Kaival Brands Reports Fiscal 2024 First Quarter Financial Results and Provides Business Update

Kaival Brands Innovations Group, Inc.

 (NASDAQ: KAVL) ("Kaival Brands" or the "Company,"), the exclusive U.S. distributor of all products manufactured by Bidi Vapor, LLC ("Bidi Vapor"), on Monday announced its financial results for the fiscal 2024 first quarter ended January 31, 2024 and provided a business update.

Recent Business Highlights

• Reduced net inventories to $2.1 million as of January 31, 2024, down 49.5% from $4.1 million as of October 31, 2023.
• Terminated service agreement with QuikFillRx (d/b/a Kaival Marketing Services), the third-party service provider responsible for increasing sales of Bidi Sticks, effective February 22, 2024. This action is expected to save the Company more than $1.5 million in expenses annually.
• Appointed Nirajkumar Patel, the Company’s Chief Science and Regulatory Officer, as the Company’s Chief Executive Officer.
• Appointed Eric Morris as the Company’s Interim Chief Financial Officer.

Management Comments

Nirajkumar Patel, Chief Executive Officer and Chief Science and Regulatory Officer of Kaival Brands, stated, “After serving as an employee and non-committee Board member for the last two years, I have stepped into the role of CEO to redirect the Company’s efforts and focus our energy and resources on initiatives that will enable us to move forward. First, let me assure you, the team at Kaival remains focused on preserving and improving shareholder value. We have experienced a number of stalled starts related to the FDA’s denial of Bidi Vapor’s premarket tobacco product application (PMTA) for Bidi Vapor’s “Classic” tobacco-flavored BIDI® Stick ENDS device, and (which denial Bidi is appealing), we are navigating a number of transitions. However, we continue to believe there is tremendous value related to our international business as well as new, potential opportunities to monetize the extensive and valuable inhalation patent portfolio that we acquired from GoFire, Inc. in May of last year. The purchase of the portfolio marked the beginning of our diversification efforts and move away from sole reliance on revenues from the sales of Bidi Sticks. Our efforts to explore profitability of this portfolio are underway, and we are incredibly energized by the interest and revenue opportunities we believe could be available to us through this portfolio.”

Patel continued, “We have engaged an outside firm to assist us in exploring strategic alternatives. Kaival Brands International, LLC (‘KBI’), is not included within the scope of consideration. We remain committed to our multi-national licensing partner and our shared interest in delivering a portfolio of smoke-free products. We are optimistic that refining our strategic focus will enable us to diversify, reduce business risk and better optimize our financial results as we move forward.”

Engaged Maxim Group LLC to explore strategic alternatives of the parent company, excluding Kaival Brands International, the Company’s subsidiary that is party to its international licensing agreement.

Financial Results for Fiscal First Quarter 2024

Revenues: Revenues for the first quarter of fiscal year 2024 were $3.2 million, compared to $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: 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 in gross profit is due to fewer credits granted in current year 

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. 

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. 

Cash Position: As of January 31, 2024, the Company had working capital of $0.3 million and total cash of $0.6 million compared to working capital of [*] and a total cash of [*] as of January 31, 2023. .

Additional information regarding the Company’s results of operations for the first quarter ended January 31, 2024, is available in the Company’s Quarterly Report on Form 10-Q for such reporting period, which has been filed with the Securities and Exchange Commission.

ABOUT KAIVAL BRANDS

Based in Grant-Valkaria, Florida, Kaival Brands is a company focused on incubating and commercializing innovative products into mature and dominant brands, with a current focus on the distribution of electronic nicotine delivery systems (ENDS) also known as “e-cigarettes” for use by customers 21 years and older. Our business plan is to seek to diversify into distributing other nicotine and non-nicotine delivery system products (including those related to hemp-derived cannabidiol (known as CBD) products). Kaival Brands and Philip Morris Products S.A. (via sublicense from Kaival Brands) are the exclusive global distributors of all products manufactured by Bidi Vapor LLC. Based in Melbourne, Florida, Bidi Vapor maintains a commitment to responsible, adult-focused marketing, supporting age-verification standards and sustainability through its BIDI® Cares recycling program. Bidi Vapor's premier device, the BIDI® Stick, which is distributed exclusively by Kaival Brands, is a premium product made with high-quality components, a UL-certified battery and technology designed to deliver a consistent vaping experience for adult smokers 21 and over. Nirajkumar Patel, the Company’s Chief Executive Officer and director, owns and controls Bidi Vapor. As a result, Bidi Vapor is considered a related party of the Company.

Learn more about Kaival Brands at https://ir.kaivalbrands.com/overview/default.aspx.

ABOUT KAIVAL LABS

Based in Grant-Valkaria, Florida, Kaival Labs is a wholly-owned subsidiary of Kaival Brands focused on developing new branded and white-label products and services in the vaporizer and inhalation technology sectors. Kaival Labs’ current patent portfolio consists of 19 existing and 47 pending with novel technologies across extrusion dose control, product preservation, tracking and tracing usage, multiple modalities and child safety. The patents and patent applications cover territories including the United States, Australia, Canada, China, the European Patent Organisation, Israel, Japan, Mexico, New Zealand and South Korea. The portfolio also includes a fully-functional proprietary mobile device software application that is used in conjunction with certain patents in the portfolio.

Learn more about Kaival Labs at https://kaivallabs.com.

Cautionary Note Regarding Forward-Looking Statements

This press release and the statements of the Company’s management and partners included herein and related to the subject matter herein includes statements that constitute “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended), which are statements other than historical facts. You can identify forward-looking statements by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “should,” “strategy,” “target,” “will,” and similar words. All forward-looking statements speak only as of the date of this press release. Although we believe that the plans, intentions, and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions, or expectations will be achieved. Therefore, actual outcomes and results could materially and adversely differ from what is expressed, implied, or forecasted in such statements. Our business may be influenced by many factors that are difficult to predict, involve uncertainties that may materially affect results, and are often beyond our control. Factors that could cause or contribute to such differences include, but are not limited to: (i) actions taken by Bidi Vapor and the courts in response to the FDA’s January 2024 MDO on its Classic Bidi Stick, (ii) future actions by the FDA relating to the PMTAs for Bidi Vapor’s 10 other flavors that could adversely impact our business and prospects, including the outcome of FDA’s scientific review of Bidi Vapor’s pending PMTAs, (iii) the results of international marketing and sales efforts by Philip Morris International, the Company’s international distribution partner, (iv) how quickly domestic and international markets adopt our products, (v) the scope of future FDA enforcement of regulations in the ENDS industry, (vi) the FDA’s approach to the regulation of synthetic nicotine and its impact on our business, (vii) potential federal and state flavor bans and other restrictions on ENDS products, (viii) general economic uncertainty in key global markets and a worsening of geopolitical and economic conditions, including low levels of economic growth, (ix) the effects of steps that we are taking to raise capital, reduce operating costs and diversity our product offerings, (x) our inability to generate and sustain profitable sales growth, including sales growth in U.S. and international markets, (xi) circumstances or developments that may make us unable to implement or realize anticipated benefits, or that may increase the costs, of our current and planned business initiatives, (xii) significant changes in our relationships with our distributors or sub-distributors and (xiii) other factors detailed by us in our public filings with the Securities and Exchange Commission, including the disclosures under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023, filed with the Securities and Exchange Commission on February 14, 2024 and our subsequent Quarterly Reports on Form 10-Q and accessible at www.sec.gov. All forward-looking statements included in this press release are expressly qualified in their entirety by such cautionary statements. Except as required under the federal securities laws and the Securities and Exchange Commission’s rules and regulations, we do not have any intention or obligation to update any forward-looking statements publicly, whether as a result of new information, future events, or otherwise.

Contact:Brett Maas, Managing PartnerHayden IR(646) [e-mail]