Kaival Brands Innovations Group Inc

Results of Operations

Three months ended January 31, 2024, compared to three months ended January 31, 2023

Revenues*:*

Revenuesfor the first quarter of fiscal year 2024 were approximately $3.2 million, compared to approximately $2.5 million in the same period of the prior fiscal year. Revenues increased in the first quarter of 2024, primarily due to a decrease in credits being issued to customers.

Cost of Revenue, Net and Gross Profit (Loss):

Gross profit in the first quarter of fiscal year 2024 was approximately $1.2 million, or approximately 37.3% of revenues, net, compared to approximately $0.5 million gross profit or approximately 21.4%, of revenues, net, for the first quarter of fiscal year 2023. Total cost of revenue, net was approximately $2.0 million, or approximately 62.7% of revenue, net for the first quarter of fiscal year 2024, compared to approximately $2.0 million, or approximately 78.6% of revenue, net for the first quarter of fiscal year 2023. The increase is due to fewer credits issued during the three months January 31, 2024.

Operating Expenses:

Total operating expenses were approximately $2.9 million for the first quarter of fiscal year 2024, compared to approximately $3.5 million for the first quarter of fiscal year 2023. For the first quarter of fiscal year 2024, operating expenses consisted primarily of advertising and promotion fees of approximately $0.4 million, stock option expense of approximately $0.3 million, professional fees of approximately $0.8 million, and all other general and administrative expenses of approximately $1.4 million. General and administrative expenses in the first quarter of fiscal year 2024 consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes. For the first quarter of fiscal year 2023, operating expenses consisted primarily of advertising and promotion fees of approximately $0.6 million, stock option expense of approximately $1.4 million, professional fees of approximately $0.6 million, and all other general and administrative expenses of approximately $0.9 million. General and administrative expenses in the first quarter of fiscal year 2023 consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes. We expect future operating expenses to increase while we increase the footprint of our business and generate increased sales growth.

Income Taxes:

During the first quarter of fiscal year 2024, we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately ($2.1) million, similarly we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately ($3.1) million for the first quarter of fiscal year 2023.

Net Loss:

As a result of the items noted above, the net loss for the first quarter of fiscal year 2024 was approximately $2.2 million, or $0.76 basic and diluted net loss per share, compared to a net loss of approximately $3.0 million, or $1.12 basic and diluted net loss per share, for the first quarter of fiscal year 2023. The decrease in the net loss for the first quarter of fiscal year 2024, as compared to the first quarter of fiscal year 2023, is primarily attributable to the increase in revenues and decrease in operating expenses as noted above.

Critical Accounting Policies and Estimates

Other than the policy changes disclosed in Note 2,*Basis of Presentation and Significant Accounting Policies,*to the unaudited Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report, there have been no material changes to our critical accounting policies and estimates during the three months ended January 31, 2024 from those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our 2023 Annual Report for the year ended October 31, 2023.