Item 7. Management’s Discussion and Analysis
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
This management’s Discussion
and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative
report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with
the audited Financial Statements and notes thereto for the year ended October 31, 2023, included under Item 8 – Financial Statements
and Supplementary Data in this Report. The following discussion contains forward-looking statements that involve risks and uncertainties,
such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed
in the forward-looking statements. Please also see the cautionary language at the beginning of this Report regarding forward-looking
statements.
Overview
Our
business is focused on the sales, marketing and distribution of ENDS products, also known as “e-cigarettes”, in a variety
of favors. Our primary product is the Bidi ® Stick as well as other products manufactured by our affiliate Bidi. We hold
the exclusive worldwide right to market and distribute the Bidi ® Stick and certain other products manufactured by Bidi.
We intend to drive revenue growth primarily through wholesale and traditional retail channels, including convenience stores.
Pursuant
to the A&R Distribution Agreement, Bidi granted us an exclusive worldwide right to distribute Bidi’s ENDS and related components
(as more particularly set forth in the A&R Distribution Agreement and referred to herein as the products) for sale and resale to
both retail level customers and non-retail level customers. Currently, the products consist solely of the “ BIDI ® Stick ”, Bidi’s
disposable, tamper resistant ENDS product made with medical-grade components, a UL-certified battery and technology designed
to deliver a consistent vaping experience for adult smokers 21 and over. We presently distribute products to wholesalers and retailers
of ENDS products, having ceased all direct-to-consumer sales in February 2021. Nirajkumar Patel, our Chief Science and Regulatory Officer
and director and an indirect controlling stockholder of our company, owns Bidi.
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BIDI ® Stick
comes in a variety of flavor options for adult cigarette smokers. We do not manufacture any of the products we resell. The BIDI®
Stick is manufactured by Bidi. Pursuant to the terms of the A&R Distribution Agreement, Bidi provides us with all branding, logos,
and marketing materials to use with our commercial partners in connection with our marketing and promotion of the products.
We process all sales made only to non-retail customers, with all sales to
non-retail customers made through Bidi’s age-restricted website, www.wholesale.bidivapor.com. We ceased all direct-to-consumer
sales in February 2021 in order to better ensure youth access prevention and to comply with the Prevent All Cigarette Trafficking (or
PACT) Act. We provide all customer service and support at our own expense through QuikfillRx as described below. We set the minimum prices
for all sales made by us. We maintain adequate inventory levels of products in order to meet the demands of our non-retail customers and
deliver the products sold to these customers.
A key
third party collaborator of ours is QuikfillRx, which does business as “Kaival Marketing Services” to reflect its contributions
to our company. QuikfillRx provides us with certain services and support relating to sales management, website development and design,
graphics, content, public communication, social media, management and analytics, and market and other research. QuikfillRx provides these
services to us pursuant to a Services Agreement, most recently amended on November 9, 2022, which has a current term ending on October
31, 2025 (subject to potential one-year extensions) and pursuant to which QuikfillRx receives monthly cash compensation and was granted
certain equity compensation in the form of options.
We have
also maintain key international licensing agreements with Philip Morris and its affiliates as described under Item 1 – Business.
Material Items, Trends
and Risks Impacting Our Business
We believe that the following
items and trends may be useful in better understanding the results of our operations.
Dependence on Bidi
and Nirajkumar Patel
We are wholly dependent on Bidi
to supply the BIDI® Sticks to us for distribution. Accordingly, any supply or other issues that impact Bidi indirectly impact us
and our ability to operate our business. Moreover, and while we are seeking to diversify our product offerings, the loss of our relationship
with Bidi would substantially harm the viability of our business, which constitutes an on-going risk factor to our business.
Bidi is controlled by Nirajkumar
Patel, our Chief Science and Regulatory Officer and a director of our company. Moreover, Kaival Holdings, an entity controlled by Mr.
Patel, is our majority stockholder. In addition, our corporate headquarters is leased to us by an affiliate of Mr. Patel. Therefore, Mr.
Patel has the power and ability to control or influence our business. As of October 31, 2023 our company had an accounts payable to Mr.
Patel and Bidi in the amount of $2,474,817.
Dependence on QuikfillRx,
LLC and Distributors
We are
substantially dependent on QuikfillRx, LLC (d/b/a Kaival Marketing Services, or KMS) to provide key marketing, sales and other support
services to us. In addition, we rely on third-party brokers and distributors to introduce and place our products into our historic foundation
of convenience stores and more recently into new retail channels, including dollar, grocery and mass-merchandisers. The loss of one or
more of these key relationships would have a material adverse effect on our business.
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PMI Licensing Agreement and International Distribution
On June 13, 2022, we, through
our wholly owned subsidiary, KBI, entered into the PMI License Agreement with PMPSA, a wholly owned affiliate of PMI, for the development
and distribution of ENDS products in certain markets outside of the United States, subject to market (or regulatory assessment). The
PMI License Agreement grants to PMPSA a license of certain intellectual property rights relating to Bidi’s ENDS device, known as
the BIDI® Stick in the United States, as well as potentially newly developed devices, to permit PMPSA to manufacture, promote, sell,
and distribute such ENDS device and newly developed devices, in international markets, outside of the United States.
On July 25, 2022, we announced
the launch of PMPSA’s custom-branded self-contained e-vapor product, pursuant to the licensing agreement. The product, a self-contained
e-vapor device initially called VEEBA and more recently rebranded as VEEV NOW, has been custom developed and was initially distributed
in Canada. VEEV NOW was then commercially launched by PMPSA in Europe in February 2023, with additional market launches planned this
year. On August 12, 2023, we executed and entered into a Deed of Amendment No. 1 (the “PMI License Amendment”) with PMPSA,
Bidi and KBI. Pursuant to the PMI License Amendment (which was effective on June 30, 2023), resulting in a Net Reconciliation Payment
to KBI and ongoing quarterly royalty payments.
The ability of PMPSA to generate
sales of its licensed products is important to our results of operations since we derive royalty revenue from PMPSA sales. Should our
relationship with PMPSA deteriorate or terminate, or if PMPSA is unable to generate meaningful sales of its licensed products, our business
and results of operations would be materially harmed.
Ability to Develop and Monetize the GoFire Intellectual
Property
We
purchased certain vaporizer and inhalation-related technology from GoFire in May 2023 with the goal of diversifying our business and
lessening our dependence on BIDI. We do not expect that the acquired assets will generate immediate revenue for us, and while we believe
this to be a transformative acquisition for us and we are already seeking to develop and monetize the acquired assets, we can give no
assurances at this time that either (i) the patent applications we acquired will eventuate in issued patents or (ii) we will be able
to enter into successful monetizing arrangements with respect to these assets.
Nature
of our Products and Regulation
Our
products (including both our core Bidi Stick products and any products that we may develop from the GoFire assets) are and will be heavily
regulated by the FDA, which has broad regulatory powers. As described under Item 1 – Business – FDA PMTA and MDO Determinations,
Related Court Actions and the Impact on Our Business, the outcome FDA actions and related proceedings against or by Bidi (including the
January 2024 MDO regarding Classic Bidi Sticks) could have a material adverse impact on our ability to operate our business given our
reliance on Bidi. In addition to the de facto FDA flavor ban that has resulted from the denial of nearly all PMTAs for flavored ENDS,
ENDS products that are non-tobacco flavored continue to face the threat of prohibition at the local level, as many state and local authorities
and attorneys general push for bans or request the FDA to deny PMTAs for flavored ENDS. In addition, a number of states and localities
have banned the sale of non-tobacco flavored tobacco products. For example, in November 2022 California passed Proposition 31, which
prohibits the sale of non-tobacco flavored tobacco products, including e-cigarettes, in retail locations. Thus, the non-tobacco flavored
BIDI® Sticks are not permitted to be sold in California retail locations. We anticipate more states and localities will take this
approach. Several other states have banned flavored ENDS, including New York, New Jersey, Rhode Island, and Massachusetts, with several
more considering similar bans (e.g., Maryland, and Connecticut).
Also,
competition in the market for e-cigarettes from illicit sources may have an adverse effect on our overall sales volume, restricting our
ability to increase selling prices and damaging our brand equity and reputation. Illicit trade and tobacco trafficking in the form of
counterfeit products, smuggled genuine products, and locally manufactured products on which applicable taxes or regulatory requirements
are evaded, represent a significant and growing threat to the legitimate tobacco industry, including the Bidi products we sell.
In
addition, the market for ENDS products is subject to a great deal of uncertainty and is still evolving. ENDS products, having recently
been introduced to market over the past 10 to 15 years, are at a relatively early stage of development, and represent core components
of a market that is evolving rapidly, highly regulated, and characterized by a number of market participants. Rapid growth in the use
of, and interest in, ENDS products is recent, and may not continue on a lasting basis. With respect to the GoFire assets, the underlying
technology touches on hemp/cannabis, nutraceutical and healthcare applications in addition to nicotine, all of which are heavily regulated
by the FDA and other federal and state agencies. The demand and market acceptance for all of these products is subject to a high level
of uncertainty. Therefore, we are subject to all the business risks associated with a new enterprise in an evolving market.
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Some of our product offerings
through Bidi are subject to developing and unpredictable regulation. Our products are sold through our distribution network and may be
subject to uncertain and evolving federal, state, and local regulations, including hemp, non-THC cannabidiol (CBD) and other non-tobacco
consumable products. Enforcement initiatives by those authorities are therefore unpredictable and impossible to anticipate. We anticipate
that all levels of government, which have not already done so, are likely to seek in some way to regulate these products, but the type,
timing, and impact of such regulations remains uncertain. With respect to CBD in particular, on January 26, 2023, the FDA announced that
it would not initiate rulemaking to regulate CBD as a dietary food ingredient. Rather, after careful review, the FDA has concluded that
a new regulatory pathway for CBD is needed and has further indicated that it is prepared to work with Congress to create a new regulatory
pathway for CBD through legislation.
Ability
to Meet Demand for our Products
Increased demand for our products
and have opened new distribution channels for us through which we can sell our products. However, a sharp increase in demand for products
will require us to use cash and/or obtain financing in order to purchase products from Bidi for resale in the marketplace. As a result,
we are faced with the risk that such cash or financing will not be available in sufficient amounts or on terms acceptable to us (or at
all) to meet the market demand for products. Our inability to fulfill this demand will damage our reputation and could materially impact
on our ability to increase sales of products which, in turn, would adversely impact the results of our operations.
Inflation
Consumer
purchases of tobacco products are historically affected by economic conditions, such as changes in employment, salary and wage levels,
the availability of consumer credit, inflation, interest rates, fuel prices, sales taxes, and the level of consumer confidence in prevailing
and future economic conditions. The U.S. has been experiencing an environment of material inflation in recent quarters, and this condition
may impact discretionary consumer purchases, such as the BIDI® Stick. Demand for our products may also decline during recessionary
periods or at other times when disposable income is lower, and taxes may be higher.
Supply
Chain
The spread
of COVID-19 throughout the world as well as increasing tensions with China over the past several years and Russia’s February 2022
invasion of Ukraine has created global economic uncertainty, which may cause partners, suppliers, and potential customers to closely
monitor their costs and reduce activities. Any of the foregoing could materially adversely affect the supply chain for Bidi and our products,
and any supply chain distribution for products could have a materially adverse effect on the results of operations.
Going Concern
Our financial statements are prepared
in accordance 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.
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In accordance with Financial Accounting
Standards Board (or FASB), Accounting Standards Update (or ASU) No. 2014-15, Presentation of Financial Statements – Going Concern
(Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt
about our ability to continue as a going concern within one year after the date that the financial statements are issued.
As shown in the accompanying consolidated
financial statements, we will need significant additional funds to satisfy our outstanding payables, fund our working capital, and fully
implement our business plan as we seek to grow our revenues and ultimately achieve positive cash flow and profitability. In addition,
our ability to continue as a going concern is adversely affected by the uncertainty surrounding Bidi’s PMTA process with FDA and
outcome of Bidi’s petition with the 11th Circuit Court of Appeals regarding the FDA’s January 2024 MDO relating to Classic
Bidi ® Stick as well as our negative cash flows from operations, significant recurring losses and present need for additional
funding. All of these factors raise substantial doubt regarding our ability to continue as a going concern.
Our management plans to continue
similar operations with increased marketing and enhanced efforts to increase sales, which we believe will result in increased revenue
and ultimately net income and positive cash flow from operations.
However, there is no assurance
that our plans will be able to generate expected or greater amounts of revenues or ever achieve profitability due to the factors listed
above as well as the regulation and public perception of ENDS products and the various other risks we face. The accompanying consolidated
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the outcome of these or other risks or uncertainties.
Liquidity and Capital Resources
We believe we will not have sufficient
cash on hand as of the date of this Report to support our operations for at least 12 months. As of October 31, 2023, we had working capital
of approximately $2 million and total cash of approximately $0.5 million. As discussed above, this condition and other factors raise substantial
doubt regarding our ability to continue as a going concern.
We intend to generally rely on
cash from operations and equity and debt offerings to the extent necessary and available, to satisfy our liquidity needs. There are several
factors that could result in the need to raise additional funds, including a decline in revenue, a lack of anticipated sales growth, increased
costs and our potential plan to redeem for cash the shares of our Series B Preferred Stock issued in connection with our GoFire asset
purchase in May 2023. Our efforts are directed toward generating positive cash flow and, ultimately, profitability. As our efforts during
our fiscal 2023 and since have not generated positive cash flows, we will need to raise additional capital. Should capital not be available
to us at reasonable terms, other actions will become necessary, including implementing cost control measures and additional efforts to
increase sales. We may also be required to take more strategic actions such as exploring strategic options for the sale of our company,
the creation of joint ventures or strategic alliances under which we will pursue business opportunities, or other alternatives. We believe
we have, or have access to, the financial resources to weather the impacts of the FDA’s PMTA process and Bidi’s receipt of
MDOs from the FDA in 2021 and 2024, which are subject to additional FDA action and ongoing court proceedings, respectively. However, we
will require further financing for the next twelve months, given our operating results.
Cash Flows:
Net cash flows used in operations
was approximately $3.0 million for fiscal year ended 2023, compared to cash flow used in operations of approximately $5.7 million for
fiscal year ended 2022. The decrease in cash flows used in operations for the fiscal year ended 2023 compared to the fiscal year ended
2022 was primarily due to changes in Other receivable – related party, Income tax receivable, and Accounts payable – related
party (such related party being our affiliate, Bidi, as described further below under Results of Operations).
Net cash flows used in investing
activities was $315,769 for the fiscal year ended 2023, compared to zero cash flow used in investing activities for the fiscal year ended
2022. The cash used in investing activities for the fiscal year ended 2023 consisted of cash used for the purchase of warehouse equipment
and used for the transaction acquisition costs associated with the purchase of the GoFire, intellectual property.
Net cash flows provided by financing
activities was $136,789 for the fiscal year ended 2023, compared to $1.6 million provided by financing activities for the fiscal year
ended 2022. The cash provided by financing activities for the fiscal year ended 2023 consisted primarily of short-term financing.
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Results of Operations
Fiscal year ended
October 31, 2023, compared to fiscal year ended October 31, 2022
Revenues:
Revenues
for fiscal year 2023 were approximately $13.1 million, compared to
approximately $12.8 million in fiscal year 2022. Revenues slightly increased in fiscal year 2023, primarily due to royalties received
from PMPSA.
Cost of Revenue,
Net and Gross Profit (Loss):
Gross
profit in fiscal year 2023 was approximately $2.6 million, compared to approximately $1.2 million for fiscal year 2022. Total cost of
revenue was approximately $10.5 million for fiscal year 2023, compared to approximately $11.5 million for fiscal year 2022. The
increase in gross profit volume is primarily driven by the decrease in cost of revenue.
Operating Expenses:
Total operating expenses
were approximately $13.2 million for fiscal year 2023, compared to approximately $15.6 million for fiscal year 2022. For the fiscal year
2023, operating expenses consisted primarily of advertising and promotion fees of approximately $2.5 million, stock option compensation
expense of approximately $3.2 million, professional fees of approximately $2.7 million, salaries and wages of $2.0 million, and all other
general and administrative expenses of approximately $2.0 million. In fiscal year 2022, operating expenses consisted primarily of advertising
and promotion fees of approximately $2.7 million, stock option compensation expense of approximately $6.0 million, professional fees of
approximately $3.2 million, salaries and wages of $1.7 million, and all other general and administrative expenses of approximately $2.0
million. We expect future operating expenses to increase as we seek to generate increased sales growth and invest in our infrastructure
to support the planned business growth.
Income Taxes:
We
have Federal net operating loss (“NOL”) carryforwards of approximately $23.8 million and state NOL carryforwards of approximately
$186 thousand. With the changes instituted by the CARES Act, the Federal NOLs have an indefinite life and will not expire. Our federal
and state tax returns for the 2021 and 2022 tax years generally remain subject to examination by U.S. and various state authorities.
A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than not
that some portion or all the deferred tax assets will not be realized. Management determined that a valuation allowance of approximately
$7.3 million for the year ended on October 31, 2023, was necessary to reduce the deferred tax asset to the amount that will more likely
than not be realized.
Please
refer to Note 10, Income Tax, in the Notes to the Consolidated Financial Statements in this Report for additional information related
to our income taxes.
Net Loss:
Net
loss for fiscal year 2023 was approximately $11.1 million, or $(4.13) basic and diluted net loss per share, compared to a net loss of
approximately $(14.4) million, or $(7.60) basic and diluted net loss per share, for fiscal year 2022. The decrease in net loss for
the fiscal year 2023, as compared to net loss in fiscal year 2022, is attributable to the revenues and expenses factors noted above.
Weighted-average Common Stock outstanding were 2,721,080 on October 31, 2023, as compared to 1,890,971 on October 31, 2022. The increase
in the weighted-average shares in fiscal year 2023 was primarily attributable to the issuance of 118,668 shares of Common Stock.
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Accrued Expenses:
During fiscal year 2023, we accrued
approximately $81,300 for two quarterly bonuses and approximately $58,400 for approved expenses payable to QuikfillRx based on our applicable
gross quarterly sales for the six months ended October 31, 2023. During fiscal year 2022, we accrued approximately $33,900 for a quarterly
bonus and approximately $18,000 for approved expenses payable to QuikfillRx based on our applicable gross quarterly sales for the three
months ended October 31, 2022. Excise taxes totaling approximately $5,800 were accrued based on taxable sales during the fourth
quarter of fiscal year 2023, compared to excise taxes of approximately $6,600 that were accrued in fiscal year 2022 based on taxable
sales during the fourth quarter of fiscal year 2022.
Concentrations:
Financial instruments, which potentially
subject us to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and
revenue.
Concentration of Purchases and Accounts Payable-
Related Party:
For the year ended October 31,
2023, 100% of the inventories of products, consisting solely of the BIDI ® Stick, were purchased from Bidi, a related party
company that is owned by Nirajkumar Patel, our Chief Science and Regulatory Officer and director, in the amount of approximately $12.8 million,
as compared to $1.5 million for the year ended October 31, 2022.
On
October 31, 2023, a credit of $3.0 million was applied from the related-party receivable balance to the related part accounts payable
balance. After this was applied, we had no related party receivable balance. As of October 31, 2023, the related party accounts payable
balance related to purchases of inventories was $1.5 million.
There was no related party accounts payable balance as of October 31, 2022. As of October 31,2022, we had a related party receivable balance
due from Bidi of $3,704,132 of which $1,539,486 and $2,164,646 were classified as current and non-current respectively.
Concentration of Revenues and Accounts Receivable:
For the fiscal year 2023, (i)
approximately 15% of the revenue from the sale of Products, solely consisting of the BIDI ® Stick, was generated from GPM
Investments, LLC in the amount of approximately $2.0 million, (ii) approximately 14% from H.T. Hackney Co in the amount of $1.8 million,
(iii) approximately 14% from FAVS Business, LLC in the amount of $1.8 million, (iv) approximately 13% from C Store Master in the amount
of $1.8 million, and (v) approximately 11% from QuikTrip Corporation in the amount of $1.5 million. For the fiscal year 2022, (i) approximately
31% of the revenue from the sale of Products, solely consisting of the BIDI ® Stick, was generated from Favs Business
in the amount of approximately $3.9 million, (ii) approximately 15% of the revenue from the sale of the Products was generated from H.T.
Hackney Co. in the amount of approximately $1.9 million, and (iii) approximately 12% of the revenue from the sale of Products, solely
consisting of the BIDI Stick, was generated from GPM, in the amount of approximately $1.5 million.
FAVS Business LLC with an outstanding
balance of approximately $302,000, C Store Master with an outstanding balance of approximately $301,000, and QuikTrip Corporation with
an outstanding balance of approximately $165,000 accounted for approximately 35%, 35%, and 19% of the total accounts receivable from customers,
respectively, as of October 31, 2023. Favs Business with an outstanding balance of approximately $375,000 and QuikTrip Corporation, with
an outstanding balance of approximately $85,000, accounted for approximately 65% and 15% of the total accounts receivable from customers,
respectively, as of October 31, 2022.
Cash and cash equivalents
We consider all highly liquid
investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents on
October 31, 2023, or October 31, 2022. Cash on October 31, 2023, and October 31, 2022, were $0.5 million and $3.7 million, respectively.
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Critical Accounting Policies and Estimates
Our financial statements are prepared
in accordance with generally accepted accounting principles in the United States, (“GAAP”). The preparation of the consolidated financial
statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts
of assets and liabilities, the disclosure or inclusion of contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis,
including, but not limited to, estimates related to allowance for doubtful accounts, and income tax provisions. We base our estimates
on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results could differ from those estimates.
We believe that the assumptions
associated with our revenue recognition have the greatest potential impact on our financial statements. Therefore, we consider this to
be our only critical accounting policy and we do not consider any of our estimates to be critical accounting estimates.
However, we consider Revenue Recognition
the most critical accounting policy for the Company that could create a material misevaluation of Product Revenue if not adhered to and
implemented successfully. We adopted ASC 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), in the
second quarter of fiscal year 2020, as this was the first quarter that we generated revenues. Under ASC 606, we recognize revenue when
a customer obtains control of promised goods, in an amount that reflects the consideration that we expect to receive in exchange for
the goods. To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: (1) identify
the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate
the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance
obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled
to in exchange for the goods it transfers to the customer.
Revenue Recognition Policy
Products Revenue
We generate product revenue from the sale of our products to non-retail customers.
We recognize revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract
with the customer are satisfied and control of the products has been transferred to the customer. In most situations, transfer of control
is considered complete when the products have been shipped to the customer. However, when we enter a consignment agreement with a new
customer, once we ship and deliver the requested amount of the products the customer ordered to it distribution center for its retail
sales location, we retain ownership of the delivered products until they are delivered to their retail stores. When the products are sold
in the stores and the funds, as stated in the consignment agreement, are remitted to us, then we record the revenues in our financial
records. We determined that a customer obtains control of the product upon shipment when title of such product and risk of loss transfer
to the customer. Our shipping and handling costs are fulfillment costs, and such amounts are classified as part of cost of sales. The
advance payment is not considered a significant financing component because the period between when we transfer a promised good to a customer
and when the customer pays for that good is short. We offer credit sales arrangements to non-retail (or wholesale) customers and monitor
the collectability of each credit sale routinely.
Item 7A. Quantitative and
Qualitative Disclosures about Market Risk.
We qualify as a smaller reporting
company, as defined by Item 10 of Regulation S-K and, thus, are not required to provide the information required by this Item.
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