Kaival Brands Innovations Group Inc
For the period ended Oct 31, 2024. Filed Feb 10, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 10, 2025
KAVL$0.04+16.7%Stored close · as of Jul 8, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-10-31; filed 2024-02-14.
0001731122-24-000237
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-10-31; filed 2025-02-10.
0001731122-25-000185
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 78 previous paragraphs and 68 current paragraphs.
38 unchanged; 24 reworded; 6 added; 15 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 0 previous and 0 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (6)
Current report
We are engaged in the sale, marketing and distribution of electronic nicotine delivery system (“ENDS”) products, also known as “e-cigarettes”, in a variety of favors. Until October of 2024, our primary source of revenue has been the Bidi Stick as we sold our inventory on hand. However, 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. Patent No. 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. No damages are recoverable in the proceedings before the ITC. Since the initiation of the ITC Complaint, we have not imported any Bidi Sticks and currently do not generate any revenue from the sale of Bidi Sticks. Our current primary source of revenue is through an international licensing agreement with Philip Morris Products S.A. (“PMPSA”), a wholly owned affiliate of Philip Morris International Inc. (“PMI”). See*“Item 1 Business--Philip Morris Deed of Licensing Agreement”*
Current report
We have also entered into a Merger and Share Exchange Agreement (the “Merger Agreement”) with Delta Corp Holdings Limited, a company incorporated in England and Wales (together with its successors and assigns, “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 Delta Corp Cayman Limited (the “Sellers”). If the Merger Agreement is consummated, Pubco will become our parent and all new officers and directors will be appointed by Pubco, except that pursuant to the Merger Agreement we have the right to appoint one director to the Pubco board of directors and we have agreed to appoint any family member of Ankitaben Patel (the widow of our former CEO, Nirajkumar Patel) and/or Nirajkumar Patel who is qualified and identified by Bidi for this role prior to the closing of the Merger Agreement. While we expect the transactions contemplated by the Merger Agreement to close (the “Closing”) in March or April of this year, no assurances can be made that such transactions will close by then or ever. The transactions contemplated by the Merger Agreement are described in further detail below under “Item 1 Business--The Merger and Share Exchange Agreement.”
Current report
On June 11, 2024, the RJ Reynolds Entities filed the ITC Complaint. 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. No damages are recoverable in the proceedings before the ITC. If the Company or Bidi is prohibited from importing the Bidi Stick, then our business, operations, financial results, and reputation would be significantly adversely impacted. Bidi disputes the patent infringement claims set forth in the ITC Complaint by the RJ Reynolds Entities and plans to vigorously defend the ITC Investigation. A Commission determination regarding temporary relief is expected in October or December 2024. A final Commission determination on permanent relief is not expected until late 2025 or early 2026. The asserted patent expires in October 2026 as would any exclusion order that the ITC enters as a result of the ITC Complaint.
Current report
As a result of the ITC Complaint and other factors we do not expect any significant revenue from the sale of Bidi Sticks in the foreseeable future. Our primary source of revenue is from KBI from royalties from PMI under the PMI License Agreement.
Current report
Counterfeit Products
Current report
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. Until 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.
Removed paragraphs (15)
Previous report
Our business is focused on the sales, marketing and distribution of ENDS products, also known as “e-cigarettes”, in a variety of favors. Our primary product is the Bidi® Stick as well as other products manufactured by our affiliate Bidi. We hold the exclusive worldwide right to market and distribute the Bidi® Stick and certain other products manufactured by Bidi. We intend to drive revenue growth primarily through wholesale and traditional retail channels, including convenience stores.
Previous report
Pursuant to the A&R Distribution Agreement, Bidi granted us an exclusive worldwide right to distribute Bidi’s ENDS and related components (as more particularly set forth in the A&R Distribution Agreement and referred to herein as the products) for sale and resale to both retail level customers and non-retail level customers. Currently, the products consist solely of the “BIDI® Stick”, Bidi’s disposable, tamper resistant ENDS product made with medical-grade components, a UL-certified battery and technology designed to deliver a consistent vaping experience for adult smokers 21 and over. We presently distribute products to wholesalers and retailers of ENDS products, having ceased all direct-to-consumer sales in February 2021. Nirajkumar Patel, our Chief Science and Regulatory Officer and director and an indirect controlling stockholder of our company, owns Bidi.
Previous report
BIDI® Stick comes in a variety of flavor options for adult cigarette smokers. We do not manufacture any of the products we resell. The BIDI® Stick is manufactured by Bidi. Pursuant to the terms of the A&R Distribution Agreement, Bidi provides us with all branding, logos, and marketing materials to use with our commercial partners in connection with our marketing and promotion of the products.
Previous report
We process all sales made only to non-retail customers, with all sales to non-retail customers made through Bidi’s age-restricted website, www.wholesale.bidivapor.com. We ceased all direct-to-consumer sales in February 2021 in order to better ensure youth access prevention and to comply with the Prevent All Cigarette Trafficking (or PACT) Act. We provide all customer service and support at our own expense through QuikfillRx as described below. We set the minimum prices for all sales made by us. We maintain adequate inventory levels of products in order to meet the demands of our non-retail customers and deliver the products sold to these customers.
Previous report
A key third party collaborator of ours is QuikfillRx, which does business as “Kaival Marketing Services” to reflect its contributions to our company. QuikfillRx provides us with certain services and support relating to sales management, website development and design, graphics, content, public communication, social media, management and analytics, and market and other research. QuikfillRx provides these services to us pursuant to a Services Agreement, most recently amended on November 9, 2022, which has a current term ending on October 31, 2025 (subject to potential one-year extensions) and pursuant to which QuikfillRx receives monthly cash compensation and was granted certain equity compensation in the form of options.
Previous report
We have also maintain key international licensing agreements with Philip Morris and its affiliates as described under Item 1 – Business.
Previous report
Dependence on Bidi and Nirajkumar Patel
Previous report
We are wholly dependent on Bidi to supply the BIDI® Sticks to us for distribution. Accordingly, any supply or other issues that impact Bidi indirectly impact us and our ability to operate our business. Moreover, and while we are seeking to diversify our product offerings, the loss of our relationship with Bidi would substantially harm the viability of our business, which constitutes an on-going risk factor to our business.
Previous report
Bidi is controlled by Nirajkumar Patel, our Chief Science and Regulatory Officer and a director of our company. Moreover, Kaival Holdings, an entity controlled by Mr. Patel, is our majority stockholder. In addition, our corporate headquarters is leased to us by an affiliate of Mr. Patel. Therefore, Mr. Patel has the power and ability to control or influence our business. As of October 31, 2023 our company had an accounts payable to Mr. Patel and Bidi in the amount of $2,474,817.
Previous report
Dependence on QuikfillRx, LLC and Distributors
Previous report
We are substantially dependent on QuikfillRx, LLC (d/b/a Kaival Marketing Services, or KMS) to provide key marketing, sales and other support services to us. In addition, we rely on third-party brokers and distributors to introduce and place our products into our historic foundation of convenience stores and more recently into new retail channels, including dollar, grocery and mass-merchandisers. The loss of one or more of these key relationships would have a material adverse effect on our business.
Previous report
Our management plans to continue similar operations with increased marketing and enhanced efforts to increase sales, which we believe will result in increased revenue and ultimately net income and positive cash flow from operations.
Previous report
Results of Operations
Previous report
Accrued Expenses:
Previous report
During fiscal year 2023, we accrued approximately $81,300 for two quarterly bonuses and approximately $58,400 for approved expenses payable to QuikfillRx based on our applicable gross quarterly sales for the six months ended October 31, 2023. During fiscal year 2022, we accrued approximately $33,900 for a quarterly bonus and approximately $18,000 for approved expenses payable to QuikfillRx based on our applicable gross quarterly sales for the three months ended October 31, 2022. Excise taxes totaling approximately $5,800 were accrued based on taxable sales during the fourth quarter of fiscal year 2023, compared to excise taxes of approximately $6,600 that were accrued in fiscal year 2022 based on taxable sales during the fourth quarter of fiscal year 2022.
Reworded paragraphs (24)
Previous wording
Also, competition in the market for e-cigarettes from illicit sources may have an adverse effect on our overall sales volume, restricting our ability to increase selling prices and damaging our brand equity and reputation. Illicit trade and tobacco trafficking in the form of counterfeit products, smuggled genuine products, and locally manufactured products on which applicable taxes or regulatory requirements are evaded, represent a significant and growing threat to the legitimate tobacco industry, including the Bidi products we sell.
Current wording
Competition in the market for e-cigarettes from illicit sources may have an adverse effect on our overall sales volume, restricting our ability to increase selling prices and damaging our brand equity and reputation. Illicit trade and tobacco trafficking in the form of counterfeit products, smuggled genuine products, and locally manufactured products on which applicable taxes or regulatory requirements are evaded, represent a significant and growing threat to the legitimate tobacco industry, including the products we sell. Although we combat counterfeiting of our Products by engaging in certain tactics, such as requiring all sales force personnel to randomly collect our Products from retailers in order to be tested by our quality control team, maintaining a quality control group that is responsible for identifying counterfeit products and surveillance of retailers we suspect are selling counterfeit Products through our own secret shopper force, no assurance can be given that we will be able to detect or stop sales of all counterfeit products. In addition, while we may bring suits against retailers and distributors that sell certain counterfeit products, no assurance can be given that we will be successful in any such suits or that such suits will be successful in stopping other retailers or distributors from selling.
Previous wording
In addition, the market for ENDS products is subject to a great deal of uncertainty and is still evolving. ENDS products, having recently been introduced to market over the past 10 to 15 years, are at a relatively early stage of development, and represent core components of a market that is evolving rapidly, highly regulated, and characterized by a number of market participants. Rapid growth in the use of, and interest in, ENDS products is recent, and may not continue on a lasting basis. With respect to the GoFire assets, the underlying technology touches on hemp/cannabis, nutraceutical and healthcare applications in addition to nicotine, all of which are heavily regulated by the FDA and other federal and state agencies. The demand and market acceptance for all of these products is subject to a high level of uncertainty. Therefore, we are subject to all the business risks associated with a new enterprise in an evolving market.
Current wording
Our Products (included in this context any products that we may develop from the GoFire Purchased Assets) are and will be heavily regulated by the FDA, which has broad regulatory powers. The market for ENDS products is subject to a great deal of uncertainty and is still evolving. ENDS products, having recently been introduced to market over the past 10 to 15 years, are at a relatively early stage of development, and represent core components of a market that is evolving rapidly, highly regulated, and characterized by a number of market participants. Rapid growth in the use of, and interest in, ENDS products is recent, and may not continue on a lasting basis. With respect to the GoFire Purchase Assets, the underlying technology touches on hemp/cannabis, nutraceutical and healthcare applications in addition to nicotine, all of which are heavily regulated by the FDA and other federal and state agencies. The demand and market acceptance for all of these products is subject to a high level of uncertainty. Therefore, we are subject to all the business risks associated with a new enterprise in an evolving market.
Previous wording
Our products (including both our core Bidi Stick products and any products that we may develop from the GoFire assets) are and will be heavily regulated by the FDA, which has broad regulatory powers. As described under Item 1 – Business – FDA PMTA and MDO Determinations, Related Court Actions and the Impact on Our Business, the outcome FDA actions and related proceedings against or by Bidi (including the January 2024 MDO regarding Classic Bidi Sticks) could have a material adverse impact on our ability to operate our business given our reliance on Bidi. In addition to the de facto FDA flavor ban that has resulted from the denial of nearly all PMTAs for flavored ENDS, ENDS products that are non-tobacco flavored continue to face the threat of prohibition at the local level, as many state and local authorities and attorneys general push for bans or request the FDA to deny PMTAs for flavored ENDS. In addition, a number of states and localities have banned the sale of non-tobacco flavored tobacco products. For example, in November 2022 California passed Proposition 31, which prohibits the sale of non-tobacco flavored tobacco products, including e-cigarettes, in retail locations. Thus, the non-tobacco flavored BIDI® Sticks are not permitted to be sold in California retail locations. We anticipate more states and localities will take this approach. Several other states have banned flavored ENDS, including New York, New Jersey, Rhode Island, and Massachusetts, with several more considering similar bans (e.g., Maryland, and Connecticut).
Current wording
In addition to the de facto FDA flavor ban that has resulted from the denial of nearly all PMTAs for flavored ENDS, ENDS products that are non-tobacco flavored continue to face the threat of prohibition at the local level, as many state and local authorities and attorneys general push for bans or request the FDA to deny PMTAs for flavored ENDS. In addition, a number of states and localities have banned the sale of non-tobacco flavored tobacco products. Recently, for example, California passed Proposition 31, which prohibits the sale of non-tobacco flavored tobacco products, including e-cigarettes, in retail locations. Thus, the non-tobacco flavored BIDI® Sticks are not permitted to be sold in California retail locations. We anticipate more states and localities will take this approach. Several other states and localities have banned flavored ENDS, including Washington, D.C., New York (and New York City), New Jersey, Rhode Island, Illinois (and Chicago), Utah and Massachusetts, with several more considering similar bans (e.g., Maryland and Connecticut).
Previous wording
Increased demand for our products and have opened new distribution channels for us through which we can sell our products. However, a sharp increase in demand for products will require us to use cash and/or obtain financing in order to purchase products from Bidi for resale in the marketplace. As a result, we are faced with the risk that such cash or financing will not be available in sufficient amounts or on terms acceptable to us (or at all) to meet the market demand for products. Our inability to fulfill this demand will damage our reputation and could materially impact on our ability to increase sales of products which, in turn, would adversely impact the results of our operations.
Current wording
We believe that the matters described under “FDA PMTA Determinations, 11 th Circuit Decision and Impact on Our Business” could have decreased demand for our Products and would likely have negative opportunities to distribution channels for us through which we could sell our Products. However, an unlikely increase in demand for the Products would require us to raise cash and/or obtain financing in order to purchase Products from Bidi for resale in the marketplace. As a result, we are faced with the risk that such cash or financing will not be available in sufficient amounts or on terms acceptable to us (or at all) to meet the market demand for the Products. Our inability to fulfill this demand will damage our reputation and could materially impact our ability to increase sales of the Products which, in turn, would adversely impact our results of operations.
Previous wording
The spread of COVID-19 throughout the world as well as increasing tensions with China over the past several years and Russia’s February 2022 invasion of Ukraine has created global economic uncertainty, which may cause partners, suppliers, and potential customers to closely monitor their costs and reduce activities. Any of the foregoing could materially adversely affect the supply chain for Bidi and our products, and any supply chain distribution for products could have a materially adverse effect on the results of operations.
Current wording
The spread of COVID-19 throughout the world as well as increasing tensions with China over the past several years has created global economic uncertainty, which may cause partners, suppliers, and potential customers to closely monitor their costs and reduce activities. Any of the foregoing could materially adversely affect the supply chain for Bidi and our Products, and any supply chain distribution for the Products could have a material adverse effect on our results of operations.
Previous wording
As shown in the accompanying consolidated financial statements, we will need significant additional funds to satisfy our outstanding payables, fund our working capital, and fully implement our business plan as we seek to grow our revenues and ultimately achieve positive cash flow and profitability. In addition, our ability to continue as a going concern is adversely affected by the uncertainty surrounding Bidi’s PMTA process with FDA and outcome of Bidi’s petition with the 11th Circuit Court of Appeals regarding the FDA’s January 2024 MDO relating to Classic Bidi® Stick as well as our negative cash flows from operations, significant recurring losses and present need for additional funding. All of these factors raise substantial doubt regarding our ability to continue as a going concern.
Current wording
Asshown in the accompanying consolidated financial statements, we have incurred recurring losses and negative cash flows from operations. We will need significant additional funds to satisfy our outstanding payables, fund our working capital, and fully implement our business plan. In addition, our ability to continue as a going concern is adversely affected by the uncertainty surrounding Bidi’s PMTA process with FDA and outcome of Bidi’s petition with the 11th Circuit Court of Appeals regarding the FDA’s January 2024 MDO relating to Classic Bidi® Stick as well as the uncertainty in the Company’s ability to continue to sell the Bidi Stick given the patent infringements claim filed by RJ Reynolds. All of these factors raise substantial doubt regarding our ability to continue as a going concern.
Previous wording
However, there is no assurance that our plans will be able to generate expected or greater amounts of revenues or ever achieve profitability due to the factors listed above as well as the regulation and public perception of ENDS products and the various other risks we face. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these or other risks or uncertainties.
Current wording
However, there is no assurance that we 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 we face. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these or other risks or uncertainties.
Previous wording
We believe we will not have sufficient cash on hand as of the date of this Report to support our operations for at least 12 months. As of October 31, 2023, we had working capital of approximately $2 million and total cash of approximately $0.5 million. As discussed above, this condition and other factors raise substantial doubt regarding our ability to continue as a going concern.
Current wording
We believe we will not generate sufficient revenue to support our operations for at least twelve months. As of October 31, 2024, we had working capital of approximately $3.0 million and total cash of approximately $3.9 million. As discussed above, this condition and other factors raise substantial doubt regarding our ability to continue as a going concern.
Previous wording
We intend to generally rely on cash from operations and equity and debt offerings to the extent necessary and available, to satisfy our liquidity needs. There are several factors that could result in the need to raise additional funds, including a decline in revenue, a lack of anticipated sales growth, increased costs and our potential plan to redeem for cash the shares of our Series B Preferred Stock issued in connection with our GoFire asset purchase in May 2023. Our efforts are directed toward generating positive cash flow and, ultimately, profitability. As our efforts during our fiscal 2023 and since have not generated positive cash flows, we will need to raise additional capital. Should capital not be available to us at reasonable terms, other actions will become necessary, including implementing cost control measures and additional efforts to increase sales. We may also be required to take more strategic actions such as exploring strategic options for the sale of our company, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, or other alternatives. We believe we have, or have access to, the financial resources to weather the impacts of the FDA’s PMTA process and Bidi’s receipt of MDOs from the FDA in 2021 and 2024, which are subject to additional FDA action and ongoing court proceedings, respectively. However, we will require further financing for the next twelve months, given our operating results.
Current wording
Weintend to generally rely on cash from operations and equity and debt offerings to the extent necessary and available, to satisfy our liquidity needs. There are several factors that could result in the need to raise additional funds, including a decline in revenue, a lack of anticipated sales growth, and increased costs. Our efforts are directed toward generating positive cash flow and, ultimately, profitability. As our efforts during our fiscal 2024 and since have not generated positive cash flows, we will need to raise additional capital. Should capital not be available to us at reasonable terms, other actions will become necessary, including implementing cost control measures and additional efforts to generate sales. We may also be required to take more strategic actions such as exploring strategic options for the sale of our company, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, or other alternatives. We believe we have, or have access to, the financial resources to weather the impacts of the FDA’s PMTA process and Bidi’s receipt of MDOs from the FDA in 2021 and 2024, which are subject to additional FDA action and ongoing court proceedings, respectively. However, we will require further financing for the next twelve months, given our operating results.
Previous wording
Net cash flows used in operations was approximately $3.0 million for fiscal year ended 2023, compared to cash flow used in operations of approximately $5.7 million for fiscal year ended 2022. The decrease in cash flows used in operations for the fiscal year ended 2023 compared to the fiscal year ended 2022 was primarily due to changes in Other receivable – related party, Income tax receivable, and Accounts payable – related party (such related party being our affiliate, Bidi, as described further below under Results of Operations).
Current wording
Net cash flows used in operations was approximately $0.7 million for fiscal year ended 2024, compared to cash flow used in operations of approximately $3.0 million for fiscal year ended 2023. The decrease in cash flows used in operations for the fiscal year ended 2024 compared to the fiscal year ended 2023 was primarily due to changes in Other receivable – related party, Accounts receivable, Income tax receivable, and Accounts payable – related party (such related party being our affiliate, Bidi, as described further below under Results of Operations).
Previous wording
Net cash flows used in investing activities was $315,769 for the fiscal year ended 2023, compared to zero cash flow used in investing activities for the fiscal year ended 2022. The cash used in investing activities for the fiscal year ended 2023 consisted of cash used for the purchase of warehouse equipment and used for the transaction acquisition costs associated with the purchase of the GoFire, intellectual property.
Current wording
Net cash flows used in investing activities was zero for the fiscal year ended 2024, compared to approximately $0.3 million cash flow used in investing activities for the fiscal year ended 2023. The cash used in investing activities for the fiscal year ended 2023 consisted of cash used for the purchase of warehouse equipment and used for the transaction acquisition costs associated with the purchase of the GoFire, intellectual property.
Previous wording
Net cash flows provided by financing activities was $136,789 for the fiscal year ended 2023, compared to $1.6 million provided by financing activities for the fiscal year ended 2022. The cash provided by financing activities for the fiscal year ended 2023 consisted primarily of short-term financing.
Current wording
Net cash flows provided by financing activities was approximately $4.1 million for the fiscal year ended 2024, compared to approximately $0.1 million provided by financing activities for the fiscal year ended 2023. The cash provided by financing activities for the fiscal year ended 2024 consisted primarily from the issuance of common shares, warrants, pre-funded warrants, and proceeds from short-term financing.
Previous wording
Revenues for fiscal year 2023 were approximately $13.1 million, compared to approximately $12.8 million in fiscal year 2022. Revenues slightly increased in fiscal year 2023, primarily due to royalties received from PMPSA.
Current wording
Revenues for fiscal year ended 2024 were approximately $6.9 million, compared to approximately $13.1 million in fiscal year ended 2023. Revenues decreased in fiscal year ended 2024, primarily due to sales pressure related to the MDO received in January 2024, which resulted in the decrease in the number of sticks sold to customers.
Previous wording
Gross profit in fiscal year 2023 was approximately $2.6 million, compared to approximately $1.2 million for fiscal year 2022. Total cost of revenue was approximately $10.5 million for fiscal year 2023, compared to approximately $11.5 million for fiscal year 2022. The increase in gross profit volume is primarily driven by the decrease in cost of revenue.
Current wording
Gross profit in fiscal year ended 2024 was approximately $2.6 million, compared to approximately $2.6 million for fiscal year ended 2023. Total cost of revenue was approximately $4.3 million for fiscal year ended 2024, compared to approximately $10.5 million for fiscal year ended 2023. The slight increase in gross profit volume is primarily driven by the decrease in cost of revenue.
Previous wording
Total operating expenses were approximately $13.2 million for fiscal year 2023, compared to approximately $15.6 million for fiscal year 2022. For the fiscal year 2023, operating expenses consisted primarily of advertising and promotion fees of approximately $2.5 million, stock option compensation expense of approximately $3.2 million, professional fees of approximately $2.7 million, salaries and wages of $2.0 million, and all other general and administrative expenses of approximately $2.0 million. In fiscal year 2022, operating expenses consisted primarily of advertising and promotion fees of approximately $2.7 million, stock option compensation expense of approximately $6.0 million, professional fees of approximately $3.2 million, salaries and wages of $1.7 million, and all other general and administrative expenses of approximately $2.0 million. We expect future operating expenses to increase as we seek to generate increased sales growth and invest in our infrastructure to support the planned business growth.
Current wording
Total operating expenses were approximately $8.3 million for fiscal year ended 2024, compared to approximately $13.2 million for fiscal year ended 2023. For the fiscal year ended 2024, operating expenses consisted primarily of advertising and promotion fees of approximately $0.7 million, stock option compensation expense of approximately $0.1 million, professional fees of approximately $2.9 million, salaries and wages of $1.8 million, and all other general and administrative expenses of approximately $2.8 million. In fiscal year ended 2023, operating expenses consisted primarily of advertising and promotion fees of approximately $2.5 million, stock option compensation expense of approximately $3.2 million, professional fees of approximately $2.7 million, salaries and wages of $2.0 million, and all other general and administrative expenses of approximately $2.8 million.
Previous wording
We have Federal net operating loss (“NOL”) carryforwards of approximately $23.8 million and state NOL carryforwards of approximately $186 thousand. With the changes instituted by the CARES Act, the Federal NOLs have an indefinite life and will not expire. Our federal and state tax returns for the 2021 and 2022 tax years generally remain subject to examination by U.S. and various state authorities. A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all the deferred tax assets will not be realized. Management determined that a valuation allowance of approximately $7.3 million for the year ended on October 31, 2023, was necessary to reduce the deferred tax asset to the amount that will more likely than not be realized.
Current wording
We have Federal net operating loss (“NOL”) carryforwards of approximately $29.8 million and state NOL carryforwards of approximately $0.4 million. With the changes instituted by the CARES Act, the Federal NOLs have an indefinite life and will not expire. Our federal and state tax returns for the 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 the deferred tax assets will not be realized. Management determined that a valuation allowance of approximately $8.7 million for the year ended on October 31, 2024, was necessary to reduce the deferred tax asset to the amount that will more likely than not be realized.
Previous wording
Net loss for fiscal year 2023 was approximately $11.1 million, or $(4.13) basic and diluted net loss per share, compared to a net loss of approximately $(14.4) million, or $(7.60) basic and diluted net loss per share, for fiscal year 2022. The decrease in net loss for the fiscal year 2023, as compared to net loss in fiscal year 2022, is attributable to the revenues and expenses factors noted above. Weighted-average Common Stock outstanding were 2,721,080 on October 31, 2023, as compared to 1,890,971 on October 31, 2022. The increase in the weighted-average shares in fiscal year 2023 was primarily attributable to the issuance of 118,668 shares of Common Stock.
Current wording
Net loss for fiscal year ended 2024 was approximately $(6.7) million, or $(1.62) basic and diluted net loss per share, compared to a net loss of approximately $(11.1) million, or $(4.13) basic and diluted net loss per share, for fiscal year 2023. The decrease in net loss for the fiscal year 2024, as compared to net loss in fiscal year 2023, is attributable to the revenues and expenses factors noted above. Weighted-average Common Stock outstanding were 4,313,900 on October 31, 2024, as compared to 2,721,080 on October 31, 2023. The increase in the weighted-average shares in fiscal year 2024 was primarily attributable to the issuance of 5,723,916 shares of Common Stock.
Previous wording
For the year ended October 31, 2023, 100% of the inventories of products, consisting solely of the BIDI® Stick, were purchased from Bidi, a related party company that is owned by Nirajkumar Patel, our Chief Science and Regulatory Officer and director, in the amount of approximately $12.8 million, as compared to $1.5 million for the year ended October 31, 2022.
Current wording
For the year ended October 31, 2024, 100% of the inventories of products, consisting solely of the BIDI® Stick, were purchased from Bidi, a related party, in the amount of $0.3 million, as compared to $12.8 million for the year ended October 31, 2023.
Previous wording
On October 31, 2023, a credit of $3.0 million was applied from the related-party receivable balance to the related part accounts payable balance. After this was applied, we had no related party receivable balance. As of October 31, 2023, the related party accounts payable balance related to purchases of inventories was $1.5 million. There was no related party accounts payable balance as of October 31, 2022. As of October 31,2022, we had a related party receivable balance due from Bidi of $3,704,132 of which $1,539,486 and $2,164,646 were classified as current and non-current respectively.
Current wording
As of October 31, 2024, we had no related party receivable balance. As of October 31, 2024, there was $131,683 of related party accounts payable. On October 31, 2023, a credit of $3.0 million was applied from the related-party receivable balance to the related party accounts payable balance. After this was applied, we had no related party receivable balance as of October 31, 2023. As of October 31, 2023, the related party accounts payable balance related to purchases of inventories was $1.5 million.
Previous wording
For the fiscal year 2023, (i) approximately 15% of the revenue from the sale of Products, solely consisting of the BIDI® Stick, was generated from GPM Investments, LLC in the amount of approximately $2.0 million, (ii) approximately 14% from H.T. Hackney Co in the amount of $1.8 million, (iii) approximately 14% from FAVS Business, LLC in the amount of $1.8 million, (iv) approximately 13% from C Store Master in the amount of $1.8 million, and (v) approximately 11% from QuikTrip Corporation in the amount of $1.5 million. For the fiscal year 2022, (i) approximately 31% of the revenue from the sale of Products, solely consisting of the BIDI® Stick, was generated from Favs Business in the amount of approximately $3.9 million, (ii) approximately 15% of the revenue from the sale of the Products was generated from H.T. Hackney Co. in the amount of approximately $1.9 million, and (iii) approximately 12% of the revenue from the sale of Products, solely consisting of the BIDI Stick, was generated from GPM, in the amount of approximately $1.5 million.
Current wording
For the fiscal year 2024, (i) approximately 21% of the revenue from the sale of Products, solely consisting of the BIDI® Stick, was generated from QuikTrip Corporation in the amount of approximately $1.2 million, (ii) approximately 12% from GPM Investments in the amount of $0.7 million, and (iii) approximately 11% from FAVS Business, LLC in the amount of $0.7 million. For the fiscal year 2023, (i) approximately 16% of the revenue from the sale of Products, solely consisting of the BIDI® Stick, was generated from GPM Investments, LLC in the amount of approximately $2.0 million, (ii) approximately 15% from H.T. Hackney Co in the amount of $1.8 million, (iii) approximately 15% from FAVS Business, LLC in the amount of $1.8 million, (iv) approximately 14% from C Store Master in the amount of $1.8 million, and (v) approximately 12% from QuikTrip Corporation in the amount of $1.5 million.
Previous wording
FAVS Business LLC with an outstanding balance of approximately $302,000, C Store Master with an outstanding balance of approximately $301,000, and QuikTrip Corporation with an outstanding balance of approximately $165,000 accounted for approximately 35%, 35%, and 19% of the total accounts receivable from customers, respectively, as of October 31, 2023. Favs Business with an outstanding balance of approximately $375,000 and QuikTrip Corporation, with an outstanding balance of approximately $85,000, accounted for approximately 65% and 15% of the total accounts receivable from customers, respectively, as of October 31, 2022.
Current wording
QuikTrip Corporation with an outstanding balance of approximately $205 accounted for 100% of the total accounts receivable from customers, as of October 31, 2024. FAVS Business LLC with an outstanding balance of approximately $302,000, C Store Master with an outstanding balance of approximately $301,000, and QuikTrip Corporation with an outstanding balance of approximately $165,000 accounted for approximately 35%, 35%, and 19% of the total accounts receivable from customers, respectively, as of October 31, 2023.
Previous wording
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents on October 31, 2023, or October 31, 2022. Cash on October 31, 2023, and October 31, 2022, were $0.5 million and $3.7 million, respectively.
Current wording
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents on October 31, 2024, or October 31, 2023. Cash as of October 31, 2024, and October 31, 2023, was $3.9 million and $0.5 million, respectively.
Previous wording
However, we consider Revenue Recognition the most critical accounting policy for the Company that could create a material misevaluation of Product Revenue if not adhered to and implemented successfully. We adopted ASC 606,Revenue from Contracts with Customers (Topic 606) (“ASC 606”), in the second quarter of fiscal year 2020, as this was the first quarter that we generated revenues. Under ASC 606, we recognize revenue when a customer obtains control of promised goods, in an amount that reflects the consideration that we expect to receive in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to the customer.
Current wording
However, we consider Revenue Recognition the most critical accounting policy for the Company that could create a material misevaluation of Product Revenue if not adhered to and implemented successfully. Under ASC 606,Revenue from Contracts with Customers (Topic 606) (“ASC 606”), we recognize revenue when a customer obtains control of promised goods, in an amount that reflects the consideration that we expect to receive in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to the customer.
Previous wording
We generate product revenue from the sale of our products to non-retail customers. We recognize revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the products has been transferred to the customer. In most situations, transfer of control is considered complete when the products have been shipped to the customer. However, when we enter a consignment agreement with a new customer, once we ship and deliver the requested amount of the products the customer ordered to it distribution center for its retail sales location, we retain ownership of the delivered products until they are delivered to their retail stores. When the products are sold in the stores and the funds, as stated in the consignment agreement, are remitted to us, then we record the revenues in our financial records. We determined that a customer obtains control of the product upon shipment when title of such product and risk of loss transfer to the customer. Our shipping and handling costs are fulfillment costs, and such amounts are classified as part of cost of sales. The advance payment is not considered a significant financing component because the period between when we transfer a promised good to a customer and when the customer pays for that good is short. We offer credit sales arrangements to non-retail (or wholesale) customers and monitor the collectability of each credit sale routinely.
Current wording
Wegenerate product revenue from the sale of our products to non-retail customers. We recognize revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the products has been transferred to the customer. In most situations, transfer of control is considered complete when the products have been shipped to the customer. However, when we enter a consignment agreement with a new customer, once we ship and deliver the requested amount of the products the customer ordered to its distribution center for its retail sales location, we retain ownership of the delivered products until they are delivered to their retail stores. When the products are sold in the stores and the funds, as stated in the consignment agreement, are remitted to us, then we record the revenues in our financial records. We determined that a customer obtains control of the product upon shipment when title of such product and risk of loss transfer to the customer. Our shipping and handling costs are fulfillment costs, and such amounts are classified as part of cost of sales. The advance payment is not considered a significant financing component because the period between when we transfer a promised good to a customer and when the customer pays for that good is short. We offer credit sales arrangements to non-retail (or wholesale) customers and monitor the collectability of each credit sale routinely.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.