Kaival Brands Innovations Group, Inc.

Results of Operations

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

Revenues*:*

Revenues for the third quarter of fiscal year 2025 were approximately $142 thousand, compared to approximately $714 thousand in the same period of the prior fiscal year. Revenues decreased in the third quarter of 2025, primarily due to a decrease in product sales to customers and also due to the decrease in royalty revenue.

Cost of Revenue, Net and Gross Profit:

Gross profit in the third quarter of fiscal year 2025 was approximately $142 thousand, or approximately 100.0% of revenues, net, compared to approximately $369 thousand gross profit or approximately 51.7%, of revenues, net, for the third quarter of fiscal year 2024. Total cost of revenue, net was zero for the third quarter of fiscal year 2025, compared to approximately $345 thousand, or approximately 48.3% of revenue, net for the third quarter of fiscal year 2024. The decrease is due to the reduction of product sales to customers during the three months ended July 31, 2025.

Operating Expenses:

Total operating expenses were approximately $701 thousand for the third quarter of fiscal year 2025, compared to approximately $1.8 million for the third quarter of fiscal year 2024. The decrease is primarily a decrease in professional fees, payroll and general and administrative expenses. For the third quarter of fiscal year 2025, operating expenses consisted primarily of professional fees of approximately $0.2 million, and all other general and administrative expenses of approximately $0.4 million. General and administrative expenses in the third 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 third quarter of fiscal year 2024, operating expenses consisted primarily of advertising and promotion fees of approximately $0.03 million, stock option expense of approximately $56 thousand, professional fees of approximately $0.6 million, and all other general and administrative expenses of approximately $1.1 million. General and administrative expenses in the third 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 third quarter of fiscal year 2025, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately $0.6 million. Similarly, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately $1.6 million for the third quarter of fiscal year 2024.

Net Loss:

As a result of the items noted above, the net loss for the third quarter of fiscal year 2025 was approximately $0.6 million, or $0.05 basic and diluted net loss per share, compared to a net loss of approximately $1.8 million, or $0.39 basic and diluted net loss per share, for the third quarter of fiscal year 2024. The decrease in the net loss for the third quarter of fiscal year 2025, as compared to the third quarter of fiscal year 2024, is primarily attributable to the lower sales and royalty revenue and decrease in operating expenses as noted above.

Nine months ended July 31, 2025, compared to nine months ended July 31, 2024

Revenues:

Revenues for the nine months ended July 31, 2025, were approximately $0.4 million, compared to $6.2 million for the nine months ended July 31, 2024. Revenues decreased during the nine months ended July 31, 2025, compared to the nine months ended July 31, 2024, primarily due to a decrease in product sales to customers.

Cost of Revenue and Gross Profit:

Gross profit for the nine months ended July 31, 2025, was approximately $0.4 million, compared to gross profit of approximately $2.1 million for the nine months ended July 31, 2024. Total cost of revenue was zero for the nine months ended July 31, 2025, compared to $4.1 million for the nine months ended July 31, 2024. The decrease in gross profit for the nine months ended July 31, 2025 compared to the nine months ended July 31, 2024 is due to the reduction of product sales to customers during the nine months July 31, 2025.

Operating Expenses:

Total operating expenses were approximately $7.0 million for the nine months ended July 31, 2025, compared to approximately $6.5 million for the nine months ended July 31, 2024. For the nine months ended July 31, 2025, operating expenses consisted primarily of stock option expense of $36 thousand, professional fees totaling approximately $4.3 million, loss on ROU asset of $0.7 million, and all other general and administrative expenses of approximately $2.0 million. General and administrative expenses during the nine months ended July 31, 2025, consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes.

For the nine months ended July 31, 2024, operating expenses were approximately $6.5 million, consisting primarily of advertising and promotion fees of approximately $0.7 million, stock option expense of $77 thousand, professional fees totaling approximately $1.9 million, and all other general and administrative expenses of approximately $3.8 million. General and administrative expenses during the nine months ended July 31, 2024, consisted primarily of salaries and wages, insurance, banking fees, business fees, and other service fees.

Income Taxes:

During the nine months ended July 31, 2025, we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately $6.6 million for the nine months ended July 31, 2025. Similarly, we did not accrue a tax provision for income taxes during the nine months ended July 31, 2024, due to the pre-tax loss of approximately $5.2 million for the nine months ended July 31, 2024.

Net Loss:

The net loss for the first nine months ended July 31, 2025, was approximately $6.6 million, or $0.61 basic and diluted net loss per share, compared to net loss for the nine months ended July 31, 2024, which was approximately $5.2 million, or $1.62 basic and diluted net loss per share. The increase in the net loss for the nine months ended July 31, 2025, as compared to the nine months ended July 31, 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 nine months ended July 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.