Company: KAVL
Filing Date: 2025-02-10
Form Type: 10-K
Source: 0001731122-25-000185
Chunk: 573

Company: Kaival Brands Innovations Group, Inc.
Filing Date: 2025-02-10
Form: 10-K
Item: Item 4
Chunk 573
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 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. During fiscal year 2024 and 2023, the Company recognized inventory write
offs of $61,927 and $105,057, respectively, related to short-coded Bidi sticks that were no longer saleable.

On January 22, 2024, the FDA issued an MDO on Bidi
Vapor’s “Classic” BIDI ® Stick PMTA, which Bidi is currently appealing before the 11th Circuit Court
of Appeals. 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 and $381,512 as of October 31, 2024, and October 31, 2023, respectively.

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 lease
unless that rate cannot be readily determined. When the interest rate implicit in the lease is not readily determinable, the interest
rate used to determine the present value of the future lease payments is the Company’s Incremental Borrowing Rate (“IBR”).
The IBR is a hypothetical rate based on the Company’s understanding of what its credit rating would be to borrow and resulting interest
the Company would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized
basis. Periods covered by the Company’s option to extend or terminate the lease are included in the lease term when it is reasonably
certain that the Company will exercise