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 HopkinsExecutive 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.
ABOUT KAIVAL BRANDS
Based in Grant-Valkaria, Florida, Kaival Brands
is a company focused on incubating and commercializing innovative
products into mature and dominant brands, with a current focus on
the distribution of electronic nicotine delivery systems (ENDS)
also known as “e-cigarettes” for use by customers 21 years and
older. 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 LLC. 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, which is distributed
exclusively by Kaival Brands, 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. 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.
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 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.
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 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)
actions taken by Bidi Vapor in response to the FDA’s January 2024
MDO on its Classic Bidi Stick, (ii) future actions by the FDA
relating to the PMTAs for Bidi Vapor’s 10 other flavors that could
adversely impact our business and prospects, including the outcome
of FDA’s scientific review of Bidi Vapor’s pending PMTAs, (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) general economic uncertainty
in key global markets and a worsening of geopolitical and economic
conditions, including low levels of economic growth, (ix) the
effects of steps that we are taking to raise capital, reduce
operating costs and diversity our product offerings, (x) our
inability to generate and sustain profitable sales growth,
including sales growth in U.S. and international markets, (xi)
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, (xii) significant
changes in our relationships with our distributors or
sub-distributors and (xiii) 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,
2023, filed with the Securities and Exchange Commission on February
14, 2024 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:
Brett Maas, Managing PartnerHayden IR(646)
536-7331brett@haydenir.com
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