Company: KAVL
Filing Date: 2025-03-17
Form Type: 10-Q
Source: 0001731122-25-000399
Chunk: 11

Company: Kaival Brands Innovations Group, Inc.
Filing Date: 2025-03-17
Form: 10-Q
Item: Item 1
Chunk 11
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 by using relevant available information including historical
collection and loss experience, current economic conditions, prevailing economic conditions, supportable forecasted economic conditions
and evaluations of customer balances. Once a receivable is deemed uncollectible after collection efforts have been exhausted, it is written
off against the reserve for credit losses. The Company closely monitors the credit quality of its customers and does not generally require
collateral or other security on receivables. The reserve for credit losses is measured on a collective basis when similar risk characteristics
exist.

Based upon management’s assessment of the accounts
receivable aging and the customers’ payment history, the Company has determined that no reserve for credit losses is required as
of January 31, 2025 and October 31, 2024.

On January 22, 2024, the FDA issued an MDO on Bidi
Vapor’s “Classic” BIDI ® Stick PMTA. The Company evaluated the impact of this MDO to the financial statements
and recorded an estimated accrual for potential customer returns of the “Classic” products of $4,073 and $46,775 as
of January 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 “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