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 grant date.

with the shares vesting 25% annually through July 8, 2027.

The fair value of the options on the grant date was $ 39,409

2 unchanged sentences

per share (based on the quoted trading price on the date of grant), a computed volatility of 280.34 %,

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

expected term of 6.25 years, and a risk-free interest rate of 4.01 %.

On August 1, 2023, incentive stock options exercisable

for up to 39,095 shares of Common Stock were awarded to two senior executives of the Company.

These stock options have a ten-year term

from the grant date, with the shares vesting as following:

1/4 of options on August 1, 2024 and thereafter 1/36 per month through August

The fair value of the options on the grant date was $ 485,000 using a Black-Scholes option pricing model with the following assumptions:

stock price $ 12.41 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.03 %, expected term

of 6.25 years, and a risk-free interest rate of 4.05 %.

On August 22, 2023, incentive stock options exercisable

for up to 7,524 shares of Common Stock were awarded to one senior executive of the Company.

These stock options have a ten-year term from

the grant date, with the shares vesting as following:

1/4 of options on August 22, 2024 and thereafter 1/36 per month through August 22,

The fair value of the options on the grant date was $ 75,808 using a Black-Scholes option pricing model with the following assumptions:

stock price $ 10.08 per share (based on the quoted trading price on the date of grant), a computed volatility of 278.31 %, expected term

of 6.25 years, and a risk-free interest rate of 4.34 %.

Common Stock Compensation Transition Plan

2 unchanged sentences

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:

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

of the Board 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

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.

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 )

October 31, 2021

forfeited, or expired

Outstanding, October

October 31, 2022

12.39 - 126.00

forfeited, or expired

Outstanding, October

October 31, 2023

12.39 - 126.00

October 31, 2023

12.39 - 126.00

The outstanding warrants as of October 31, 2023 and

2022 have a weighted average remaining contractual life of 3.44 years and 3.92 years, respectively, and an intrinsic value of $ 0 for both

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

public offering in September 2021, the Company issued warrants to purchase a total of 193,036 shares of Common Stock at an exercise

price of $ 39.90 per share.

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

Warrants for 40,743 shares of Common Stock were exercised during the

fiscal year ended October 31, 2022, for proceeds of $ 1,625,650 .

The Company issued a common stock purchase warrant

to purchase an aggregate of 95,240 shares of Common Stock as consideration for the acquisition of the GoFire Purchased Assets.

is exercisable for a period of four (4) years from the Closing Date.

The exercise price for the Warrant Shares is $ 63.00 , $ 84.00 , $ 105.00

and $ 126.00 per share, respectively, for each of four tranches of 23,810 Warrant Shares.

The exercise prices of the Warrant are subject

to customary stock-based (but not price-based) adjustments upon the occurrence of stock splits and the like involving the Common Stock.

The Warrant is exercisable on a cash basis only, except that the Warrant may be exercised on a “cashless basis” if at the

time of exercise there is not an effective registration statement under the Securities Act of 1933, as amended covering the public resale

of the Warrant Shares.

The Company issued a common stock purchase warrant

to purchase an aggregate of 17,524 shares of Common Stock as compensation for advisory services rendered directly related to the GoFire

The warrant is exercisable for a period of five ( 5 ) years from the Closing Date.

The exercise price for the warrant shares is $ 14.70

The warrant is non-exercisable or transferrable for six months after the date of the closing of APA other than as permitted

by FINRA Rule 5110.

The warrant may be exercised as to all or a lesser number of shares of Common Stock for a period of five (5) years

after the Closing Date.

The Company determined the fair value of the warrant as of the acquisition date and included it as part of the

asset acquisition cost (see Note 4).

The Company entered into a financial advisor and

placement agent agreement in April 2023 with an advisor.

As part of the consideration for the advisor’s services, the Company will

issue warrants to purchase an aggregate of 17,143 shares of Common Stock at an exercise price of $ 15.33 per share and a term of 5 years.

During the twelve (12) month engagement period, the Company will grant the advisor warrants to purchase 1,429 shares of Common Stock

The Company issued the first six (6) months of warrants to purchase 8,572 shares of Common Stock upon the execution of the

agreement and will issue monthly warrants each month at a rate of 1,429 warrants per month until 17,143 warrants have been issued in

For the year ended October 31, 2023, the Company issued warrants to purchase a total of 15,715 shares of Common Stock.

the year ended October 31, 2023, the Company recognized stock warrant expense of $ 218,909 .

The Company entered into a financial advisor and

placement agent agreement in August 2023 with an advisor.

As part of the consideration for the advisor’s services, the Company

issued warrants to purchase an aggregate of 3,673 shares of common stock at an exercise price of $ 12.39 per share and a term of 5 years.

The Company determined the fair value of the warrants

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

Schedule of fair value of the warrants

243.20 % - 247.90

interest rate

3.81 % - 4.18

The expected term represents the contractual term

of the warrant.

The expected volatility was based on the Company’s observed equity volatility over the period matching the term

of the warrant.

The assumed discount rate was the risk-free rate based on the rate of treasury securities with the same or similar term

Note 9 – Related-Party Transactions

Revenue and Accounts Receivable

During the fiscal year ended October 31, 2023, 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

Company recognized revenue of $ 10,828 from three companies owned by Nirajkumar Patel, the Chief Science Officer and Regulatory Officer

and director of the Company, and/or his wife.

During the fiscal year ended October 31, 2022, 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

Company recognized revenue of $ $ 68,139 from five companies owned by Nirajkumar Patel, the Chief Science and Regulatory Officer and director

of the Company, and/or his wife.

Purchases and Accounts Payable

During the fiscal year ended October 31, 2022,

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, 2023, 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 .

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.

Company purchased Products equal to $ 12,747,006 from Bidi, a related party company that is also owned by Nirajkumar Patel, the Company’s

Chief Science and Regulatory Officer and director.

As of October 31, 2023, the Company had an accounts payable balance of $ 1,521,491

During the fiscal year ended October 31, 2022, 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 director.

As of October 31, 2022, the Company did no t have an accounts payable balance to Bidi.

The 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.

During the year ended October 31, 2023, the Company paid license fees of approximately $150,000 to Bidi.

October 31, 2023 and 2022, no additional license fees are owed to Bidi.

of October 31, 2023, the Company has a payable to Bidi of $ 712,524

for certain non-recurring engineering costs related to the PMI License Agreement which were fully paid in November 2023,

and $240,802 for reimbursement of insurance expense.

Office Space and Other Leases

2 unchanged sentences

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.

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

Nirajkumar Patel, owns and controls Just Pick, LLC.

What changed 10-K

Item 8. Financial Statements and Supplementary Data