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Item 1A. Risk Factors

2026-01-29 compared with 2025-02-10 · 196 added, 543 removed, 408 unchanged (64% of the section changed)

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in our company is speculative and subject to significant risks.

We caution you that the following important factors, among

others, could cause our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf

in filings with the SEC, press releases, communications with investors and oral statements.

Any or all of our forward-looking statements

contained in this Report and in any other public statements we make may turn out to be wrong.

They can be affected by inaccurate assumptions

we might make or by known or unknown risks and uncertainties.

We caution you that the following important factors, among others, could

cause our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf in filings

with the SEC, press releases, communications with investors and oral statements.

Any or all of our forward-looking statements contained

in this Report and in any other public statements we make may turn out to be wrong.

They can be affected by inaccurate assumptions we

might make or by known or unknown risks and uncertainties.

Many factors mentioned in the discussion below will be important in determining

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You are advised, however, to consult any further disclosure we make in our reports filed with the SEC.

Risks Related to the Business Combination

Completion of the Business Combination

is subject to a number of conditions and if these conditions are not satisfied or waived, such transactions will not be completed.

Kaival’s obligation

and the obligation of Delta to complete the Business Combination are subject to satisfaction or waiver of a number of conditions, including,

among others:

of the Business Combination by Kaival’s stockholders;

of injunctions or certain legal impediments;

for the listing on NASDAQ of Pubco’s ordinary shares to be issued in the Business Combination;

of the representations and warranties of each of the parties, subject to certain materiality thresholds.

There can be no assurance

that the conditions to closing set forth in the Merger Agreement will be satisfied or waived or that the Business Combination itself will

be completed.

Failure to complete the Business Combination

could negatively impact Kaival’s stock price, future business or operations.

If the Business Combination

is not completed, Kaival may be subject to a number of material risks, including the following:

may be required under certain circumstances to pay Delta a termination fee;

price of Kaival’s common stock may decline to the extent that the relevant current market price reflects a market assumption that

the Business Combination will be completed;

related to the Business Combination, such as legal, accounting, certain financial advisory and financial printing fees, must be paid even

if the Business Combination is not completed.

Further, if the Business Combination

is terminated and either company’s board of directors determines to seek another merger or business combination, there can be no

assurance that it will be able to find a partner on terms as attractive as those provided for in the Merger Agreement.

In addition, while

the Merger Agreement is in effect and subject to very narrowly defined exceptions, Kaival is prohibited from soliciting, initiating or

encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination, other

than with Delta.

The exercise of Kaival’s boards

of directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result

in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are

appropriate and in Kaival’s shareholders’ best interests.

In the period leading up to

the closing of the Business Combination, events may occur that, pursuant to the Merger Agreement, would require Kaival and/or Delta to

agree to amend the Merger Agreement, to consent to certain actions taken by Delta or Kaival, as applicable, or to waive rights that Kaival

or Delta is entitled to under the Merger Agreement.

Such events could arise because of changes in the course of Kaival’s or Delta’s

business, a request by Kaival or Delta to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement or

the occurrence of other events that would have a material adverse effect on Kaival’s or Delta’s business.

In any of such circumstances,

it would be at Kaival’s or Delta’s discretion, acting through their respective board of directors, to grant consent or waive

those rights.

The existence of the financial and personal interests of the directors of Kaival described in the preceding risk factors

may result in a conflict of interest on the part of one or more of the directors between what they may believe is best for Kaival and

its stockholders and what he or they may believe is best for themselves in determining whether or not to take the requested action.

The Company will incur

significant transaction and transition costs in connection with the Business Combination.

The Company has incurred and expect to incur significant,

non-recurring costs in connection with consummating the Business Combination, including legal, accounting, consulting, investment banking

and other fees, expenses and costs.

In addition, PubCo will incur significant costs operating as a public company following the consummation

of the Business Combination and may also incur additional costs to retain key employees.

Generally, transaction expenses incurred in connection

with the Business Combination will be paid by the party incurring those expenses, and many of those expenses might not be paid until after

Accordingly, these expenses could result in Holdings having less money following the Closing to spend on other aspects of

its business, particularly if the actual expenses turn out to be higher than anticipated.

Legal proceedings in

connection with the Business Combination, the outcomes of which are uncertain, could delay or prevent the completion of the business combination.

In connection with business combination transactions

like the proposed Business Combination, it is not uncommon for lawsuits to be filed against the parties and/or their respective directors

and officers alleging, among other things, that the proxy statement/prospectus provided to shareholders contains false and misleading

statements and/or omits material information concerning the transaction.

Although no such lawsuits have yet been filed in connection with

the Business Combination, it is possible that such actions may arise and, if they do arise, to seek, among other things, injunctive relief

and an award of attorneys’ fees and expenses.

Defending such lawsuits could require us and Delta to incur significant costs and

draw the attention of our and Delta’s management teams away from the consummation of the Business Combination and the management

of their respective businesses.

Further, the defense or settlement of any lawsuit or claim that remains unresolved at the time the Business

Combination is consummated may adversely affect Pubco’s business, financial condition, results of operations and cash flows.

legal proceedings could delay or prevent the Business Combination from being consummated within the expected timeframe.

After the Business

Combination, Pubco may be exposed to unknown or contingent liabilities and may be required to take write-downs or write-offs, restructuring

and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and share

It is possible that the due diligence conducted in

relation to Kaival and Delta and their respective businesses has not identified all material issues or risks associated with Kaival and

Delta or the industries in which they compete.

Furthermore, factors outside of the parties’

control could arise later.

As a result of these factors, Pubco may be exposed to liabilities and incur additional costs and expenses and

be forced to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in losses.

Even if the due diligence has identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner

not consistent with the parties’ preliminary risk analysis.

If any of these risks materialize, this could have a material adverse

effect on the Pubco’s financial condition and results of operations and could contribute to negative market perceptions about Pubco’s

Due to potential fluctuations

in the market value of Pubco Ordinary Shares, Kaival stockholders cannot be sure of the market value of the consideration that they will

receive in the Business Combination.

The current shareholders of Delta (the “Delta

Shareholders”) and the Kaival stockholders are expected to own, immediately following consummation of the Business Combination,

approximately 90% (inclusive of shares to be distributed to advisors) and 10% of Holdings, respectively.

Prior to the Closing, there has not been and will

not be an established public trading market for Pubco Ordinary Shares.

The market value of Pubco Ordinary Shares will reflect the combination

of Kaival and Delta under the terms of the Business Combination.

Further, the merger consideration to be received by Kaival stockholders

will not be adjusted to reflect any changes in the number of shares of Kaival common stock outstanding, the market value of Kaival common

stock or currency exchange rates.

Changes in the price of our common stock may result

from a variety of factors, including, among others, changes in our business, operations or prospects, regulatory considerations, governmental

actions, legal proceedings and general business, market, industry, political or economic conditions.

Many of these factors are beyond

As a result, the aggregate market value of the Pubco Ordinary Shares that a Kaival stockholder is entitled to receive at

the Closing could vary significantly from the value of the equivalent shares of our common stock on the date of the Merger Agreement,

the date of this report or at other times, and Kaival stockholders will neither know nor be able to calculate the value of the merger

consideration they would receive upon the Closing.

Kaival stockholders are urged to obtain current market quotations for our common stock.

Termination of the

Merger Agreement could negatively impact Kaival.

If the Business Combination is not completed for any

reason, including as a result of Kaival stockholders declining to adopt the Merger Agreement or declining to approve the proposals required

to effect the Business Combination, the ongoing business of Kaival may be adversely impacted and, without realizing any of the anticipated

benefits of completing the Business Combination, Kaival would be subject to a number of risks, including the following:

may experience negative reactions from the financial markets, including negative impacts on our stock price (including to the extent

that the current market price reflects a market assumption that the Business Combination will be completed);

will have incurred substantial expenses and will be required to pay certain costs relating to the Business Combination, whether or

not the Business Combination is completed;

the Merger Agreement restricts the conduct of our business prior to completion of the Business Combination, we may not have been

able to take certain actions during the pendency of the Business Combination that would have benefitted it as an independent company,

and the opportunity to take such actions may no longer be available.

Risks Related to Our Business and Industry

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have been filed with the International Trade Commission are successful, the Company and Bidi could be prohibited from importing and selling

the Bidi Stick in to the United States.

On June 11, 2024, RAI Strategic Holdings, Inc., R.J.

Reynolds Vapor Company,

Reynolds Tobacco Company, and RAI Services Company (collectively, the “RJ Reynolds Entities”) filed a patent infringement

complaint with the International Trade Commission (the “ITC”) against Bidi, us, and forty (40) other respondents (the “ITC

Complaint”) pursuant to Section 337 of the Tariff Act of 1930, as amended.

Specifically, the ITC Complaint alleges that one or more

components or elements of the Bidi Stick infringe U.S.

11,925,202, which is owned by one of the RJ Reynolds Entities.

Complaint requests the ITC grant:

(a) temporary and permanent limited exclusion orders pursuant to Section 337(e) of the Tariff Act of

1930, as amended, which would prohibit the importation of the Bidi Stick in the United States;

and (b) issue temporary and permanent cease

and desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended, which would prohibit the sale and distribution of the Bidi

Stick in the United States.

On July 17, 2024, the Company was dismissed from the ITC proceeding and is no longer a defendant in the ITC

the Bidi Stick into the United States.

On June 11, 2024, RAI Strategic

Holdings, Inc., R.J.

Reynolds Vapor Company, R.J.

Reynolds Tobacco Company, and RAI Services Company (collectively, the “RJ Reynolds

Entities”) filed a patent infringement complaint with the International Trade Commission (the “ITC”) against Bidi, us,

and forty (40) other respondents (the “ITC Complaint”) pursuant to Section 337 of the Tariff Act of 1930, as amended.

Specifically,

the ITC Complaint alleges that one or more components or elements of the Bidi Stick infringe U.S.

11,925,202, which is owned

by one of the RJ Reynolds Entities.

The ITC Complaint requests the ITC grant:

(a) temporary and permanent limited exclusion orders pursuant

to Section 337(e) of the Tariff Act of 1930, as amended, which would prohibit the importation of the Bidi Stick in the United States;

and (b) issue temporary and permanent cease and desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended, which would prohibit

the sale and distribution of the Bidi Stick in the United States.

On July 17, 2024, the Company was dismissed from the ITC proceeding

and is no longer a defendant in the ITC proceeding.

No damages are recoverable in the proceedings before the ITC.

On November 1, 2024, Bidi stipulated to a consent order

prohibiting Bidi from selling for import, importing, or selling after importation the Bidi Stick.

The ITC entered the consent order

on December 6, 2024.

On November 1,

2024, Bidi stipulated to a consent order prohibiting Bidi from selling for import, importing, or selling after importation the Bidi Stick.

The ITC entered the consent order on December 6, 2024,

agreeing to cease all importation and distribution

of the Bidi Stick until the RJ Reynolds Entities’ patent expires in October 2026.

In November 2024, the ITC Administrative Law Judge

(ALJ) denied temporary relief to the Reynolds Entities and the case proceeded on the merits.

A trial was held in April 2025.

determination (ID) from the ALJ was issued on August 29, 2025.

The ALJ found that violation of §337 based on infringement of U.S.

11,925,202 by the respondents, and that both the technical and economic prongs of domestic industry were satisfied.

will now be reviewed by the Commission for final approval, with respondents and complainants expected to file additional briefs.

The Commission

target deadline was November 24, 2025 , subject to potential extensions.

The asserted patent expires in October 2026 as

would any exclusion order that the ITC enters as a result of the ITC Complaint, as well as the Bidi consent order.

Our Business may permanently

suffer as a result of the ITC Complaint

As a result of the ITC Complaint, Bidi no longer imports the Bidi Stick and

we do not expect that we will have access to the Bidi Stick in the foreseeable future.

Since we have been unable to sell the Bidi Stick

our revenues have declined.

We may not ever be able to increase our revenues to the levels they were at when we were able to sell Bidi

Sticks, as a result our business may not financially recover in the near term.

As a result of the ITC Complaint,

Bidi no longer imports the Bidi Stick and we do not expect that we will have access to the Bidi Stick in the foreseeable future.

we have been unable to sell the Bidi Stick our revenues have declined.

We may not ever be able to increase our revenues to the levels

they were at when we were able to sell Bidi Sticks, as a result our business may not financially recover in the near term.

We have a present need

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had cash and cash equivalents of approximately $0.5 million.

We believe that based on our current operating plan, our existing cash

and cash equivalents will only be sufficient to enable us to fund our operations and other obligations for a very limited period.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

We believe that based on our current operating plan, our existing cash and

cash equivalents will only be sufficient to enable us to fund our operations and other obligations for a very limited period.

See “Management’s

Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Moreover, we will need significant

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In addition, our ability to continue as a going concern is adversely

affected by the uncertainty surrounding Bidi’s PMTA process with FDA and outcome of Bidi petition with the 11th Circuit Court of

Appeals regarding the FDA’s January 2024 MDO relating to Classic Bidi ® Stick as well as our negative cash flows from

operations, significant recurring losses and present need for additional funding.

affected by the denial of Bidi’s PMTA for its flavored Bidi Sticks and the 11 th Circuit’s denial of Bidi’s

petition challenging the FDA’s January 2024 MDO relating to Classic Bidi ® Stick, as well as our negative cash flows

from operations, significant recurring losses and present need for additional funding.

All of these factors raise substantial doubt regarding

our ability to continue as a going concern.

There is therefore a material risk that we will be unable to generate sufficient

revenues to pay our expenses, and if our existing sources of cash and cash flows are insufficient to fund our activities, we will need

to raise additional funds.

Additional equity or debt financing may not be available on acceptable terms, if at all, particularly in the

current economic environment.

There is therefore a material

risk that we will be unable to generate sufficient revenues to pay our expenses, and if our existing sources of cash and cash flows are

insufficient to fund our activities, we will need to raise additional funds.

Additional equity or debt financing may not be available

on acceptable terms, if at all, particularly in the current economic environment.

Until such time, if ever,

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of their investment in our securities.

The terms of our agreements with Bidi, including

our A&R Distribution Agreement, may not always be as favorable to us as the terms that may be obtained by arms’ length negotiation.

We currently are, and we anticipate that we will continue

to be, substantially dependent on our relationships with our affiliated entities, including Bidi.

We believe that our current arrangement

with Bidi provides our business with stability and transparency.

Although we believe that the terms of the A&R Distribution Agreement

are as favorable to us as what we could have obtained in an arm’s length transaction, there can be no assurance that this arrangement

or any future agreements that we enter with Bidi, or any other affiliated entity, will be as favorable to us as we may be able to negotiate

with unaffiliated parties.

We rely primarily on Bidi for access to our

key intellectual property rights, and any change in our relationship could adversely alter such rights or our access to them.

We currently have no intellectual property rights

other than the intellectual property assets we acquired in May 2023 from GoFire and our trademarks KAIVAL BRANDS and KAIVAL LABS.

on the intellectual property rights, including logos, trademarks, and trade names, of Bidi that were granted to us pursuant to the A&R

Distribution Agreement to be used in connection with the marketing, advertisement, and sale of the Bidi products.

We also indirectly rely

on Bidi’s intellectual property rights related to the Bidi products, such as patents.

We have from time to time considered, and

discussed with Bidi, potential alterations to this arrangement, including a potential acquisition by us of all or a portion of the intellectual

property owned by Bidi and related to Bidi products.

Should we pursue such a transaction, it would be a “related party transaction,”

as defined by the listing rules of Nasdaq and, thus, subject to the review of the Audit Committee of our Board (or, if deemed appropriate,

a special Board committee comprised of disinterested directors).

Further, should we undertake such a transaction, then we would become

responsible to respond if a third-party challenged Bidi’s patents, or infringed upon such rights, in which case our business could

be materially adversely affected.

We currently have no intellectual property

rights other than the intellectual property assets we acquired in May 2023 from GoFire and our trademarks KAIVAL BRANDS and KAIVAL

We also indirectly rely on Bidi’s intellectual property rights related to the Bidi products, such as patents.

from time to time considered, and discussed with Bidi, potential alterations to this arrangement, including a potential acquisition

by us of all or a portion of the intellectual property owned by Bidi and related to Bidi products.

Should we pursue such a

transaction, it would be a “related party transaction,” as defined by the listing rules of Nasdaq and, thus, subject to

the review of the Audit Committee of our Board (or, if deemed appropriate, a special Board committee comprised of disinterested

Further, should we undertake such a transaction, then we would become responsible to respond if a third-party challenged

Bidi’s patents, or infringed upon such rights, in which case our business could be materially adversely affected.

We have a limited operating history, and our

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the ENDS industry, makes it difficult to predict our future business prospects and financial performance.

Our current business model is relatively new, and

so business and prospects may be difficult to evaluate.

Our limited operating history makes it difficult to evaluate both our operating

history and our future potential.

We have yet to demonstrate a consistent ability to generate revenue, and are still subject to many of

the risks common to early-stage companies operating in the nicotine and non-nicotine delivery system products sector, including the uncertainty

as to our ability to implement our business plan, market acceptance of business plan, under-capitalization, cash shortages, limitations

with respect to personnel, financing and other resources and uncertainty of our ability to generate revenues.

There is therefore a significant

risk that our activities will not result in any material revenues or profit, and the likelihood of our business viability and long-term

prospects must be considered in light of the stage of our development.

There can be no assurance that we will be able to fulfill our stated

business strategy and plans, or that financial, technological, market, or other limitations may force us to modify, alter, significantly

delay, or significantly impede the implementation of such plans.

We have insufficient results of operations in our current business model

for investors to use to identify historical trends.

Investors should consider our prospects considering the risk, expenses and difficulties

we will encounter as an early-stage company.

Our current business model is relatively new,

and so business and prospects may be difficult to evaluate.

Our limited operating history makes it difficult to evaluate both our

operating history and our future potential.

We have yet to demonstrate a consistent ability to generate revenue, and are still

subject to many of the risks common to early-stage companies operating in the nicotine and non-nicotine delivery system products

sector, including the uncertainty as to our ability to implement our business plan, market acceptance of business plan,

under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources and uncertainty of our

ability to generate revenues.

There is therefore a significant risk that our activities will not result in any material revenues or

profit, and the likelihood of our business viability and long-term prospects must be considered in light of the stage of our

There can be no assurance that we will be able to fulfill our stated business strategy and plans, or that financial,

technological, market, or other limitations may force us to modify, alter, significantly delay, or significantly impede the

implementation of such plans.

We have insufficient results of operations in our current business model for investors to use to

identify historical trends.

Investors should consider our prospects considering the risk, expenses and difficulties we will

encounter as an early-stage company.

Our revenue and income potential is unproven and our business model is continually evolving.

We are therefore subject to the risk that we will be unable to address these risks, and our inability to address these risks could lead

are therefore subject to the risk that we will be unable to address these risks, and our inability to address these risks could lead

to the failure of our business.

Our business is rapidly evolving and is particularly

at risk given the FDA’s January 2024 MDO for Classic BIDI® Stick or in the event that Bidi’s pending PMTA for non-tobacco

flavored BIDI® Sticks is denied or delayed.

at risk given the FDA’s January 2024 MDO for Classic BIDI® Stick and FDA’s November 2025 denial of Bidi’s PMTA

for the non-tobacco flavored BIDI® Sticks.

The ENDS industry is relatively new and is rapidly

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results of operations.

Bidi was among the many companies that received a MDO for its non-tobacco flavored

BIDI ® Sticks.

Bidi was among the many companies that received a

MDO for its non-tobacco flavored BIDI ® Sticks.

On August 23, 2022, the U.S.

Court of Appeals for the Eleventh Circuit set aside (i.e., vacated) the MDO

issued to the non-tobacco flavored BIDI® Sticks and remanded Bidi’s PMTA back to FDA for further review.

However, there is a risk that Bidi’s PMTA for non-tobacco flavored BIDI® Sticks will be

denied, which would have a significant adverse effect on our business and could lead to our bankruptcy or the failure of our business

Court of Appeals for the Eleventh Circuit

set aside (i.e., vacated) the MDO issued to the non-tobacco flavored BIDI® Sticks and remanded Bidi’s PMTA back to FDA for

further review.

Separately, on or about May 13, 2022, FDA placed the

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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 assurances as to the timing or outcome.

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.

Oral arguments were held before

a three-judge panel on the 11 th Circuit on April 2, 2025.

The Court issued a decision on April 24, 2025 upholding FDA’s

denial order.

Accordingly, at this time, the Classic BIDI® Stick is considered an adulterated tobacco product, the continued marketing

and distribution of which is prohibited.

On November 4, 2025, FDA issued a MDO for the PMTA

for the non-tobacco flavored Bidi Sticks.

FDA’s basis for this MDO is that Bidi Vapor’s PMTAs for non-tobacco flavored BIDI

Stick did not include sufficient, robust evidence showing that marketing the flavored products would be “appropriate for the protection

of the public health” (APPH)—i.e., that adult-smoker benefits (complete switching or significant cigarette reduction) would

be large enough to outweigh the well-established youth-appeal and youth-initiation risks of flavored ENDS.

In particular, FDA said the

submission lacked the kind of comparative evidence (e.g., RCT/longitudinal cohort comparing flavored vs tobacco-flavored ENDS) needed

to demonstrate an added adult benefit.

FDA therefore concluded the applications were insufficient and stopped further scientific review

of other sections.

If it is determined or perceived that the usage

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affect our business, financial condition, and results of operations.

Negative publicity on the health consequences of ENDS

products or other similar devices may also adversely affect the usage of ENDS products.

For example, the FDA and the United States Centers

for Disease Control and Prevention (“CDC”) issued a joint statement on August 30, 2019, linking a number of cases of respiratory

illnesses to ENDS product use.

On November 8, 2019, the CDC announced that it had preliminarily linked cases of severe respiratory illness

to the presence of Vitamin E acetate, which was found in certain Tetrahydrocannabinol (THC)-containing ENDS cartridges for non-electronic

nicotine delivery systems (non-ENDS) products that may have been obtained illegally.

However, evidence is not sufficient to rule out the

contribution of other chemicals of concern, including chemicals in either THC or non-THC products (THC is the

principal psychoactive constituent of cannabis) .

In January 2020, after further research, the FDA and CDC recommended against the

use of THC-containing ENDS products, especially those from unofficial sources, and that the underage, pregnant women and adults who do

not currently use tobacco products should not start using ENDS products.

On February 25, 2020, the CDC issued a final update, stating

that the number of cases of severe respiratory illnesses had declined to single digits as of February 9, 2020.

The CDC also reconfirmed

that (i) Vitamin E acetate, which was found in some THC-containing ENDS cartridges for non-ENDS ENDS products that were mostly obtained

illegally, was strongly linked to and indicated to be the primary cause of the severe respiratory illnesses, and (ii) THC-containing ENDS

products from informal sources were linked to most cases of severe respiratory illnesses.

Furthermore, there have been recent claims that

users of ENDS products may suffer a greater risk of more serious COVID-19 complications.

However, it remains unclear whether the exposure

to toxic chemicals through ENDS product usage will increase the risk of COVID-19.

Negative publicity on the health consequences of

ENDS products or other similar devices may also adversely affect the usage of ENDS products.

For example, the FDA and the United

States Centers for Disease Control and Prevention (“CDC”) issued a joint statement on August 30, 2019, linking a number

of cases of respiratory illnesses to ENDS product use.

On November 8, 2019, the CDC announced that it had preliminarily linked cases

of severe respiratory illness to the presence of Vitamin E acetate, which was found in certain Tetrahydrocannabinol (THC)-containing

ENDS cartridges for non-electronic nicotine delivery systems (non-ENDS) products that may have been obtained illegally.

evidence is not sufficient to rule out the contribution of other chemicals of concern, including chemicals in either THC or non-THC

products (THC is the principal psychoactive constituent of cannabis) .

In January 2020, after further research, the FDA and CDC recommended against the use of THC-containing ENDS products, especially

those from unofficial sources, and that the underage, pregnant women and adults who do not currently use tobacco products should not

start using ENDS products.

On February 25, 2020, the CDC issued a final update, stating that the number of cases of severe

respiratory illnesses had declined to single digits as of February 9, 2020.

The CDC also reconfirmed that (i) Vitamin E acetate,

which was found in some THC-containing ENDS cartridges for non-ENDS ENDS products that were mostly obtained illegally, was strongly

linked to and indicated to be the primary cause of the severe respiratory illnesses, and (ii) THC-containing ENDS products from

informal sources were linked to most cases of severe respiratory illnesses.

Furthermore, there have been recent claims that users of

ENDS products may suffer a greater risk of more serious COVID-19 complications.

However, it remains unclear whether the exposure to

toxic chemicals through ENDS product usage will increase the risk of COVID-19.

Research regarding the actual causes of these illnesses

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would materially impair our strategy of diversifying our product offerings, leaving us even more reliant on the products we distribute

We may not be successful in maintaining the

consumer brand recognition and loyalty of our products and face intense competition and may fail to compete effectively.

We compete in a market that relies on innovation and

the ability to react to evolving consumer preferences and, thus, are subject to significant competition in the ENDS market, and larger

tobacco industry and compete against companies in such market and industry that have access to significant resources in terms of technology,

relationships with suppliers and distributors and access to cash flow and financial markets.

Consumer perceptions of the overall safety of tobacco,

nicotine, cannabis, and hemp/CBD-related products is likely to continue to shift, and our success depends, in part, on our ability to

anticipate these shifting tastes and the rapidity with which the markets in which we compete will evolve in response to these changes

on a timely and affordable basis.

If we are unable to respond effectively and efficiently to changing consumer preferences, the demand

for our products may decline, which could have a material adverse effect on our business, results of operations, and financial condition.

Regulations may be enacted in the future, particularly

considering increasing restrictions on the form and content of marketing of tobacco products, that would make it more difficult to appeal

to our consumers or to leverage existing recognition of the Bidi brand, or other brands that we own or license in the future.

even if we can continue to distinguish our products, there can be no assurance that the sales, marketing, and distribution efforts of

our competitors will not be successful in persuading consumers of our products to switch to their products.

Many of our competitors have

greater access to resources than we do, which better positions them to conduct market research in relation to branding strategies or to

launch costly marketing campaigns.

Any loss of consumer brand loyalty to our products or reduction of our ability to effectively brand

our products in a recognizable way will have a material effect on our ability to continue to sell our products and maintain our market

share, which could have a material adverse effect on our business, results of operations, and financial condition.

The competitive environment and our competitive position

are also significantly influenced by economic conditions, the state of consumer confidence, competitors’ introduction of low-priced

products or innovative products, higher taxes, higher absolute prices, and larger gaps between price categories and product regulation

that diminishes the consumer’s ability to differentiate tobacco products.

Due to the impact of these factors, as well as higher

state and local excise taxes and the market share of deep discount brands, the tobacco industry has become increasingly price competitive.

As we seek to adapt to the price competitive environment, our competitors that are better capitalized may be able to sustain price discounts

for long periods of time by spreading the loss across their expansive portfolios, with which we are not positioned to compete.

“Big tobacco” has also established its

presence in the ENDS market and has begun to make investments in the alternative space.

There can be no assurance that our products will

be able to compete successfully against these companies or any of our other competitors, some of which have far greater resources, capital,

experience, market penetration, sales and distribution channels than do we.

Our distribution efforts rely in part on our

ability to leverage relationships with large retailers and national chains.

Our distribution efforts rely in part on our ability

to leverage relationships with large retailers and national chains to sell and promote our products, which is dependent upon the strength

of the Bidi brand name and, in the future, any brand names that we may own or license, and our salesforce effectiveness.

To maintain these

relationships, we must continue to supply products that will bring steady business to these retailers and national chains.

be able to sustain these relationships or establish other relationships with such entities, which could have a material adverse effect

on our ability to execute our branding strategies, our ability to access the end-user markets with our products, or our ability to maintain

our relationships with the manufacturer and sub-distributors of our products.

For example, if we are unable to meet benchmarking provisions

in certain of our contracts or if we are unable to maintain and leverage our retail relationships on a scale sufficient to make us an

attractive distributor, it would have a material adverse effect on our ability to act as sole distributor for Bidi, and on our business,

results of operations and financial condition.

In addition, there are factors beyond our control

that may prevent us from leveraging existing relationships, such as industry consolidation.

If we are unable to develop and sustain relationships

with large retailers and national chains or are unable to leverage those relationships due to factors such as a decline in the role of

brick-and-mortar retailers in the North American economy, our capacity to maintain and grow brand and product recognition and increase

sales volume will be significantly undermined.

In such an event, we may ultimately be forced to pursue and rely on local and more fragmented

sales channels, which will have a material adverse effect on our business, results of operations and financial condition.

Competition from illicit sources may have an

adverse effect on our overall sales volume, restricting the ability to increase selling prices and damaging brand equity.

Illicit trade and tobacco trafficking in the form

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

are evaded, represent a significant and growing threat to the legitimate tobacco industry and significant, and unfair, competition that

we are faced with.

Moreover, factors such as increasing tax regimes, regulatory restrictions, and compliance requirements are encouraging

more consumers to switch to illegal, cheaper tobacco-related products, and providing greater rewards for smugglers.

All of these factors

based on illicit trade have had and may continue to have an adverse effect on our overall sales volume, may restrict the ability to increase

selling prices, damage our brand equity, and may lead to commoditization of our products.

If we are unable to manage the risks posed by

illicit competition, our results of operation and overall business may suffer.

Our products are regulated by the FDA, which has broad regulatory

Increases in tobacco-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous

jurisdictions.

Tobacco products, premium cigarette papers, and tubes

have long been subject to substantial federal, state, and local excise taxes.

Such taxes have frequently been increased or proposed to

be increased, in some cases significantly, to fund various legislative initiatives or further disincentivize tobacco usage.

smokeless products have been subject to federal excise tax.

Federally, smokeless products are taxed by weight (in pounds or fractional

parts thereof) manufactured or imported.

Any increases in tobacco-related taxes may materially adversely affect the demand for our products.

The market for ENDS products is subject to a

great deal of uncertainty and is still evolving.

ENDS products, having recently been introduced to

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

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

Rapid growth in the use of, and interest in,

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

The demand and market acceptance for these products is subject to a

high level of uncertainty.

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

For example, ENDS products that are non-tobacco flavored

continue to face the threat of prohibition at the local level, as many state and local authorities and attorneys general push for bans

or request the FDA to deny a PMTA for flavored ENDS.

To date, at least nine states, including the District of Columbia, have banned the

sale of flavored ENDS (e.g., California, Massachusetts, Illinois, New Jersey, New York, Rhode Island, and Utah), with several more considering

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

As the September 9, 2021, PMTA review deadline has now passed, the FDA has implemented

a de facto ban of non-tobacco flavored ENDS by denying over 99% of pending applications, while issuing marketing authorizations for only

two non-tobacco flavored (menthol) ENDS.

If flavors are ultimately prohibited to be sold by

Bidi in the United States, the use of ENDS products may decline significantly, which may materially and adversely affect our business,

financial condition, and results of operations.

Continued evolution, uncertainty, and the resulting increased risk of failure of our new

and existing product offerings in this market could have a material adverse effect on our ability to build and maintain market share and

on our business, results of operations and financial condition.

Some of our product offerings through Bidi are

subject to developing and unpredictable regulation.

Our products are sold through our distribution network

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

non-tobacco consumable products.

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

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

but the type, timing, and impact of such regulations remains uncertain.

These regulations include or could include restrictions including

prohibitions on certain form factors, such as smokable hemp products, or age restrictions.

On January 26, 2023, The FDA announced that

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

Rather, after careful review, the FDA has concluded that

a new regulatory pathway for CBD is needed that balances individuals’ desire for access to CBD products with the regulatory oversight

needed to manage risks.

The FDA further indicated that it is prepared to work with Congress on this matter.

Accordingly, we cannot give

any assurance that such actions would not have a material adverse effect on this emerging business.

Significant increases in state and local regulation

of our products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.

All Cigarette Trafficking (or PACT) Act, which went into effect in June 2010, amended the Jenkins Act and initially only applied to the

sales of cigarettes, roll-your-own tobacco, and smokeless tobacco.

Specifically, the PACT Act regulates the sale, transfer, or shipment

of these products for both business-to-business transactions as well as “delivery sales,” which are defined as any sale of

cigarettes, roll-your-own tobacco, or smokeless tobacco where the consumer orders the product remotely and prohibits such deliveries through

Postal Service (or USPS), except in certain circumstances ( e.g., business-to-business deliveries).

Under the enactment of the Preventing Online Sales

of E-Cigarettes to Children Act (part of the larger 2021 Consolidated Appropriations Act), effective March 27, 2021, the definition of

“cigarettes” in the PACT Act was amended to include ENDS, which is defined as “any electronic device that, through an

aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device,” including “an

an advanced refillable personal vaporizer;

an electronic pipe;

and any component, liquid,

part, or accessory of a device described above, without regard to whether the component, liquid, part, or accessory is sold separately

from the device.” As such, delivery sales of the BIDI ® Stick are subject to the PACT Act.

The PACT Act requires all sellers to register with

the ATF, as well as the tobacco tax administrators of the states into which a shipment is made or in which an advertisement or offer is

disseminated.

Delivery sellers who ship cigarettes (including ENDS) or smokeless tobacco to consumers are further required to label packages

as containing tobacco, verify the age, and identity of the customer at purchase, use a delivery method (other than through the USPS) that

checks ID and obtains adult customer signature at delivery, and maintain records of delivery sales for a period of four years after the

date of sale, among other things.

Delivery sellers are also required to file a monthly report with the state tobacco tax administrator

and any other local or tribal entity that taxes the sale of the products.

Such reports must include the name and address of the persons

delivering and receiving the shipment and the brand and quantity of the “cigarettes” that were shipped.

These requirements

apply to all sales, including sales to consumers and sales between businesses.

In addition to the de facto FDA flavor ban that has

resulted from the denial of nearly all PMTAs for flavored ENDS, ENDS products that are non-tobacco flavored continue to face the threat

of prohibition at the local level, as many state and local authorities and attorneys general push for bans or request the FDA to deny

PMTAs for flavored ENDS.

To date, at least nine states, including the District of Columbia, have banned the sale of flavored ENDS (e.g.,

California, Massachusetts, Illinois, New Jersey, New York, Rhode Island, and Utah), with several more considering similar bans (e.g.,

Maryland and Connecticut)

Our supply to our wholesalers and retailers

is dependent on the demands of their customers who are sensitive to increased sales taxes and economic conditions affecting their disposable

Consumer purchases of tobacco products are historically

affected by economic conditions, such as changes in employment, salary and wage levels, the availability of consumer credit, inflation,

interest rates, fuel prices, sales taxes, and the level of consumer confidence in prevailing and future economic conditions.

Discretionary

consumer purchases, such as the BIDI ® Stick, may decline during recessionary periods or at other times when disposable

income is lower, and taxes may be higher.

We may be subject to increasing international

control and regulation.

The FCTC is the first international public health

treaty that establishes a global agenda to reduce initiation of tobacco use and regulate tobacco to encourage tobacco cessation.

170 governments worldwide have ratified the FCTC.

The FCTC has led to increased efforts to reduce the supply and demand of tobacco products

and to encourage governments to further regulate the tobacco industry.

The tobacco industry expects significant regulatory developments

to take place over the next few years, driven principally by the FCTC.

Regulatory initiatives that have been proposed, introduced or enacted

the levying of substantial

and increasing tax and duty charges;

restrictions or bans on

advertising, marketing and sponsorship;

the display of larger health

warnings, graphic health warnings and other labeling requirements;

restrictions on packaging

design, including the use of colors and generic packaging;

restrictions or bans on

the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines;

requirements regarding

testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels;

requirements regarding

testing, disclosure and use of tobacco product ingredients;

increased restrictions

on smoking in public and workplaces and, in some instances, in private places and outdoors;

elimination of duty-free

allowances for travelers;

encouraging litigation

against tobacco companies.

Our business may be damaged by events outside

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We may fail to manage our growth.

In our early years we had opportunities to grow significantly in a short

amount of time and we intended to continue that growth in the future.

However, our future growth has been placed on hold with additional

constraints and demand for our resources, and we cannot be sure we will be able to manage an acceptable growth effectively as we did in

our early years.

If we are unable to manage our growth while expanding the distribution of our products and increasing profit margins,

or if new systems that we implement to assist in managing our growth do not produce the expected benefits, our business, financial position,

results of operations and cash flows could be adversely affected.

We may not be able to support, financially or otherwise, future growth,

or hire, train, motivate and manage the required personnel.

Our failure to manage growth effectively could also limit our ability to achieve

our goals as they relate to streamlined sales, marketing and distribution operations and the ability to achieve certain financial metrics.

We are subject to fluctuations in our results

that make it difficult to track trends and develop strategies in the short term.

In response to competitor actions and pricing pressures,

we have engaged in significant use of promotional and sales incentives.

We regularly review the results of our promotional spending activities

and adjust our promotional spending programs to maintain our competitive position as well as to confirm compliance with our adult-focused

marketing policies.

Accordingly, unit sales volume and sales promotion costs in any period are not necessarily indicative of sales and

costs that may be realized in subsequent periods.

Additionally, promotional activity significantly increases net sales in the month in

which it is initiated, and net sales are adversely impacted in the month after a promotion.

Accordingly, based upon the timing of our

marketing and promotional initiatives, we have and may continue to experience significant variability in our results, which could affect

our ability to formulate strategies that allow us to maintain our market presence across volatile periods.

If our fluctuations obscure

our ability to track important trends in our key markets, it may have a material adverse effect on our business, results of operations

and financial condition.

In our early years we had opportunities to grow significantly

in a short amount of time and we intended to continue that growth in the future.

However, our future growth has been placed on hold with

additional constraints and demand for our resources, and we cannot be sure we will be able to manage an acceptable growth effectively

as we did in our early years.

If we are unable to manage our growth while expanding the distribution of our products and increasing profit

margins, or if new systems that we implement to assist in managing our growth do not produce the expected benefits, our business, financial

position, results of operations and cash flows could be adversely affected.

We may not be able to support, financially or otherwise, future

growth, or hire, train, motivate and manage the required personnel.

Our failure to manage growth effectively could also limit our ability

to achieve our goals as they relate to streamlined sales, marketing and distribution operations and the ability to achieve certain financial

and global economic conditions

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the failure to attract and retain talent could adversely affect our operations.

Our success depends upon the continued

contributions of our senior executive management, especially our Interim Chief Executive Officer, Mark Thoenes, our Interim Chief

Financial Officer, Eric Morris If one or more of our executive officers are unable or unwilling to continue in their current

positions, we may not be able to replace them readily, if at all.

Additionally, we may incur additional expenses to recruit and

retain new executive officers.

If any of our executive officers join a competitor or forms a competing company, we may lose some or

all of our customers.

Finally, we do not maintain “key person” life insurance on any of our executive officers.

of these factors, the loss of the services of any of these key persons could adversely affect our business, financial condition, and

results of operations.

Our success depends upon the continued contributions

of our senior executive management, especially our Interim Chief Executive Officer, Mark Thoenes, our Interim Chief Financial Officer,

Eric Morris If one or more of our executive officers are unable or unwilling to continue in their current positions, we may not be able

to replace them readily, if at all.

Additionally, we may incur additional expenses to recruit and retain new executive officers.

of our executive officers join a competitor or forms a competing company, we may lose some or all of our customers.

Finally, we do not

maintain “key person” life insurance on any of our executive officers.

Because of these factors, the loss of the services

of any of these key persons could adversely affect our business, financial condition, and results of operations.

Our insurance may be insufficient to cover losses that may occur

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may decline even if our operating results, underlying asset values or prospects have not changed.

Our Common Stock is listed on the Nasdaq but

there can be no assurance that we will be able to comply with the continued listing standards of Nasdaq in the future, particularly since

we are presently experiencing a Nasdaq continuing listing deficiency.

Although our Common Stock is listed on Nasdaq, we

cannot assure you that we will be able to comply with the standards that we are required to meet in order to maintain a listing of our

Common Stock on Nasdaq in the future.

Nasdaq listing rules require us to maintain certain closing bid price, stockholders’ equity,

and other financial metric criteria, as well as certain corporate governance requirements, for our Common Stock to continue trading on

If we fail to comply with the continued listing standards, our Common Stock could be delisted.

have been subject to Nasdaq listing deficiency issues in the past.

There can be no assurances given that we will be able

to cure any listing deficiencies related to our company.

A failure to maintain listing on Nasdaq could have a material adverse effect

on the liquidity and price of our Common Stock.

A limited trading market currently exists for

our securities, and we cannot assure you that an active market will ever develop, or if developed, will be sustained.

There is currently a limited trading market for our Common Stock on the

OTC Pink Market and an active trading market for our Common Stock may not develop.

Consequently, we cannot assure you when and if an active-trading

market in our shares will be established, or whether any such market will be sustained or sufficiently liquid to enable holders of shares

of our Common Stock to liquidate their investment in our Company.

If an active public market should develop in the future, the sale of

unregistered and restricted securities by current stockholders may have a substantial impact on any such market.

Future sales of shares of our Common Stock by

our controlling shareholders or by our officers and directors may negatively impact the market price for our Common Stock.

compliance with applicable securities laws, our controlling shareholders

Kaival Holdings and Bidi Vapor as well as our directors and officers and their affiliates may sell some or all of their shares of

our Common Stock in the future.

No prediction can be made as to the effect, if any, such future sales of shares of our Common Stock

may have on the market price of the shares of our Common Stock prevailing from time to time.

However, the future sale of a

substantial number of shares of our Common Stock by our directors and officers and their affiliates, or the perception that such

Subject to compliance with applicable securities laws,

our controlling shareholders Kaival Holdings and Bidi Vapor as well as our directors and officers and their affiliates may sell some or

all of their shares of our Common Stock in the future.

No prediction can be made as to the effect, if any, such future sales of shares

of our Common Stock may have on the market price of the shares of our Common Stock prevailing from time to time.

However, the future sale

of a substantial number of shares of our Common Stock by our directors and officers and their affiliates, or the perception that such

sales could occur, could adversely affect prevailing market prices for our shares of our Common Stock.

The concentration of ownership by Kaival Holdings and Bidi Vapor and our officers

and directors may result in conflicts of interest and may prevent other stockholders from influencing significant corporate decisions

and depress our stock price.

on the number of shares outstanding as

of as of the date of this Report, Kaival Holdings and Bidi Vapor, our affiliated majority stockholder, together with our officers and

directors, beneficially own a combined total of approximately 51.6% percent

of our outstanding Common Stock, including shares of our Common Stock subject to stock options that are currently exercisable or are exercisable

and that vest within 60 days as of the date of this prospects.

If our controlling stockholders, together with these officers and directors

act together, they will be able to exert a significant degree of influence over our management and affairs and control matters requiring

stockholder approval, including the election of directors and approval of mergers, business combinations, or other significant transactions.

For example, Kaival Holdings, together with our officers and directors, could cause us to enter into transactions or agreements that we

would not otherwise consider or might not be in the best interests of our minority stockholders.

Similarly, this concentration of ownership

may have the effect of delaying or preventing a change in control of our company otherwise favored by our other stockholders.

turn, could have a negative effect on the market price of our Common Stock.

It could also prevent our stockholders from realizing a premium

over the market price for their shares of our Common Stock.

The concentration of ownership also may contribute to the low trading volume

and volatility of our Common Stock.

Moreover, any such conflicts of interest may not be easy to resolve and could impair our ability to

operate our business.

The concentration of ownership by Kaival Holdings

and Bidi Vapor and our officers and directors may result in conflicts of interest and may prevent other stockholders from influencing

significant corporate decisions and depress our stock price.

Based on the number of shares outstanding as of the

date of this Report, Kaival Holdings and Bidi Vapor, our affiliated majority stockholder, together with our officers and directors, beneficially

own a combined total of approximately 21.9% percent of our outstanding Common Stock, including shares of our Common

Stock subject to stock options that are currently exercisable or are exercisable and that vest within 60 days as of the date of this prospects.

If our controlling stockholders, together with these officers and directors act together, they will be able to exert a significant degree

of influence over our management and affairs and control matters requiring stockholder approval,

including the election of directors and

approval of mergers, business combinations, or other significant transactions.

For example, Kaival Holdings, together with our officers

and directors, could cause us to enter into transactions or agreements that we would not otherwise consider or might not be in the best

interests of our minority stockholders.

Similarly, this concentration of ownership may have the effect of delaying or preventing a change

in control of our company otherwise favored by our other stockholders.

This, in turn, could have a negative effect on the market price

of our Common Stock.

It could also prevent our stockholders from realizing a premium over the market price for their shares of our Common

The concentration of ownership also may contribute to the low trading volume and volatility of our Common Stock.

Moreover, any

such conflicts of interest may not be easy to resolve and could impair our ability to operate our business.

Our Common Stock may become the target of a “short squeeze.”

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if they purchase our shares at a rate that is significantly disconnected from our underlying value.

If securities or industry analysts fail to continue

publishing research about our business, if they change their recommendations adversely or if our results of operations do not meet their

expectations, our stock price and trading volume could decline.

The trading market for our Common Stock will be influenced

by the research and reports that industry or securities analysts publish about us or our business.

If one or more of these analysts cease

coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could

cause our stock price or trading volume to decline.

In addition, it is likely that in some future period our operating results will be

below the expectations of securities analysts or investors.

If one or more of the analysts who cover us downgrade our Common Stock, or

if our results of operations do not meet their expectations, our stock price could decline.

We do not currently pay dividends on our shares

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or fraud may occur and not be detected.

We have incurred, and will continue to incur,

increased costs as a result of operating as a public company, and our management has been required, and will continue to be required,

We have incurred, and will continue to

incur, increased costs as a result of operating as a public company, and our management has been required, and will continue to be required,

to devote substantial time to new compliance initiatives.

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

What changed 10-K

Item 1A. Risk Factors