Company: KAVL
Filing Date: 2025-03-17
Form Type: 10-Q
Source: 0001731122-25-000399
Chunk: 17

Company: Kaival Brands Innovations Group, Inc.
Filing Date: 2025-03-17
Form: 10-Q
Item: Item 1
Chunk 17
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) certain branding rights to the extent (but only
to the extent) necessary to permit KBI to perform its obligations to PMPSA as set forth in the PMI License Agreement.

On August 12, 2023, the Company executed and entered
into a Deed of Amendment No. 1 (the “PMI License Amendment”) with PMPSA, Bidi and KBI. Pursuant to the PMI License Amendment
(which has an effective date of June 30, 2023), the following material changes have been made to the PMI License Agreement:

1. Royalty Rate. The royalty paid
by PMPSA to KBI will no longer be based on sales price of the Product being sold, but rather on the volume of liquid contained within
Product being sold. The royalty will be on a sliding scale of between $0.08 to $0.16 per sale based on the volume of liquid contained
in the Product, increasing to between $0.10 to $0.20 per sale upon meeting certain sales milestones. For purposes of determining aggregate
sales threshold, all sales undertaken since commencement of the PMI Licensing Agreement will be counted.

2. Elimination of Certain Potential
Royalty Adjustments. Certain potential adjustments to the royalties receivable by KBI as provided for in the PMI License Agreement have
been eliminated.

3. Guaranteed Royalty. The guaranteed
royalty payment owed to KBI under the PMI License Agreement has been eliminated. Instead, royalties will be paid on a quarterly basis
going-forward based on actual sales. Any unpaid guaranteed royalty has been cancelled.

    F-12 

 4. Insurance Tail Requirements.
KBI’s requirement to keep certain tail insurance after the expiration or termination of the PMI Licensing Agreement was reduced
from 6 years to 2 years.

5. Markets. The identification
of the PMI Markets that PMI may enter has been expanded to cover certain additional territories.

6. Net Reconciliation Payment to
KBI. As a result of the changes to the PMI License Agreement described in paragraphs 1 thought 3 above, the value of such changes was
calculated and reconciled as of the date of commencement of the PMI Licensing Agreement through June 30, 2023. On September 8, 2023, the
Company received the Net Reconciliation Payment from PMPSA of $134,981 pursuant to this provision.

The KBI License
Agreement provides that KBI shall