Kaival Brands Innovations Group, Inc.

Results of Operations

Three months ended January 31, 2025, compared to three months ended January 31, 2024

Revenues*:*

Revenues for the first quarter of fiscal year 2025 were approximately $0.2 million, compared to approximately $3.2 million in the same period of the prior fiscal year. Revenues decreased in the first quarter of 2025, primarily due to a decrease in product sales to customers.

Cost of Revenue, Net and Gross Profit:

Gross profit in the first quarter of fiscal year 2025 was approximately $0.2 million, or approximately 100.0% of revenues, net, compared to approximately $1.2 million gross profit or approximately 37.3%, of revenues, net, for the first quarter of fiscal year 2024. Total cost of revenue, net was zero for the first quarter of fiscal year 2025, compared to approximately $2.0 million, or approximately 62.7% of revenue, net for the first quarter of fiscal year 2024. The decrease is due to the reduction of product sales to customers during the three months January 31 ,2025.

Operating Expenses:

Total operating expenses were approximately $4.3 million for the first quarter of fiscal year 2025, compared to approximately $2.9 million for the first quarter of fiscal year 2024. The increase is primarily from stock compensation expense of $2.9 million for share-based awards to management and members of the board of directors. For the first quarter of fiscal year 2025, operating expenses consisted primarily of professional fees of approximately $3.4 million, and all other general and administrative expenses of approximately $0.9 million. General and administrative expenses in the first quarter of fiscal year 2025 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 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.

Income Taxes:

During the first quarter of fiscal year 2025, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately ($4.0) million. Similarly, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately ($2.1) million for the first quarter of fiscal year 2024.

Net Loss:

As a result of the items noted above, the net loss for the first quarter of fiscal year 2025 was approximately $4.0 million, or $0.43 basic and diluted net loss per share, compared to a net loss of approximately $2.2 million, or $0.76 basic and diluted net loss per share, for the first quarter of fiscal year 2024. The increase in the net loss for the first quarter of fiscal year 2025, as compared to the first quarter of fiscal year 2024, is primarily attributable to the decrease in revenues and increase in operating expenses as noted above.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore actual results could differ from those estimates. There have been no material changes to our critical accounting policies and estimates during the three months ended January 31, 2025 from those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our 2024 Annual Report for the year ended October 31, 2024.

Recent Accounting Pronouncements

Refer to Item 1, Financial Statements, Note 2,Basis of Presentation and Significant Accounting Policies.