$KAVL Kaival Brands Provides Business Update in Letter to

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$KAVL Kaival Brands Provides Business Update in Letter to Shareholders

https://www.globenewswire.com/news-release/20...lders.html

GRANT-VALKARIA, Fla., Feb. 14, 2024 (GLOBE NEWSWIRE) -- Kaival Brands Innovations Group, Inc. (NASDAQ: KAVL) ("Kaival Brands" or the "Company," , the exclusive U.S. distributor of all products manufactured by Bidi Vapor, LLC ("Bidi Vapor" , which are intended for adults 21 and over, today provided the following business update letter to shareholders from its Executive Chairman, Interim Chief Executive Officer and President, Barry M. Hopkins:

To Our Shareholders:

With our Annual Report on Form 10-K for our 2023 fiscal year now on file with the SEC, we wanted to provide some highlights of our results and lay out our vision going forward.

Our fiscal year ended October 31, 2023 and since has been a time of significant transition for Kaival Brands as we put in place new management and board members and made important progress towards reigniting sales, expanding distribution, diversifying our revenue streams and working to institute cost controls and improved operational procedures. Market demand for Bidi Vapor’s BIDI® Stick electronic nicotine delivery system (ENDS) products was robust through the end of the fiscal year, and we believe the long-term investment thesis for our business is solid, despite continued regulatory challenges that we are working to overcome.

The following is a summary of our key results of operations for our fiscal year ended October 31, 2023:

Revenues increased to $13.1 million compared to $12.8 million in fiscal year 2022; primarily due to royalties received from our international distribution arrangement with Philip Morris Products S.A. (PMPSA).
Gross profit increased to $2.6 million compared to approximately $1.2 million for fiscal 2022; increase driven primarily by a decrease in cost of revenue.
Operating Expenses decreased to $13.2 million compared to $15.6 million, with the decrease driven primarily by disciplined cost management.
Net Loss improved by 22.9%, to $11.1 million, or $4.13 basic and diluted net loss per share, compared to $14.4 million, or $7.60 basic and diluted net loss per share, for fiscal 2022.
As of October 31, 2023, Kaival Brands had working capital of approximately $1.9 million and total cash of approximately $0.5 million.
We delivered modest revenue growth in fiscal 2023 as the FDA regulatory landscape and FDA enforcement efforts have continued to evolve and created significant challenges for us, Bidi and other ENDS industry players. Importantly, we are continuing to navigate these challenges and are pursuing new revenue opportunities aimed at diversifying our business and establishing an efficient platform from which to develop and grow our business lines and revenues and, ultimately, positive cash flows, profitability and increased shareholder value. Through it all, we remain committed to steadfast compliance with established FDA requirements for our products and business as we have since our inception.

As we begin 2024, we are focused on accelerating revenue growth, further improving operational efficiencies, and executing well-defined strategic growth and diversification initiatives to drive improvement in our financial results. In terms of this strategic framework, there are three core areas of focus for our management team: maximizing our core business, effective financial management and capital planning, and data-driven product innovation and strategic expansion.

Maximizing our core business:

Continuing the growth and management of strategic alliances with market leaders within dense, established e-cigarette markets;
Development of internal national account sales team to drive new revenue opportunities and manage key strategic third-party vendor and broker alliances to maximize targeted market penetration;
Search for high-caliber, experienced talent that create impact and add value to our organization quickly;
Effective financial management and capital planning:

Establishing an efficient, scalable organizational infrastructure to support our expected growth and diversification;
Improving overall business processes to deliver greater value to our customers;
Data-driven product innovation and strategic expansion:

Investing in our core organizational capabilities to provide diversified, revenue generative opportunities both through our existing distribution network and beyond;
Further development of internal data processes to drive growth and diversification efforts;
Pursuing third-party licensing opportunities through our vaporization and inhalation-related intellectual property portfolio which we acquired from GoFire Inc. in May 2023.
Bidi Vapor to Contest FDA Denial of ‘Classic’ Tobacco-Flavored ENDS

As previously announced, on Monday, January 22, 2024, the FDA issued a marketing denial order (MDO) for Bidi Vapor’s “Classic” BIDI® Stick PMTA. Importantly, this decision did not involve the ten PMTAs for Bidi Vapor’s non-tobacco flavored devices which are still under the FDA’s scientific review. Those ten products remain available for sale through Kaival Brands, subject to FDA’s enforcement discretion.

In response to the MDO, on Friday, January 26, 2024, Bidi Vapor filed a petition requesting that the U.S. Court of Appeals for the Eleventh Circuit review the MDO, which Bidi Vapor believes was, among other things, arbitrary and capricious, in violation of the Administrative Procedure Act. Bidi Vapor is seeking a stay of the MDO pending the outcome of the litigation.

Bidi Vapor has a history of successful outcomes when contesting adverse FDA decisions, having received a favorable Eleventh Circuit ruling in August 2022 that set aside the original MDOs received for its ten non-tobacco flavored products. That ruling put the ten PMTAs back into scientific review and allowed those flavors to remain available for sale pursuant to the FDA’s compliance policy for deemed tobacco products. During this evaluation period, the ten non-tobacco flavored products are still under FDA enforcement discretion.

Extending our Product Offerings and Opportunities

An important goal for our company in 2024 and beyond is to leverage our existing presence with our sales channels to establish an efficient platform from which to create shareholder value by developing and growing current and potentially new business lines, revenues and, ultimately, positive cash flows and profitability.

In May 2023, we acquired (through our subsidiary Kaival Labs) a patent portfolio of 19 existing and 47 pending patents with novel technologies related to vaporization and inhalation technologies from GoFire. The portfolio includes novel technologies across extrusion dose control, product preservation, tracking and tracing usage, multiple modalities (i.e., different methods of vaporizing) and child safety. The patents and patent applications cover territories including the United States, Australia, Canada, China, the EPO (European Patent Organization), Israel, Japan, Mexico, New Zealand and South Korea. The portfolio also includes a proprietary mobile device software application that is used in conjunction with certain patents in the portfolio.

We have been pursuing third-party licensing and development opportunities related to our GoFire assets in the cannabis, hemp/CBD, nicotine, nutraceutical and pharmaceutical markets, and we hope to generate revenue from this acquired intellectual property via licensing and other product development activities. We recently engaged with a third-party manufacturer to explore the development of a product utilizing several of our patents.

Longer term, we believe we can utilize the acquired patents to create innovative and market-disruptive products for its growing base of adult consumers, including patent protected vaporizer devices and related hardware and software applications.

International Distribution with PMPSA

While our current revenue-generative focus remains on the U.S. distribution of the BIDI® Sticks, from an international perspective, through our wholly-owned subsidiary, Kaival Brands International, LLC, alongside our manufacturing partner, Bidi Vapor, the maker of the BIDI® Stick, we are continuing to work with PMPSA to accelerate the international distribution of ENDS products using Bidi Vapor technology, which PMPSA markets under the brand name “VEEV Now”, as part of our joint goal of delivering a smoke-free future to adult consumers of proper age in their respective countries.

Operational Improvements for Scale & Diversification

Improving operational efficiencies is a perpetual endeavor at Kaival Brands to ensure we are managing our costs while also providing the highest level of service for our customers. In the near-term, we remain focused on improving inventory management to reduce aging product risk and optimize our use of working capital. By prioritizing our best-selling SKUs and refining our ordering procedures, this will ensure an optimal customer experience. Throughout our operational processes, we are capturing valuable data that can provide insights into our future pipeline and sales projections through our newly installed internal data management system.

Thank you for your continued support, and we look forward to providing you with further updates as the year unfolds.

Kind regards,

Barry Hopkins
Executive Chairman, Interim Chief Executive Officer and President

Additional information regarding the Company’s results of operations for the fiscal year ended October 31, 2023 and other important disclosures are available in the Company’s Annual Report on Form 10-K for such reporting period, which has been filed with the Securities and Exchange Commission.
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