Company: KAVL
Filing Date: 2025-09-16
Form Type: 10-Q
Source: 0001731122-25-001266
Chunk: 81

Company: Kaival Brands Innovations Group, Inc.
Filing Date: 2025-09-16
Form: 10-Q
Item: Item 8
Chunk 81
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Classic” products of zero and $46,775 as of July 31, 2025, and October 31, 2024, respectively, which
is included in accrued expenses in the unaudited interim consolidated balance sheets.

Credit Risk 

Financial instruments, which potentially subject us
to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and revenue. The
Company performs periodic credit evaluations of its customers and generally does not require collateral on trade receivables. Historically,
the Company has not experienced significant credit losses.

Inventories

All product inventory is purchased from a related
party, Bidi. Inventories are stated at the lower of cost and net realizable value. Cost includes all costs of purchase and other costs
incurred in bringing the inventories to their present location and condition. The Company determines cost based on the first-in, first-out
(“FIFO”) method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to make the sale.

On January 22, 2024, the FDA issued an MDO on Bidi
Vapor’s tobacco-flavored “Classic” BIDI ® Stick PMTA. The appeal of that denial order before the 11th
Circuit Court of Appeals was unsuccessful. The Company evaluated the impact of this MDO to the financial statements and recognized a full
reserve for all remaining “Classic” products on hand amounting to $313,654 as of October 31, 2024. The Company has zero inventory
as of July 31, 2025.

    F-9

Leases

The Company determines if a contract contains a lease
at commencement of the arrangement based on whether it has the right to obtain substantially all of the economic benefits from the use
of an identified asset and whether it has the right to direct the use of an identified asset in exchange for consideration, which relates
to an asset which the Company does not own. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying
asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
The Company recognizes lease liabilities at the present value of the future lease payments and a corresponding ROU asset at the lease
commencement date. The interest rate used to determine the present value of the future lease payments is the rate implicit in the