Company significantly bolsters distribution following agreements with national brokerse

GRANT-VALKARIA, Fla., March 17, 2023 (GLOBE NEWSWIRE) — 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 first quarter ended January 31, 2023.

Recent Business During and Subsequent to the Fiscal First Quarter 2023

• On March 9, 2023, the Company announced it had signed an agreement with a prominent national broker, increasing distribution by upwards of 40,000 retail stores.
• On March 7, 2023, the Company announced it entered into new retail distribution agreements representing potential new distribution to approximately 13,500 locations, with an immediate activation in 700 locations, with 1,500 more within 90 days.
• On December 7, 2022, Kaival Marketing Services (“KMS”), the third-party vendor responsible for executing Kaival Brands’ marketing and sales strategies, hired Dean Simmons, a former Vice President of Sales of Swisher International, in preparation for an expected resurgence of revenue growth following a pivotal legal victory for Bidi Vapor on August 23, 2022.
• On November 15, 2022, the Company announced it had reached a three-year extension agreement with QuikfillRx, LLC, the third-party vendor responsible for executing Kaival Brands’ marketing and sales strategies. The three-year extension with KMS was executed in preparation to support the anticipated improved sales volumes arising from this decision and the increase of BIDI^® Stick sales and marketing activities.
  

Eric Mosser, President and Chief Operating Officer of Kaival Brands, stated, “With our two recent distribution announcements, totaling up to 53,500 doors, we are looking forward to expanding our national footprint. Despite a slight decrease in revenues versus the comparable quarter last year and our fiscal fourth quarter, primarily due to an unusually large amounts of credits, discounts, and rebates to customers, which we do not expect to continue, we are continuing to focus on broadening distribution channels and driving revenue, all with the goal of materially expanding our business and increasing shareholder value.”

Financial Results for Fiscal First Quarter 2023

Revenues: Revenues for the first quarter of fiscal year 2023 were approximately $2.5 million, compared to approximately $2.8 million in the same period of the prior fiscal year. Revenues decreased in the first quarter of 2023, primarily due to credits/discounts/rebates issued to customers. We do not anticipate this trend to continue as renewed distribution ramps up and sales of non-tobacco flavored BIDI^® Sticks increase, and even more so now that FDA’s previous Marketing Denial Order (or MDO) issued to the non-tobacco flavored BIDI^® Sticks was vacated in August 2022, which allows us to continue marketing and selling BIDI^® Sticks, subject to the FDA’s enforcement discretion.

Cost of Revenue, Net, and Gross Profit (Loss): Gross profit in the first quarter of fiscal year 2023 was approximately $0.5 million, or approximately 21.4% of revenues, net, compared to approximately a ($0.7) million gross loss or approximately (24.3%), of revenues, net, for the first quarter of fiscal year 2022. Total cost of revenue, net was approximately $2.0 million, or approximately 78.6% of revenue, net for the first quarter of fiscal year 2023, compared to approximately $3.5 million, or approximately 124.3% of revenue, net for the first quarter of fiscal year 2022. The increase in gross profit is primarily driven by the improvement in overall unit pricing, being offset by the credits/discounts/rebates issued to customers, totaling approximately $0.7 million, during the first quarter of fiscal year 2023.

Operating Expenses: Total operating expenses were approximately $3.5 million for the first quarter of fiscal year 2023, compared to approximately $2.1 million for the first quarter of fiscal year 2022. For the first quarter of fiscal year 2023, operating expenses consisted primarily of advertising and promotion fees of approximately $0.6 million, non-cash stock option expense of approximately $1.4 million, professional fees of approximately $0.6 million, and all other general and administrative expenses of approximately $0.9 million. General and administrative expenses in the first 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 first quarter of fiscal year 2022, operating expenses were approximately $2.1 million, consisting primarily of advertising and promotion fees of approximately $0.6 million, stock option expense of approximately $0.3 million, professional fees totaling approximately $0.5 million, and all other general and administrative expenses of approximately $0.7 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 seek to generate increased sales growth.

Net Loss: As a result of the items noted above, the net loss for the first quarter of fiscal year 2023 was approximately $3.0 million, or $0.05 basic and diluted net loss per share, compared to a net loss of approximately $2.8 million, or $0.09 basic and diluted net loss per share, for the first quarter of fiscal year 2022. The increase in the net loss for the first quarter of fiscal year 2023, as compared to the first quarter of fiscal year 2022, is primarily attributable to the decrease revenues and increase in customer credits/discounts/rebates, as noted above.

Cash Position: As of January 31, 2023, we had working capital of approximately $6.6 million and total cash of approximately $3.8 million.

Additional information regarding the Company’s results of operations for the first quarter ended January 31, 2023 will be available in the Company’s Quarterly Report on Form 10-Q for such reporting period, which report will be filed with the Securities and Exchange Commission.

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