Quarterly Report for Quarter Ending April 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Management's Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto for the six months ended April 30, 2026 , included under Item 1 - Financial Statements in this Report and our audited financial statements and notes thereto for the year ended October 31, 2025 , contained in the 2025 Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Report regarding forward-looking statements.

Overview

We were previously engaged in the sale, marketing and distribution of electronic nicotine delivery system ("ENDS") products, also known as "e-cigarettes", in a variety of favors. Until October of 2024, our primary source of revenue has been the Bidi Stick as we sold our inventory on hand. However, on June 11, 2024, RAI Strategic Holdings, Inc., R.J. Reynolds Vapor Company, R.J. Reynolds Tobacco Company, and RAI Services Company (collectively, the "RJ Reynolds Entities") filed a patent infringement complaint with the International Trade Commission (the "ITC") against Bidi, us, and forty (40) other respondents (the "ITC Complaint") pursuant to Section 337 of the Tariff Act of 1930, as amended. Specifically, the ITC Complaint alleges that one or more components or elements of the Bidi Stick infringe U.S. Patent No. 11,925,202, which is owned by one of the RJ Reynolds Entities. The ITC Complaint requests the ITC grant: (a) temporary and permanent limited exclusion orders pursuant to Section 337(e) of the Tariff Act of 1930, as amended, which would prohibit the importation of the Bidi Stick in the United States; and (b) issue temporary and permanent cease and desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended, which would prohibit the sale and distribution of the Bidi Stick in the United States. No damages are recoverable in the proceedings before the ITC. Since the initiation of the ITC Complaint, we have not imported any Bidi Sticks and currently do not generate any revenue from the sale of Bidi Sticks. Our current primary source of revenue is through an international licensing agreement with Philip Morris Products S.A. ("PMPSA"), a wholly owned affiliate of Philip Morris International Inc. ("PMI").

We have also entered into a Merger and Share Exchange Agreement (the "Merger Agreement") with Delta Corp Holdings Limited, a company incorporated in England and Wales (together with its successors and assigns, "Delta"), Delta Corp Holdings Limited, a Cayman Islands exempted company ("Pubco"), KAVL Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Pubco ("Merger Sub") and Delta Corp Cayman Limited (the "Sellers").

On September 11, 2025, Kaival Brands Innovations Group, Inc., (the "Company") and Delta Corp Holdings Limited, a company incorporated in England and Wales (together with its successors and assigns, "Delta") entered into a Business Combination Termination and Release Agreement (the "Termination Agreement") pursuant to Section 10.1(a) of the Merger Agreement (the "Merger Agreement') among the Company, Delta, Delta Corp Holdings Limited, a Cayman Islands exempted company, KAVL Merger Sub Inc. and Delta Corp Cayman Limited.

Pursuant to the Termination Agreement, the Company and Delta mutually terminated the Merger Agreement and all agreements between the parties that are ancillary thereto and Delta waived any and all claims against the other party that in any way directly and/or indirectly arise out of, are based upon, or are in connection with the Merger Agreement any agreements ancillary thereto.

Material Items, Trends and Risks Impacting Our Business

We believe that the following items and trends may be useful in better understanding our results of operations.

On June 11, 2024, the RJ Reynolds Entities filed the ITC Complaint. The ITC Complaint requests the ITC grant: (a) temporary and permanent limited exclusion orders pursuant to Section 337(e) of the Tariff Act of 1930, as amended, which would prohibit the importation of the Bidi Stick in the United States; and (b) issue temporary and permanent cease and desist orders pursuant to 337(f) of the Tariff Act of 1930, as amended,

which would prohibit the sale and distribution of the Bidi Stick in the United States. No damages are recoverable in the proceedings before the ITC. If the Company or Bidi is prohibited from importing the Bidi Stick, then our business, operations, financial results, and reputation would be significantly adversely impacted. Although Bidi disputes the patent infringement claims set forth in the ITC Complaint by the RJ Reynolds Entities, in December 2024 Bidi entered into a consent order agreeing to cease all importation and distribution of the Bidi Stick until the RJ Reynolds Entities' patent expires in October 2026. In November 2024, the ITC Administrative Law Judge (ALJ) denied temporary relief to the Reynolds Entities and the case proceeded on the merits. A trial was held in April 2025. A decision from the ALJ is expected on July 21, 2025. The ALJ's initial determination (ID) will be reviewed by the Commission and the Commission deadline is November 24, 2025, subject to potential extensions. The asserted patent expires in October 2026 as would any exclusion order that the ITC enters as a result of the ITC Complaint, as well as the Bidi consent order.

As a result of the ITC Complaint and other factors, we do not expect any significant revenue from the sale of Bidi Sticks in the foreseeable future. Our primary source of revenue is from KBI from royalties from PMI under the PMI License Agreement.

PMI Licensing Agreement and International Distribution

On June 13, 2022, we, through our wholly owned subsidiary, KBI, entered into the PMI License Agreement with PMPSA, a wholly owned affiliate of PMI, for the development and distribution of ENDS products in certain markets outside of the United States, subject to market (or regulatory assessment). The PMI License Agreement grants to PMPSA a license of certain intellectual property rights relating to Bidi's ENDS device, known as the BIDI® Stick in the United States, as well as potentially newly developed devices, to permit PMPSA to manufacture, promote, sell, and distribute such ENDS device and newly developed devices, in international markets, outside of the United States.

On July 25, 2022, we announced the launch of PMPSA's custom-branded self-contained e-vapor product, pursuant to the licensing agreement. The product, a self-contained e-vapor device initially called VEEBA and more recently rebranded as VEEV NOW, has been custom developed and was initially distributed in Canada. VEEV NOW was then commercially launched by PMPSA in Europe in February 2023, with additional market launches planned this year. On August 12, 2023, we executed and entered into a Deed of Amendment No. 1 (the "PMI License Amendment") with PMPSA, Bidi and KBI. Pursuant to the PMI License Amendment (which was effective on June 30, 2023), resulting in a Net Reconciliation Payment to KBI and ongoing quarterly royalty payments.

The ability of PMPSA to generate sales of its licensed products is important to our results of operations since we derive royalty revenue from PMPSA sales. Should our relationship with PMPSA deteriorate or terminate, or if PMPSA is unable to generate meaningful sales of its licensed products, our business and results of operations would be materially harmed.

Ability to Develop and Monetize the GoFire Intellectual Property

We purchased certain vaporizer and inhalation-related technology from GoFire in May 2023 with the goal of diversifying our business and lessening our dependence on BIDI Vapor. We do not expect that the acquired assets will generate immediate revenue for us, and while we believe this to be a transformative acquisition for us and we are already seeking to develop and monetize the acquired assets, we can give no assurances at this time that either (i) the patent applications we acquired will eventuate in issued patents or (ii) we will be able to enter into successful monetizing arrangements with respect to these assets.

Inflation

Consumer purchases of tobacco products are historically affected by economic conditions, such as changes in employment, salary and wage levels, the availability of consumer credit, inflation, interest rates, fuel prices, sales taxes, and the level of consumer confidence in prevailing and future economic conditions. The U.S. has been experiencing an environment of material inflation in recent quarters, and this condition may impact discretionary consumer purchases, such as the BIDI® Stick. Demand for our Products may also decline during recessionary periods or at other times when disposable income is lower, and taxes may be higher.

Corporate History

We were incorporated on September 4, 2018, in the State of Delaware. Effective July 12, 2019, we changed our corporate name from Quick Start Holdings, Inc. to Kaival Brands Innovations Group, Inc. The name change was effected through a parent/subsidiary short-form merger of Kaival Brands Innovations Group, Inc., our wholly-owned Delaware subsidiary formed solely for the purpose of the name change, with and into us. We were the surviving entity.

Going Concern

In accordance with Financial Accounting Standards Board (or FASB), ASC 205 , Presentation of Financial Statements - Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying financial statements are issued.

We will need significant additional funds to satisfy our outstanding payables, fund our working capital, and sustain operations. As discussed in Note 3, conditions and other factors raise substantial doubt regarding the Company's ability to continue as a going concern.

There can be no assurance that we will be able to obtain additional capital or generate revenues sufficient to sustain operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these or other risks or uncertainties.

Liquidity and Capital Resources

We believe we will not have sufficient cash on hand to support our operations for the next twelve months from the date of filing this report. As of April 30, 2026, we had a working capital deficit of $20,662 and total cash of $277,951. As discussed above, this condition and other factors raise substantial doubt regarding our ability to continue as a going concern.

We will need to raise additional capital to fund our operations. There can be no assurance that capital will be available to us on reasonable terms, if at all. Should capital not be available on acceptable terms, we may be required to take other actions to preserve liquidity. These matters are subject to numerous risks and uncertainties, including market conditions, regulatory considerations, and other factors beyond the Company's control.

Cash Flows:

Net cash flows used in operations was approximately $1.2 million for the first six months of fiscal year 2026, compared to $1.5 million cash flows used in operations for the first six months of fiscal year 2025. The decrease in cash flows used in operations for the first six months of fiscal year 2026 compared to the first six months of fiscal year 2025 was primarily due to the decrease of accrued expenses.

Net cash flows used in investing activities was approximately $100 thousand for the first six months of fiscal year 2026, compared to cash flows used in financing activities of approximately zero for the first six months of fiscal year 2025. The cash used in investing activities for the six months of fiscal year 2026 consisted primarily of investing activities in notes receivable.

Net cash flows provided by financing activities was approximately $1.0 million for the first six months of fiscal year 2026, compared to cash flows used in financing activities of approximately $0.6 for the first six months of fiscal year 2025. The cash provided by financing activities for the first six months of fiscal year 2026 consisted primarily of proceeds from the issuance of Common Stock.

Results of Operations

Three months ended April 30, 2026, compared to three months ended April 30, 2025

Revenues:

Revenues for the second quarter of fiscal year 2026 were approximately $38 thousand, compared to approximately $47 thousand in the same period of the prior fiscal year. Revenues decreased in the second quarter of 2026, primarily due to a decrease in royalty revenue.

Cost of Revenue, Net and Gross Profit:

Gross profit in the second quarter of fiscal year 2026 was approximately $38 thousand, or approximately 100.0% of revenues, net, compared to approximately $47 thousand or approximately 100%, of revenues, net, for the second quarter of fiscal year 2025. Total cost of revenue, net was zero for the second quarter of fiscal year 2026 and 2025.

Operating Expenses:

Total operating expenses were approximately $0.6 million for the second quarter of fiscal year 2026, compared to approximately $2.0 million for the second quarter of fiscal year 2025. The decrease is primarily from amortization expense, legal fees and the loss on the ROU asset in 2025. For the second quarter of fiscal year 2026, operating expenses consisted primarily of professional fees of approximately $0.3 million, and all other general and administrative expenses of approximately $0.3 million. General and administrative expenses in the second quarter of fiscal year 2026 consisted primarily of salaries and wages, insurance, banking fees, business fees and state and franchise taxes.

For the second quarter of fiscal year 2025, operating expenses consisted primarily of a loss on ROU asset of $0.7 million, professional fees of approximately $0.7 million, and all other general and administrative expenses of approximately $0.6 million. General and administrative expenses in the second quarter of fiscal year 2025 consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes.

Income Taxes:

During the second quarter of fiscal year 2026, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately $0.6 million. Similarly, we did not accrue a provision for income taxes, due to the pre-tax loss of approximately $2.0 million for the second quarter of fiscal year 2025.

Net Loss:

As a result of the items noted above, the net loss for the second quarter of fiscal year 2026 was approximately $0.6 million, or $0.04 basic and diluted net loss per share, compared to a net loss of approximately $2.0 million, or $0.17 basic and diluted net loss per share, for the second quarter of fiscal year 2025. The decrease in the net loss for the second quarter of fiscal year 2026, as compared to the second quarter of fiscal year 2025, is primarily attributable to the decrease of loss on ROU asset and decrease in general and administrative expenses.

Six months ended April 30, 2026, compared to six months ended April 30, 2025

Revenues:

Revenues for the six months ended April 30, 2026, were approximately $0.1 million, compared to $0.2 million for the six months ended April 30, 2025. Revenues decreased during the six months ended April 30, 2026, compared to the six months ended April 30, 2025, primarily due to a decrease in royalty sales.

Operating Expenses:

Total operating expenses were approximately $1.3 million for the six months ended April 30, 2026, compared to approximately $6.3 million for the six months ended April 30, 2025. The decrease in operating expenses primarily related to consulting fees and legal fees. For the six months ended April 30, 2026, operating expenses consisted primarily of stock option expense of $13 thousand, professional fees totaling approximately $0.1 million, and all other general and administrative expenses of approximately $1.2 million. General and administrative expenses during the six months ended April 30, 2026, consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes.

For the six months ended April 30, 2025, operating expenses consisted primarily of stock option expense of $34 thousand, professional fees totaling approximately $4.1 million, loss on ROU asset of $0.7 million, and all other general and administrative expenses of approximately $1.5 million. General and administrative expenses during the six months ended April 30, 2025, consisted primarily of salaries and wages, insurance, lease expense, project expenses, banking fees, business fees and state and franchise taxes.

Income Taxes:

During the six months ended April 30, 2026, we did not accrue a tax provision for income taxes, due to the pre-tax loss of approximately $1.2 million for the six months ended April 30, 2026. Similarly, we did not accrue a tax provision for income taxes during the six months ended April 30, 2025, due to the pre-tax loss of approximately $6.1 million for the six months ended April 30, 2025.

Net Loss:

The net loss for the first six months ended April 30, 2026, was approximately $1.2 million, or $0.08 basic and diluted net loss per share, compared to net loss for the six months ended April 30, 2025, which was approximately $6.1 million, or $0.58 basic and diluted net loss per share. The decrease in the net loss for the six months ended April 30, 2026, as compared to the six months ended April 30, 2025, is primarily attributable to the decrease in the loss on ROU asset and lower sales revenue.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore actual results could differ from those estimates. There have been no material changes to our critical accounting policies and estimates during the six months ended April 30, 2026 from those disclosed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our 2025 Annual Report for the year ended October 31, 2025.

Recent Accounting Pronouncements

Refer to Item 1, Financial Statements, Note 2, Basis of Presentation and Significant Accounting Policies.