Kaival Brands Innovations Group, Inc.

Results of Operations

Three months ended April 30, 2025, compared to three months ended April 30, 2024

Revenues*:*

Revenues for the second quarter of fiscal year 2025 were approximately $47 thousand, compared to approximately $2.2 million in the same period of the prior fiscal year. Revenues decreased in the second quarter of 2025, primarily due to a decrease in product sales to customers.

Cost of Revenue, Net and Gross Profit:

Gross profit in the second quarter of fiscal year 2025 was approximately $47 thousand, or approximately 100.0% of revenues, net, compared to approximately $0.5 million gross profit or approximately 22.4%, of revenues, net, for the second quarter of fiscal year 2024. Total cost of revenue, net was zero for the second quarter of fiscal year 2025, compared to approximately $1.7 million, or approximately 77.6% of revenue, net for the second quarter of fiscal year 2024. The decrease is due to the reduction of product sales to customers during the three months ended April 30, 2025.

Operating Expenses:

Total operating expenses were approximately $2.0 million for the second quarter of fiscal year 2025, compared to approximately $1.8 million for the second quarter of fiscal year 2024. The increase is primarily from the loss on the ROU asset of $0.7 million offset by reduced advertising and promotions expenses, as well as a decrease in stock compensation expense for share-based awards to management and members of the board of directors. For the second quarter of fiscal year 2025, operating expenses consisted primarily of a loss on ROU asset of $0.7 million, professional fees of approximately $0.7 million, and all other general and administrative expenses of approximately $0.6 million. General and administrative expenses in the second 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 second quarter of fiscal year 2024, operating expenses consisted primarily of advertising and promotion fees of approximately $0.3 million, stock option expense of approximately ($0.3) million, professional fees of approximately $0.5 million, and all other general and administrative expenses of approximately $1.3 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 second quarter of fiscal year 2025, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately $2.0 million. Similarly, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately $1.5 million for the second quarter of fiscal year 2024.

Net Loss:

As a result of the items noted above, the net loss for the second quarter of fiscal year 2025 was approximately $2.0 million, or $0.17 basic and diluted net loss per share, compared to a net loss of approximately $1.5 million, or $0.56 basic and diluted net loss per share, for the second quarter of fiscal year 2024. The increase in the net loss for the second quarter of fiscal year 2025, as compared to the second quarter of fiscal year 2024, is primarily attributable to the increase of stock-based compensation, loss on ROU asset and lower sales revenue.

Six months ended April 30, 2025, compared to six months ended April 30, 2024

Revenues:

Revenues for the six months ended April 30, 2025, were approximately $0.2 million, compared to $5.4 million for the six months ended April 30, 2024. Revenues decreased during the six months ended April 30, 2025, compared to the six months ended April 30, 2024, primarily due to a decrease in product sales to customers.

Cost of Revenue and Gross Profit:

Gross profit for the six months ended April 30, 2025, was approximately $0.2 million, compared to gross profit of approximately $1.7 million for the six months ended April 30, 2024. Total cost of revenue was approximately zero million for the six months ended April 30, 2025, compared to $3.7 million for the six months ended April 30, 2024. The decrease in gross profit of approximately $1.5 million for the six months ended April 30, 2025 compared to the six months ended April 30, 2024 is due to the reduction of product sales to customers during the six months April 30, 2025.

Operating Expenses:

Total operating expenses were approximately $6.3 million for the six months ended April 30, 2025, compared to approximately $4.7 million for the six months ended April 30, 2024. For the six months ended April 30, 2025, operating expenses consisted primarily of stock option expense of $34 thousand, professional fees totaling approximately $4.1 million, loss on ROU asset of $0.7 million, and all other general and administrative expenses of approximately $1.5 million. General and administrative expenses during the six months ended April 30, 2025, consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes.

For the six months ended April 30, 2024, operating expenses were approximately $4.7 million, consisting primarily of advertising and promotion fees of approximately $0.7 million, stock option expense of $21 thousand, professional fees totaling approximately $1.3 million, and all other general and administrative expenses of approximately $2.7 million. General and administrative expenses during the six months ended April 30, 2024, consisted primarily of salaries and wages, insurance, banking fees, business fees, and other service fees.

Income Taxes:

During the six months ended April 30, 2025, we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately $6.1 million for the six months ended April 30, 2025. Similarly, we did not accrue a tax provision for income taxes during the six months ended April 30, 2024, due to the pre-tax loss of approximately $3.6 million for the six months ended April 30, 2024.

Net Loss:

The net loss for the first six months ended April 30, 2025, was approximately $6.1 million, or $0.58 basic and diluted net loss per share, compared to net loss for the six months ended April 30, 2024, which was approximately $3.6 million, or $1.32 basic and diluted net loss per share. The increase in the net loss for the six months ended April 30, 2025, as compared to the six months ended April 30, 2024, is primarily attributable to the increase of stock based compensation, loss on ROU asset and lower sales revenue.

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 six months ended April 30, 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.