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Item 8. Financial Statements and Supplementary Data

2025-02-10 compared with 2024-02-14 · 979 added, 1226 removed, 423 unchanged (84% of the section changed)

Financial Statements

and Supplementary Data.

KAIVAL BRANDS INNOVATIONS

Financial Statements and Supplementary

KAIVAL BRANDS INNOVATIONS GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets

Statements of Operations

Statements of Changes in Stockholders’ Equity

Statements of Cash Flows

to Consolidated Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Shareholders and Board of Directors of

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance

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.

We have audited the accompanying consolidated

balance sheets of Kaival Brands Innovations Group, Inc.

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

2024 and 2023, 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, 2024 and 2023, 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

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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.

has suffered recurring losses and negative cash flows from operations which raised 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.

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February 7, 2025

Kaival Brands Innovations

Balance Sheets

receivable - related party - short term

Inventories, net

tax receivable

current assets

receivable - related party - net of current portion

Kaival Brands Innovations Group, Inc.

Consolidated Balance Sheets

receivable, net

Total current

Fixed assets,

of use asset - operating lease

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payable - related party

Loans payable,

lease obligation - short term

current liabilities

TERM LIABILITIES:

Total current

lease obligation, net of current portion

and Contingencies (Note 11)

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)

A Convertible Preferred stock ($ 0.001 par value, 3,000,000 shares authorized, none issued and outstanding as of October 31, 2024 and

October 31, 2023)

Series B Convertible

Preferred stock ($ 0.001 par value, 900,000 shares authorized, 900,000 issued and outstanding as of October 31, 2024 and October 31, 2023)

Common stock ($ .001

par value, 1,000,000,000 shares authorized, 8,517,302 and 2,793,386 shares issued and outstanding as of October 31, 2024 and October

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STOCKHOLDERS’ EQUITY

LIABILITIES & EQUITY

The accompanying notes

are an integral part of these consolidated financial statements.

Kaival Brands Innovations

Statements of Operations

the Years Ended October 31,

- related party

tax on products

LIABILITIES & STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of these

consolidated financial statements.

Kaival Brands Innovations Group, Inc.

Consolidated Statements of Operations

For the Years Ended October 31,

Revenues, net

of revenue - related party

of revenue - other

cost of revenue

and promotion

and administrative expenses

Revenues - related party

Royalty revenue

Excise tax on products

Total revenues, net

Cost of revenues

Cost of revenue - related party

Total cost of revenue

Operating expenses

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.

Advertising and promotion

General and administrative expenses

Total operating expenses

Other expense

Loss on extinguishment of debt

Loss on settlement of payables

Interest expense, net

Total other expense

Loss before income taxes provision

Provision for income taxes

Preferred stock dividend

Net loss attributable to common shareholders

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.

Brands Innovations Group, Inc.

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the years ended October 31, 2024, and 2023

Preferred Shares

Value Convertible Preferred Shares

Preferred Shares

Value Convertible Preferred Shares

Value Common Shares

Paid-in Capital

Convertible Preferred Shares (Series B)

Par Value Convertible Preferred Shares (Series B)

Common Shares

Par Value Common Shares

Additional Paid-in Capital

Accumulated Deficit

Balances, October 31, 2022

Issued for Services - RSUs

shares settled and cancelled

stock issued for compensation

common stock warrants

Series A Convertible Preferred Stock

option expense

Common shares issued for purchase of intangible assets

Preferred series B shares issued for purchase of intangible assets

Stock warrants issued for purchase of intangible assets

Common shares issued for services

Common shares issued for loan

Stock option expense, net of forfeitures

Stock warrant expense

Preferred stock dividend

Balances, October 31, 2023

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

Rounding shares issued for reverse split

Common shares issued for services

Issuance of common shares, warrants, and pre-funded warrants, net of issuance costs

Exercises of pre-funded warrants

Exercises of warrants

Common shares issued to settle related party accounts payable

Preferred stock dividend

Stock option expense, net of forfeitures

Balances, October 31, 2024

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:

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, 2024

October 31, 2023

CASH 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

Stock warrant expense

Depreciation and amortization

of debt discount

Amortization of debt discount

Loss on extinguishment of debt

Bad debt expense

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Write-off of inventory

Changes in current assets and

Loss on settlement of payables

Changes in current assets and liabilities:

Accounts receivable

( 1,342,397 )

Other receivable - related party

Prepaid expenses

Inventory deposit - related party

Income tax receivable

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Customer refunds due

Right of use liabilities - operating

Operating lease obligations

Net cash used in operating activities

FLOWS FROM INVESTING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

Cash paid for equipment

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Net cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES

Proceeds from the exercise of

Settled RSU shares with cash

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from loans payable

Payments on loans payable

Net cash provided by financing

Payments on loans payable - related party

Proceeds from the issuance of common stock, warrants, and pre-funded warrants

Payments for issuance costs

Proceeds from exercises of pre-funded warrants

Proceeds from exercises of warrants

Net cash provided by financing activities

Net change in cash

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Ending cash balance

DISCLOSURES OF CASH FLOW INFORMATION:

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid

Income taxes paid

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

NON-CASH TRANSACTIONS

Preferred stock dividend

Cashless exercise of pre-funded warrants

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.

Franchise fees paid by related party

Common shares issued to settle related party accounts payable

Common shares issued for acquisition of intangible assets

Common shares issued for services-transaction cost

Series B preferred stock shares issued for acquisition of intangible assets

Stock warrants issued for acquisition of intangible assets

Common stock issued for note payable financing

The accompanying notes are an

integral part of these consolidated financial statements.

KAIVAL BRANDS INNOVATIONS GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization and Description of Business

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

Current Description of Business

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 ,

Description of Business

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”).

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

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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.

the Products consist primarily of the “Bidi Stick.”

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.

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

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a wholly owned affiliate of Philip Morris International Inc.

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

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

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

Product Offerings

Pursuant to the A&R Distribution Agreement, the

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any of the Products it resells.

The BIDI ® Stick is manufactured by Bidi.

Pursuant to the terms of the A&R Distribution

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

its marketing and promotion of the Products.

In January 2020, the World

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

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

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

The Company was indirectly

impacted by supply chain issues and regulatory oversight.

The Company believes that many retailers and distributers relaxed their compliance

standards as an indirect result of COVID-19 for two reasons:

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

social restrictions, resulting in less in-person monitor enforcement by government officials and (ii) retail stores experienced light

foot traffic from customers due to COVID-19 restrictions and fears, which resulted in relaxed compliance in an effort to generate additional

Impact of FDA PMTA Determinations and August 2022

11 th Circuit Decision

In September 2021, in connection with the PMTA process,

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

Following the issuance

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

The BIDI ® Stick is manufactured by Bidi, who uses a contract manufacturer in China.

to the terms of the A&R Distribution Agreement, Bidi provides the Company with all branding, logos, and marketing materials to be

utilized by the Company in connection with its marketing and promotion of the Products.

Impact of the FDA PMTA Decision and Subsequent

Court Actions

In September 2021, in connection with the Bidi’s

Premarket Tobacco Product Application (“PMTA”) process, the U.S.

Food and Drug Administration’s (“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

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BIDI® Sticks, including its Arctic (menthol) BIDI® Stick.

As a result, beginning in September 2021, Bidi challenged the MDO.

As a result, beginning in September 2021, Bidi pursued multiple avenues

to challenge the MDO.

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

§10.75 internal

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.

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

In May 2022, the FDA issued a determination that it views the Arctic BIDI® Stick as a non-tobacco flavored ENDS product, and

not strictly a menthol flavored product.

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

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

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

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

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

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

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

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

On October 14, 2021, Bidi requested that the FDA

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

the PMTAs to proceed to scientific review.

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

PMTAs for its non-tobacco flavored BIDI® Stick ENDS, arguing that it was arbitrary and capricious under the Administrative Procedure

Act (“APA”), as well as ultra vires, for the FDA not to conduct any scientific review of Bidi’s comprehensive applications,

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

of the public health”.

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

FDA’s new requirement for ENDS companies to conduct long-term comparative smoking cessation studies for their flavored products,

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

On October 14, 2021, Bidi requested that the FDA re-review

the MDO and reconsider its position that Bidi did not include certain scientific data in its applications sufficient to allow the PMTAs

to proceed to scientific review.

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

§ 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

motion to stay the MDO with the 11th Circuit.

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

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

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

§ 10.35(a), the FDA issued

an administrative stay of Bidi’s MDO pending its re-review, permitting the Company to continue sales.

Subsequently, the FDA decided

not to rescind the MDO and lifted its administrative stay on December 17, 2021.

Following the lifting of the FDA’s administrative

stay, Bidi filed a renewed motion to stay the MDO with the 11 th Circuit.

On February 1, 2022, the appellate court granted Bidi’s

motion to stay (i.e., put on hold) the MDO, again allowing the Company to continue sales pending the litigation on the merits.

Oral arguments

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

On August 23, 2022, the U.S.

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.

The Agency had until October 7, 2022 (45 days from the August 23, 2022 decision) to either request a panel rehearing or a rehearing “en

the Eleventh Circuit set aside the MDO issued to the non-tobacco flavored BIDI® Sticks and remanded Bidi’s 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 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 FDA did not appeal to the 11 th Circuit’s decision.

FDA had until October 7, 2022 (45 days from the August 23, 2022, decision) to either request a panel rehearing or a rehearing “en

banc” (a review by the entire 11 th Circuit, not just the 3-judge panel that issued the decision), and until November

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and no petition for a writ of certiorari was made to the Supreme Court.

In the meantime, the Company anticipates continued

ability to market and sell the non-tobacco flavored BIDI® Sticks, subject to the FDA’s enforcement discretion, for the duration

of the PMTA scientific review.

Separately, on or about

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

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.

On July 29, 2024, Bidi received a Recission of Marketing Denial

letter from FDA formally rescinding the MDO for the non-tobacco flavored BIDI® Stick PMTAs and putting those applications back into

the review process.

The Company is able 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.

On February 2, 2024, Bidi filed a Time Sensitive Motion for a Stay Pending Review, which the court

denied on February 18, 2024.

The case is now proceeding on the merits, with Bidi’s opening merits brief filed on April 15, 2024.

FDA filed its response brief on June 7, 2024, and Bidi filed its reply brief on July 29, 2024.

The 11 th Circuit has indicated

that the oral argument will be held in April 2025.

The Company cannot provide any assurance as to the timing or outcome.

Unless the MDO

is ultimately remanded by the 11 th Circuit, the Classic BIDI® Stick is considered an adulterated tobacco product, the continued

marketing and distribution of which is prohibited.

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.

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

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

The Company anticipates FDA will move forward with a

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

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

The FDA has indicated

that it is prioritizing enforcement of unauthorized ENDS against companies (1) that never submitted PMTAs, (2) whose PMTAs have been

refused acceptance or filing by the FDA, (3) whose PMTAs remain subject to MDOs, and (4) that are continuing to market unauthorized synthetic

nicotine products after the July 13, 2022, cutoff.

Subject to FDA’s enforcement discretion, until the scientific review process

is complete on each of Bidi’s PMTA’s, the Company views the risk of FDA enforcement against Bidi as low and is no longer

marketing the Classic BIDI® Stick per the MDO.

The Company anticipates FDA will move forward with a review of Bidi’s PMTA

on remand, as directed by the Court;

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

Merger and Share Exchange Agreement

On September 23, 2024,

we agreed with Delta Delta Corp Holdings Limited, a company incorporated in England and Wales (“Delta”) to effect a business

combination between us and Delta by entering into

a Merger and Share Exchange Agreement (the “Merger Agreement”) among us, Delta, Delta Corp Holdings Limited, a Cayman Islands

exempted company (“Pubco”), KAVL Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Pubco (“Merger

Sub”), and the shareholders of Delta.

Pursuant to the Merger Agreement, we

will effect a merger and share exchange involving the following transactions:

shall acquire all of the issued and outstanding shares of Delta from each holder of Delta shares in exchange for the issuance by

Pubco of ordinary shares in the capital of Pubco (the “Share Exchange”);

following to the completion of the Share Exchange, Merger Sub shall merge with and into us (the “Merger”), with us continuing

as the surviving entity in the Merger.;

Upon consummation of the transactions contemplated by the

Merger Agreement, including the Share Exchange and the Merger, each of us and Delta will become wholly owned subsidiaries of Pubco.

Note 2 – Basis of Presentation and Significant

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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.

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

Intercompany transactions are eliminated.

Basis of Presentation

16 unchanged sentences

31, 2024, and October 31, 2023.

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 Federal Deposit Insurance Corporation (“FDIC”)

insures deposits according to the ownership category in which the funds are insured and how the accounts are titled.

The standard deposit

insurance coverage limit is $ 250,000 per depositor, per FDIC-insured bank, per ownership category.

The Company had uninsured cash of $ 3,652,300

and $ 2,912,793

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

and $ 252,586 as of October 31, 2024, and October 31, 2023, respectively.

Advertising and Promotion

All advertising, promotion and marketing expenses, including commissions,

are expensed when incurred.

Accounts Receivable and Allowance for Doubtful Accounts

Receivables are stated at cost, net of an allowance

for doubtful accounts.

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

of accounts receivable.

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

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

The Company makes

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

the level of credit losses in the future.

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

to make payments, a larger allowance may be required.

As of October 31, 2023, based upon management’s assessment of the accounts

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

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

All advertising, promotion and marketing expenses,

including commissions, are expensed when incurred.

Accounts Receivable and Reserve for Credit Losses

Accounts receivable pertain to contracts with customers

who are granted credit by the Company in the ordinary course of business and are recorded at the invoiced amount.

Accounts receivable

does not bear interest.

Accounts receivable presented on the consolidated balance sheet are adjusted for any write-offs and net of allowance

for credit losses.

The Company’s reserve for credit losses is developed by using relevant available information including historical

collection and loss experience, current economic conditions, prevailing economic conditions, supportable forecasted economic conditions

and evaluations of customer balances.

Once a receivable is deemed uncollectible after collection efforts have been exhausted, it is written

off against the reserve for credit losses.

The Company closely monitors the credit quality of its customers and does not generally require

collateral or other security on receivables.

The reserve for credit losses is measured on a collective basis when similar risk characteristics

upon management’s assessment of the accounts receivable aging and the customers’ payment history, the Company has determined

that no reserve for credit losses is required as of October 31, 2024 and October 31, 2023.

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.

Vapor’s “Classic” BIDI ® Stick PMTA, which Bidi is currently appealing before the 11 th Circuit Court

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 $ 46,775 and $ 113,243 as of October 31, 2024, and October 31, 2023, respectively,

which is included in accrued expenses in the consolidated balance sheets.

Financial instruments, which are potentially subject

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

Company performs periodic credit evaluations of its customers and generally does not require collateral on trade receivables.

Historically,

the Company has not experienced significant credit losses.

All product inventory is purchased from a related

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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

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

During fiscal year 2024 and 2023, the Company recognized inventory write

offs of $ 61,927 and $ 105,057 , respectively, related to short-coded Bidi sticks that were no longer saleable.

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.

Vapor’s “Classic” BIDI ® Stick PMTA, which Bidi is currently appealing before the 11 th Circuit Court

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 $ 313,654 and $ 381,512 as of October 31, 2024, and October 31, 2023, respectively.

The Company determines if a contract contains a lease

at commencement of the arrangement based on whether it has the right to obtain substantially all of the economic benefits from the use

of an identified asset and whether it has the right to direct the use of an identified asset in exchange for consideration, which relates

to an asset which the Company does not own.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying

asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

The Company recognizes lease liabilities at the present value of the future lease payments and a corresponding ROU asset at the lease

commencement date.

The interest rate used to determine the present value of the future lease payments is the rate implicit in the lease

unless that rate cannot be readily determined.

When the interest rate implicit in the lease is not readily determinable, the interest

rate used to determine the present value of the future lease payments is the Company’s Incremental Borrowing Rate (“IBR”).

The IBR is a hypothetical rate based on the Company’s understanding of what its credit rating would be to borrow and resulting interest

the Company would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized

Periods covered by the Company’s option to extend or terminate the lease are included in the lease term when it is reasonably

certain that the Company will exercise its option to extend or not exercise its option to terminate, as applicable.

Lease payments may be fixed or variable;

only fixed payments or in-substance fixed payments are included in the Company’s lease liability calculation.

Variable lease payments

may include costs such as common area maintenance, utilities, real estate taxes or other costs.

Variable lease payments are recognized

in operating expenses in the period in which the obligations for those payments are incurred.

The Company records rent expense for its

operating lease, which has escalating rent payments, on a straight-line basis over the lease term.

The Company does not have any financing

The Company made a policy election not to separate

non-lease components from lease components for all its leases;

therefore, it accounts for lease and non-lease components as a single lease

The Company also elected the short-term lease recognition exemption for all leases that qualify, such that leases with a term

of 12 months or less are not recognized on the balance sheet.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, which include

definite-lived intangibles, long-lived fixed assets and lease right-of-use assets, for impairment whenever events or changes in circumstances

indicate the carrying amount of an asset may not be recoverable.

Factors that could trigger an impairment review include significant under-performance

relative to expected historical or projected future operating results, significant changes in the manner of the Company’s use of

the acquired assets or the strategy for the Company’s overall business or significant negative industry or economic trends.

evaluation indicates that the value of the long-lived asset may be impaired, the Company makes an assessment of the recoverability of

the net carrying value of the asset over its remaining useful life.

If this assessment indicates that the long-lived asset is not recoverable,

based on the estimated undiscounted future cash flows of the technology over the remaining useful life, the Company reduces the net carrying

value of the related asset to fair value and may adjust the remaining useful life.

An impairment analysis is subjective and assumptions

regarding future growth rates and operating expense levels can have a significant impact on the expected future cash flows and impairment

No impairment of long-lived assets was identified for the years ended October 31, 2024

and 2023, respectively.

Revenue Recognition

The Company adopted ASC 606, Revenue from

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

quarter that the Company generated revenues.

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

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

To determine revenue

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

(1) identify the contracts with

The Company recognizes revenue in accordance with

ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).

The Company recognizes revenue when a customer

obtains control of promised goods, in an amount that reflects the consideration that the Company expects to receive in exchange for the

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

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.

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

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

Under ASC 606, disaggregated revenue from contracts with customers depicts

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

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

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

a performance obligation.

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

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

Under ASC 606, disaggregated revenue from contracts

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

Deferred Revenue

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As of October 31, 2024, and October 31,

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.

2023, the Company has no amounts in deposits from customers.

Customer Refunds

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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.

As of October 31, 2024, and October 31, 2023, the Company had zero 0 and $ 392,406 refunds due to various customers, respectively.

Products Revenue

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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

of loss transfer to the customer.

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

as part of cost of sales.

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

of each credit sale routinely.

However, when the Company enters a consignment agreement with a new customer, once it ships and delivers

the requested amount of ordered Products to its distribution center for its retail sales locations, the Company retains ownership of the

delivered Products until they are delivered to the actual retail stores (as opposed to the Company’s consignment customer).

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

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

Revenue is measured by the transaction price, which

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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

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.

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.

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.

The PMI License Agreement contains customary representations,

44 unchanged sentences

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.

Net Reconciliation Payment to

As a result of the changes to the PMI License Agreement described in paragraphs 1 through 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, 2024, the Company paid license fees of

approximately $ 220,000 to Bidi.

As of October 31, 2024 and 2023, $ 131,683

respectively, of license fees are owed to Bidi.

As of October 31, 2024, amounts receivable from PMPSA

in connection with the PMI license agreement pertaining to royalties totaled $ 263,367 .

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.

Net Loss Per Share

Basic net loss per share

is computed by dividing net 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 loss per share

is calculated by dividing net 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 if-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.

of October 31, 2024, and 2023, there were 5,944,276 and 691,654 , respectively, units of common stock equivalents that consists of options

and warrants units, as well as 357,120 shares issuable upon preferred stock conversions, that were excluded from the current and prior

period diluted loss per share calculation as their effect is anti-dilutive.

Concentration of Revenues and Accounts Receivable

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.

For the year then ended October 31, 2024, (i) 21%

or $ 1,236,491 of the revenue from the sale of Products, solely consisting of the BIDI® Stick, was generated from QuikTrip Corporation,

(ii) 12% or $ 678,562 was generated from GPM Investments, LLC, and (iii) 11% or $ 655,583 was generated from FAVS Business, LLC.

2, 2024, QuikTrip Corporation terminated its consignment arrangement with the Company.

For the year then ended October 31, 2023, (i) 16%

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) 15% or $ 1,842,511 was generated from H.T.

Hackney Co, (iii) 15% or $ 1,817,310 was generated from FAVS Business, LLC, (iv) 14%

or $ 1,759,563 was generated from C Store Master, and (v) approximately 12% or $ 1,501,439 was generated from QuikTrip Corporation.

QuikTrip Corporation with an outstanding balance of

$ 205 accounted for 100 % of the total accounts receivable from customers as of October 31, 2024.

FAVS Business LLC with an outstanding balance of $ 302,400 ,

$ 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 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.

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.

Share-Based Compensation

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 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.

The fair value of each option granted during the years

then ended October 31, 2024, and October 31, 2023, was estimated on the date of grant using the Black-Scholes-Merton option-pricing model

with the weighted average assumptions in the following table:

Schedule of weighted average assumptions

As of October

Expected dividend yield

Expected option term (years)

Expected volatility

214.72 - 225.52

270.98 – 286.91

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 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 expected volatility was based on the volatility in the trading

of the Company’s common stock.

The risk-free interest rate used is based on the published U.S.

Department of Treasury interest rates

in effect at the time of stock option grant for zero coupon U.S.

Treasury notes with maturities approximating each grant’s expected

Forfeitures and cancellations are recorded as they occur.

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.

carryforwards, consisting of total deferred tax assets, totaling approximately $ 29.8 million and state NOL carryforwards, consisting of

total deferred tax liabilities, totaling approximately $ 0.3 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 2021, 2022, and 2023 tax years generally

remain subject to examination by U.S.

and various state authorities.

A valuation allowance is recorded to reduce the deferred

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

not be realized.

After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance

of $ 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.

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 $ 8,703,742

for the year ended on October 31, 2024, and a valuation allowance of $ 7,319,289 for the year ended on October 31, 2023 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

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

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.

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

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, 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

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

Fair value estimates discussed herein are based

upon certain market assumptions and pertinent information available to management as of October 31, 2024 and 2023.

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, accounts receivable, accounts payable, accrued expenses and

loans payable .

As of October 31, 2024, and 2023, the Company did not have any financial assets or liabilities measured

and recorded at fair value on a recurring basis.

Recent Accounting Pronouncements – Not

In December 2023, the Financial Accounting Standards

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

2023-09, Income Taxes (Topic 740) - Improvements

to Income Tax Disclosures (“ASU 2023-09”).

ASU 2023-09 requires additional disclosures reconciling the rates of different

categories of income tax (i.e.

federal, state, foreign, etc.) and a disaggregation of taxes paid and refunded.

ASU 2023-09 is effective

for fiscal years beginning after December 15, 2024, and for interim periods in fiscal years beginning after December 15, 2025, although

early adoption is permitted.

The Company is currently evaluating the impact of adopting this standard on its income tax disclosures.

In November 2023, the FASB issued ASU 2023-07, “Segment

Reporting (Topic 280):

Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure

requirements, primarily through enhanced disclosures about significant segment expenses.

The purpose of the amendment is to enable investors

to better understand an entity’s overall performance and assess potential future cash flows.

The guidance is effective for fiscal

years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption

The guidance is to be applied retrospectively to all prior periods presented in the financial statements.

The Company is continuing

to evaluate the impact of adopting this new guidance but does not expect it to have a material impact on the Company’s financial

Note 3 – Going Concern

The accompanying financial statements

The accompanying consolidated financial statements

of the Company are prepared in accordance with U.S.

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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), 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 accordance with FASB, ASU No.

2014-15, Presentation of Financial Statements – 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 consolidated financial

statements are issued.

Company has incurred recurring losses and negative cash flows from operations for the years ended October 31, 2024 and 2023.

will need significant additional funds to satisfy its

outstanding payables, fund its working capital, and fully implement its business plan.

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.

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

Stick as well as the uncertainty in the Company’s ability to continue to sell the Bidi Stick given the patent infringement claim

filed by RJ Reynolds.

Our management plans

to continue developing strategies on similar or expanded

operations of our business to help our ability to determine where our business will be viable going forward.

such time, if ever, we can generate substantial product revenues, management plans to finance our cash needs through public or private

equity offerings or debt financing.

there is no assurance that the Company will be able to raise additional capital, generate revenues or 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

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

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”

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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)

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”).

Prior to the earlier

(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

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(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):

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.

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 an 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.

Series B Preferred Stock

Common Stock Warrants

Transaction Costs

Total 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.

Note 5 – Intangible Assets

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 $ 1,114,064 as of October 31, 2024, respectively and $ 11,795,975 and $ 327,666 as 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 13.7 years and 14.6

years as of October 31, 2024 and October 31, 2023, respectively.

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:

$ 786,398 and $ 327,666 for the years then ended October 31, 2024 and 2023, respectively.

Amortization expense is included under general

and administrative expenses in the consolidated statements of operations.

Future amortization expense of intangible assets is as follows:

Schedule of future amortization expense of intangible assets

Year ending October

Year ending October 31, 2026

Year ending October 31, 2027

Year ending October 31, 2028

Year ending October 31, 2029

Note 6 – Loans Payable

On May 9, 2023, the Company entered into two

Insurance Loans

On May 10, 2024, the Company obtained two insurance

The first loan is a nine-month loan from First Insurance Bank to finance the annual D&O insurance, with the principal amount

of $ 381,077 and subject to an effective interest rate of 7.45 % .

The second loan is a nine-month loan from IPFS Corporation to finance

the annual D&O insurance, with the principal amount of $ 94,404 and subject to an effective interest rate of 11.15 % .

As of October

31, 2024, the outstanding balance of the Insurance loans amounted to $ 207,616 .

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, 2024, and October 31, 2023, the remaining balance was zero 0 and

respectively.

Loan Agreements

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.

These loans were fully paid on December 4, 2023, upon their maturity.

On November 29, 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

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.

These loans were fully paid on June 13, 2024, upon their maturity.

The following table shows the loan agreements as of

October 31, 2024:

Schedule of loan agreements

Inception Date

Purchase Price

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 .

Payment frequency

Deferred Finance Fees

November 29, 2023

The following table shows the loan agreements as of

October 31, 2023:

Inception Date

Purchase Price

Purchased Amount

Outstanding Balance

Payment frequency

Deferred Finance Fees

The Company has accounted for these agreements as

loans under ASC 860 because while the Company provided rights to current and future receipts, the Company 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.

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.

Pursuant 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.

discount and issuance costs are amortized over the term of the note.

Amortization expense amounted to $ 38,273 and $ 122,273 for

the years ended October 31, 2024 and October 31, 2023, respectively.

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.

On December 1, 2023, the Company fully paid the loan

balance in advance of the maturity date.

In connection with the repayment of the Note, the Company agreed that AJB would be permitted

to retain all of the Commitment Fee Shares.

The Company recognized $ 98,432 as loss on extinguishment of debt for the year then ended October

As of October 31, 2024 and October 31, 2023 the carrying value of the loan and unamortized debt discount and issuance costs

were 0 zero and zero and $ 513,295 and 136,705 , respectively.

Note 7 – Leases

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

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

as of October 31, 2023.

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

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

to exercise the option.

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.

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

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

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

This lease was terminated in April 2022.

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

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

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

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.

The Company does not have financing leases and only

one operating lease for office space and inventory storage space with Just Pick, LLC (“Just Pick”), a related party that was

owned and controlled by Nirajkumar Patel, the former Chief Executive Officer and Director of the Company (see Note 9).

Certain of the

Company’s leases, have and may in the future, include renewal options, which have been and might be in the future, included in the

calculation of the lease liabilities and right of use assets when the Company is reasonably certain to exercise the option.

Cash flow information related to leases was as follows:

Schedule of cash flow information related to leases

Lease Information

paid for amounts included in the measurement of lease liabilities:

cash flows from operating leases

The following table summarizes the lease-related

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

Schedule of condensed balance sheet

lease right-of-use assets

of use liability operating lease, current portion

of use liability operating lease, long term

operating lease liabilities

The following table provides the future minimum operating

lease payments as of October 31, 2023:

Schedule of lessee operating lease liability maturity

minimum operating lease liabilities on October 31, 2023

and thereafter

future undiscounted lease payments

October 31, 2024

October 31, 2023

Other Lease Information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

The following table provides the maturities of lease liabilities as of

October 31, 2024:

Schedule of maturities of lease liabilities

Year ending October 31, 2025

Year ending October 31, 2026

Year ending October 31, 2027

Year ending October 31, 2028

Total future undiscounted lease payments

Imputed interest

value of lease liabilities

Present value of lease liabilities

As of October 31, 2024, the Company had no additional

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Note 8 – Stockholders’ Equity

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 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

On May 30, 2023, 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 except:

(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

3 unchanged sentences

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).

payable in respect of the Series B Dividend shall begin to accrue on a daily basis, be cumulative from and including the Original Issue

Date, whether or not the Corporation has funds legally available for such dividends or such dividends are declared, shall compound on

each six month anniversary of the Original Issue Date and shall be payable in arrears on the 18-month anniversary of the Original Issue

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 shares of Series B Preferred Stock on each of 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).

As of October 31, 2024, the Company had accrued a dividend

of $ 382,500 payable to Series B shareholders.

Reverse Stock Split

On January 22, 2024, the Company filed a

Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the

State of Delaware to affect a 1-for-21

reverse stock split (the “2024 Reverse Stock Split”) of the shares of the Common Stock.

Reverse Stock Split was effective on January 25, 2024, on the Nasdaq Stock Market.

No fractional shares were issued in connection

with the 2024 Reverse Stock Split.

Any fractional shares of the Company’s Common Stock that would have otherwise resulted from

the 2024 Reverse Stock Split were rounded up to the nearest whole number.

In connection with the 2024 Reverse Stock Split, the Board

approved appropriate and proportional adjustments to all outstanding securities or other rights convertible or exercisable into

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

All historical share and per-share amounts reflected throughout these accompanying consolidated

financial statements have

been retroactively adjusted to reflect the 2024 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 2024 Reverse Stock Split .