Company: KAVL
Filing Date: 2025-02-10
Form Type: 10-K
Source: 0001731122-25-000185
Chunk: 465

Company: Kaival Brands Innovations Group, Inc.
Filing Date: 2025-02-10
Form: 10-K
Item: Item 3
Chunk 465
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, primarily due to sales pressure related to the MDO received in January 2024, which resulted in the decrease
  in the number of sticks sold to customers.

41

Cost of Revenue, Net and Gross Profit (Loss):

Gross profit in fiscal year ended 2024 was approximately
$2.6 million, compared to approximately $2.6 million for fiscal year ended 2023. Total cost of revenue was approximately $4.3 million
for fiscal year ended 2024, compared to approximately $10.5 million for fiscal year ended 2023. The slight increase in gross profit volume
is primarily driven by the decrease in cost of revenue.

Operating Expenses:

Total operating expenses were approximately $8.3 million
for fiscal year ended 2024, compared to approximately $13.2 million for fiscal year ended 2023. For the fiscal year ended 2024, operating
expenses consisted primarily of advertising and promotion fees of approximately $0.7 million, stock option compensation expense of approximately
$0.1 million, professional fees of approximately $2.9 million, salaries and wages of $1.8 million, and all other general and administrative
expenses of approximately $2.8 million.   In fiscal year ended 2023, operating expenses consisted primarily of advertising and
promotion fees of approximately $2.5 million, stock option compensation expense of approximately $3.2 million, professional fees of approximately
$2.7 million, salaries and wages of $2.0 million, and all other general and administrative expenses of approximately $2.8 million.

Income Taxes:

We have Federal net operating loss (“NOL”)
carryforwards of approximately $29.8 million and state NOL carryforwards of approximately $0.4 million. With the changes instituted by
the CARES Act, the Federal NOLs have an indefinite life and will not expire. Our federal and state tax returns for the 2022 and 2023 tax
years generally remain subject to examination by U.S. and various state authorities. A valuation allowance is recorded to reduce the deferred
tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all the deferred tax assets will not
be realized. Management determined that a valuation allowance of approximately $8.7 million for the year ended on October 31, 2024, was
necessary to reduce the deferred tax asset to the amount that will more likely than not