Company: KAVL
Filing Date: 2025-06-10
Form Type: 10-Q
Source: 0001731122-25-000842
Chunk: 56

Company: Kaival Brands Innovations Group, Inc.
Filing Date: 2025-06-10
Form: 10-Q
Item: Item 8
Chunk 56
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 cost of sales. The Company
offers credit sales arrangements to non-retail (or wholesale) customers and monitors the collectability of each credit sale routinely.

Revenue is measured by the transaction price, which
is defined as the amount of consideration expected to be received in exchange for providing goods to customers. The transaction price
is adjusted for estimates of known or expected variable consideration, which includes refunds and returns as well as incentive offers
and promotional discounts on current orders. Estimates for sales returns are based on, among other things, an assessment of historical
trends, information from customers, and anticipated returns related to current sales activity. These estimates are established in the
period of sale and reduce revenue in the period of the sale. Variable consideration related to incentive offers and promotional programs
are recorded as a reduction to revenue based on amounts the Company expects to collect. Estimates are regularly updated, and the impact
of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such as pricing and quantities
ordered are established at the time an order is placed and incentives have very short-term durations.

Amounts billed and due from customers are short term
in nature and are classified as receivable since payments are unconditional and only the passage of time related to credit terms is required
before payments are due. The Company does not grant payment financing terms greater than one year. Payments received in advance of revenue
recognition are recorded as deferred revenue.

Royalty Revenue

On June 13, 2022, KBI entered into the PMI License
Agreement with PMPSA, effective as of May 13, 2022 (the “PMI Commencement Date”). Pursuant to the PMI License Agreement, KBI
granted PMPSA an exclusive irrevocable license to use its technology, documentation, and intellectual property to make, distribute, and
sell disposable nicotine e-cigarettes Products based on the intellectual property in certain international markets set forth in the PMI
License Agreement (the “PMI Markets”). The Company has the exclusive international distribution rights to the Products and,
in order to allow KBI to fulfill its obligations set forth in the PMI License Agreement, has contributed the international distribution
rights for the PMI Markets to KBI as set forth in a Capital Contribution Agreement, dated June 10, 2022. The sublicense granted to PMPSA
is exclusive in the PMI Markets and neither KBI nor any of its affiliates can sell, promote, use, or