Company: KAVL
Filing Date: 2025-02-10
Form Type: 10-K
Source: 0001731122-25-000185
Chunk: 313

Company: Kaival Brands Innovations Group, Inc.
Filing Date: 2025-02-10
Form: 10-K
Item: Item 1B
Chunk 313
---
 plus deferred taxes related primarily to differences between the
recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities
are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income and
tax credits that are available to offset future federal income taxes. The Company believes that its income tax filing positions and deductions
will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s
financial condition, results of operations, or cash flow.

The Company has Federal net operating loss (“NOL”)
carryforwards, consisting of total deferred tax assets, totaling approximately $29.8 million and state NOL carryforwards, consisting of
total deferred tax liabilities, totaling approximately $0.3 million. With the changes instituted by the CARES Act, the Federal NOLs have
an indefinite life and will not expire. The Company’s federal and state tax returns for the 2021, 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 of the deferred tax asset will not be realized.
After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance of $8,703,742
for the year ended on October 31, 2024, and a valuation allowance of $7,319,289 for the year ended on October 31, 2023 were necessary
to reduce the total net deferred tax asset to the amount that will more likely than not be realized pursuant to ASC 740 for those fiscal
years.

Fair Value of Financial Instruments

The Company’s balance sheet includes certain
financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively
short period of time between the origination of these instruments and their expected realization.

ASC 820, Fair Value Measurements and Disclosures
(“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on