Company: KAVL
Filing Date: 2025-06-10
Form Type: 10-Q
Source: 0001731122-25-000842
Chunk: 17

Company: Kaival Brands Innovations Group, Inc.
Filing Date: 2025-06-10
Form: 10-Q
Item: Item 1
Chunk 17
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, 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 distribute any competing products
in the PMI Markets for the duration of the term of the PMI License Agreement and any Sell-Out Period (as defined in the PMI License Agreement).
PMSPA will be responsible for any regulatory filings necessary to sell the Products in the PMI Markets. Both KBI and PMPSA agree to work
together in the registration and maintenance of the Intellectual Property, but KBI will bear all cost and expense to implement the registration
strategy. Finally, PMPSA has agreed to potential future development services with KBI in the PMI Markets