Kaival Brands Innovations Group, Inc. (NASDAQ:
KAVL) ("Kaival Brands," the "Company" or "we,” “our” or
similar terms), the exclusive distributor of all products
manufactured by Bidi Vapor, LLC ("Bidi Vapor"), including the BIDI®
Stick electronic nicotine delivery system (ENDS), which are
intended for adults 21 and over, today announced its financial
results for the fiscal 2023 second quarter ended April 30, 2023 and
highlighted its recent corporate achievements.
Recent Achievements During and
Subsequent to the Fiscal Second Quarter 2023
- During the second quarter ended
April 2023, Kaival Brands worked diligently to secure new and large
retail customer accounts for its core BIDI® Stick distribution
business. These larger accounts take time and effort to open, but
once secured, should lead to increasing orders for BIDI®
Stick.
- During the quarter, the Company
announced important new broker and distribution agreements to
broaden its BIDI® Stick reach to larger potential retail
customers.
- While actual sales results for the
quarter were slightly down versus the prior year quarter due
certain credits, discounts and rebates issued to customers, the
Company believes that continued U.S. Food and Drug Administration
(FDA) enforcement of non-compliant ENDS products has allowed the
Company to position BIDI® Stick as a compliant alternative subject
to FDA enforcement discretion. The Company believes this should
also help in securing new orders for BIDI® Stick.
- In furtherance of this strategy, on
June 14, 2023, the Company announced it had relaunched distribution
of the BIDI® Stick in over 1,000 Circle K locations. Initial
product has shipped and ramp-up to 5,000 stores is underway in all
South Atlantic and Midwest region locations. It is this type of
sales activity that the Company expects to repeat in the second
half of its fiscal 2023 and beyond.
- On March 13, 2023, the Company
announced the official launch of the VEEBA disposable e-vapor
product across the United Kingdom. VEEBA is being distributed by
Philip Morris Products S.A., a subsidiary of Philip Morris
International, under a licensing agreement with a subsidiary of
Kaival Brands allowing Philip Morris to utilize the patents,
methods and technology exclusively licensed to Kaival Brands by
Bidi Vapor to develop products based on BIDI® Stick. The
Company expects to generate royalties under this license agreement
in future periods.
- In a transaction looking to the
future of the Company and aimed at broadening and diversifying the
Company’s offerings, on May 30, 2023, the Company purchased certain
intellectual property assets from GoFire, Inc. consisting of 12
patents and 46 patent applications as well as four registered and
two pending trademarks related to vaporization and inhalation
technologies in exchange for equity securities of the Company and
certain contingent cash consideration. The patents and patent
applications cover the U.S. and several international territories.
As part of this transaction, seasoned private equity investor and
former tobacco executive James P. Cassidy (a GoFire investor and
advisor) was appointed as a new independent member of the Company’s
Board of Directors and will help the Company’s efforts to
capitalize on the GoFire assets.
- On March 20, 2023, the Company
announced the appointment of Barry Hopkins, David Worner and Mark
Thoenes to its Board of Directors. These directors bring decades of
senior leadership experience in tobacco, public company finance and
accounting and governance to Kaival Brands, including Mr. Hopkins a
former Turning Points Brands and Altria executive who was named
Chairman of the Board.
Eric Mosser, President and Chief Operating
Officer of Kaival Brands, stated, "We remain excited and confident
in the future of Kaival Brands. Over the past four months, we
signed new broker and distribution agreements for our core BIDI®
Stick distribution business, focusing on partners that share our
vision of regulatory compliance and youth-access prevention. We
believe we have positioned ourselves for increased sales in the
second half of the year. Despite a slight decrease in revenues
versus the comparable quarter last year due to non-recurring
matters, we have seen distributor interest increase as a result of
increased enforcement by the FDA against bad actors in the industry
marketing non-compliant products, as evidenced by our Circle K
relaunch announced earlier today. Looking to our future, our
commercial partner Philip Morris launched its ENDS product based on
our technology in the U.K., we appointed new board members with
significant senior leadership experience in relevant areas, and we
recently acquired an intellectual property portfolio from GoFire
and are currently focused on seeking third-party licensing
opportunities in new markets to explore near and long-term revenue
opportunities for those assets for our adult consumers. In sum, we
believe in our strategies and will look to further execute on them
in a compliant and responsible manner in the second half of our
fiscal 2023 and beyond as we seek to drive value for our
stockholders.”
Financial Results for Fiscal Second
Quarter 2023
Revenues: Revenues for the
second quarter of fiscal year 2023 were approximately $3.0 million,
compared to approximately $3.1 million in the same period of the
prior fiscal year. Revenues were flat in the second quarter of
2023, primarily due to certain credits, discounts and rebates
issued to customers. The Company does not anticipate this trend to
continue as renewed distribution ramps up and sales of non-tobacco
flavored BIDI® Sticks increase, and even more so given that the
FDA’s prior Marketing Denial Order related to BIDI® Sticks was
vacated in August 2022, which allows the Company to continue
marketing and selling our products, subject to the FDA’s
enforcement discretion.
Cost of Revenue, Net, and Gross Profit
(Loss): Gross (loss) profit in the second quarter of
fiscal year 2023 was approximately ($0.1) million, or approximately
(4.2%) of revenues, net, compared to approximately $0.4 million
gross profit or approximately 12.7%, of revenues, net, for the
second quarter of fiscal year 2022. Total cost of revenue, net was
approximately $3.1 million, or approximately 104.2% of revenue, net
for the second quarter of fiscal year 2023, compared to
approximately $2.7 million, or approximately 87.3% of revenue, net
for the second quarter of fiscal year 2022. The decrease in gross
profit is primarily driven by the credits, discounts and rebates
issued to customers, totaling approximately $1.4 million, during
the second quarter of fiscal year 2023.
Operating Expenses: Total
operating expenses were approximately $3.8 million for the second
quarter of fiscal year 2023, compared to approximately $5.4 million
for the second quarter of fiscal year 2022. For the second quarter
of fiscal year 2023, operating expenses consisted primarily of
advertising and promotion fees of approximately $0.7 million, stock
option expense of approximately $1.4 million, professional fees of
approximately $0.8 million, and all other general and
administrative expenses of approximately $1.0 million. General and
administrative expenses in the second quarter of fiscal year 2023
consisted primarily of salaries and wages, stock option expense,
insurance, lease expense, project expenses, banking fees, business
fees and state and franchise taxes. For the second quarter of
fiscal year 2022, operating expenses were approximately $5.4
million, consisting primarily of advertising and promotion fees of
approximately $0.8 million, stock option expense of 2.5 million,
professional fees totaling approximately $0.2 million, and all
other general and administrative expenses of approximately $1.9
million. General and administrative expenses consisted primarily of
salaries and wages, insurance, banking fees, business fees, and
other service fees. We expect future operating expenses to increase
while we increase the footprint of our business and generate
increased sales growth.
Net Loss: As a result of the
items noted above, the net loss for the second quarter of fiscal
year 2023 was approximately $4.0 million, or $0.07 basic and
diluted net loss per share, compared to a net loss of approximately
$5.0 million, or $0.16 basic and diluted net loss per share, for
the second quarter of fiscal year 2022. The decrease in the net
loss for the second quarter of fiscal year 2023, as compared to the
second quarter of fiscal year 2022, is primarily attributable to
the increase revenues and decrease in customer
credits/discounts/rebates, as noted above.
Cash Position: As of April 30,
2023, we had working capital of approximately $3.7 million and
total cash of approximately $1.1 million. The Company expects to
augment its cash position through increased sales revenue and
potential debt or equity financings.
Additional information regarding the Company’s
results of operations for the second quarter ended April 30, 2023
will be available in the Company’s Quarterly Report on Form 10-Q
for such reporting period, which report has been filed with the
Securities and Exchange Commission.
ABOUT KAIVAL BRANDS
Based in Grant-Valkaria, Florida, Kaival Brands
is a company focused on incubating innovative and profitable
adult-focused products into mature and dominant brands, with a
current focus on the distribution of electronic nicotine delivery
systems (“ENDS”) also known as “e-cigarettes”. Our business plan is
to seek to diversify into distributing other nicotine and
non-nicotine delivery system products (including those related to
hemp-derived cannabidiol (known as CBD) products). Kaival Brands
and Philip Morris Products S.A. (via sublicense from Kaival Brands)
are the exclusive global distributors of all products manufactured
by Bidi Vapor.
Learn more about Kaival Brands at
https://ir.kaivalbrands.com/overview/default.aspx.
ABOUT KAIVAL LABS
Based in Grant-Valkaria, Florida, Kaival Labs is
a 100% wholly-owned subsidiary of Kaival Brands focused on
developing new branded and white-label products and services in the
vaporizer and inhalation technology sectors. Kaival Labs’ current
patent portfolio consists of 12 existing and 46 pending with novel
technologies across extrusion dose control, product preservation,
tracking and tracing usage, multiple modalities and child safety.
The patents and patent applications cover territories including the
United States, Australia, Canada, China, the European Patent
Organisation, Israel, Japan, Mexico, New Zealand and South Korea.
The portfolio also includes a fully-functional proprietary mobile
device software application that is used in conjunction with
certain patents in the portfolio.
Learn more about Kaival Labs at
https://kaivallabs.com.
ABOUT BIDI VAPOR
Based in Melbourne, Florida, Bidi Vapor
maintains a commitment to responsible, adult-focused marketing,
supporting age-verification standards and sustainability through
its BIDI® Cares recycling program. Bidi Vapor's premier device, the
BIDI® Stick, is a premium product made with high-quality
components, a UL-certified battery and technology designed to
deliver a consistent vaping experience for adult smokers 21 and
over. Bidi Vapor is also adamant about strict compliance with all
federal, state and local guidelines and regulations. At Bidi Vapor,
innovation is key to its mission, with the BIDI® Stick promoting
environmental sustainability, while providing a unique vaping
experience to adult smokers.
Nirajkumar Patel, the Company’s Chief Science
and Regulatory Officer and director, owns and controls Bidi Vapor.
As a result, Bidi Vapor is considered a related party of the
Company.
For more information, visit
www.bidivapor.com.
Cautionary Note Regarding
Forward-Looking Statements
This press release and the statements of the
Company’s management and partners included herein and related to
the subject matter herein includes statements that constitute
“forward-looking statements” (as defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended), which are statements
other than historical facts. You can identify forward-looking
statements by words such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,”
“position,” “should,” “strategy,” “target,” “will,” and similar
words. All forward-looking statements speak only as of the date of
this press release. Although we believe that the plans, intentions,
and expectations reflected in or suggested by the forward-looking
statements are reasonable, there is no assurance that these plans,
intentions, or expectations will be achieved. Therefore, actual
outcomes and results (including, without limitation, the results of
the Company’s sales and marketing efforts as described herein and
the impact of such efforts on the Company’s results of operations)
could materially and adversely differ from what is expressed,
implied, or forecasted in such statements. Our business may be
influenced by many factors that are difficult to predict, involve
uncertainties that may materially affect results, and are often
beyond our control. Factors that could cause or contribute to such
differences include, but are not limited to: (i) future actions by
the FDA in response to the 11th Circuit Court’s decision that could
impact our business and prospects, (ii) the outcome of FDA’s
scientific review of Bidi Vapor’s pending FDA Premarket Tobacco
Product Applications, (iii) the results of international marketing
and sales efforts by Philip Morris International, the Company’s
international distribution partner, (iv) how quickly domestic and
international markets adopt our products, (v) the scope of future
FDA enforcement of regulations in the ENDS industry, (vi) the FDA’s
approach to the regulation of synthetic nicotine and its impact on
our business, (vii) potential federal and state flavor bans and
other restrictions on ENDS products, (viii) whether we will be able
to successfully integrate and capitalize on the patents we have
acquired from GoFire, of which no assurances can be given, (ix)
general economic uncertainty in key global markets and a worsening
of global economic conditions or low levels of economic growth, (x)
the effects of steps that we could take to reduce operating costs,
(xi) our inability to generate and sustain profitable sales growth,
including sales growth in U.S. and international markets, (xii)
circumstances or developments that may make us unable to implement
or realize anticipated benefits, or that may increase the costs, of
our current and planned business initiatives, (xiii) significant
changes in our relationships with our distributors or
sub-distributors and (xiv) other factors detailed by us in our
public filings with the Securities and Exchange Commission,
including the disclosures under the heading “Risk Factors” in our
Annual Report on Form 10-K for the fiscal year ended October 31,
2022, filed with the Securities and Exchange Commission on January
27, 2023 and accessible at www.sec.gov. All forward-looking
statements included in this press release are expressly qualified
in their entirety by such cautionary statements. Except as required
under the federal securities laws and the Securities and Exchange
Commission’s rules and regulations, we do not have any intention or
obligation to update any forward-looking statements publicly,
whether as a result of new information, future events, or
otherwise.
All Press Inquiries and Kaival Brands Investor
Relations:Stephen Sheriff, Director of Communications and
AdministrationIr.kaivalbrands.cominvestors@kaivalbrands.com
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