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 three and six months
ended April 30, 2022 included under Item 1 - Financial Statements in this
Quarterly Report and our audited Financial Statements and notes thereto for the
year ended October 31, 2021 contained in the 2021 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 Quarterly Report regarding forward-looking statements.
Impact of COVID-19
In March 2020, the WHO declared the outbreak of COVID-19 as a pandemic based on
the rapid increase in global exposure. COVID-19 continues to spread throughout
the world, including the United States. Our business operations, which commenced
during this pandemic, continue to be operational; however, we were indirectly
negatively impacted by COVID-19.
We were indirectly impacted by supply chain issues and regulatory oversight.
First, COVID-19 impacted Bidi's ability to quality test and develop its new
product, the BIDI® Pouch, in line with its targeted release date, which
negatively impacted our ability to begin distribution of the BIDI® Pouch.
Secondly, we believe that many retailers and distributers relaxed their
compliance standards as an indirect result of COVID-19 for two reasons: (i)
government enforcement of regulations was very limited due to imposed social
restrictions, resulting in less in-person monitor enforcement by government
officials and (ii) retail stores experienced light foot traffic from customers
due to COVID-19 restrictions and fears, which resulted in relaxed compliance in
an effort to generate revenue. We believe this relaxation of standards by
certain retailers significantly impacted our revenues.
Impact of the FDA PMTA Decision
In September 2021, in connection with the PMTA process, the FDA effectively
"banned" flavored ENDS by denying nearly all then-pending PMTAs for such
products. Following the issuance of an MDO, manufacturers are required to stop
selling non-tobacco flavored ENDS product. As of March 2022, the FDA announced
that it has taken action on over 99% of applications and issued MDOs for more
than 1,167,000 non-tobacco flavored ENDS products, while issuing zero marketing
authorizations for such products. Bidi, along with nearly every other company in
the ENDS industry, received a MDO for its non-tobacco flavored ENDS products.
With respect to Bidi, the MDO covered all non-tobacco flavored BIDI® Sticks,
including its Arctic (menthol) BIDI®Stick.
As a result, beginning in September 2021, Bidi pursued multiple avenues to
challenge the MDO. First, on September 21, 2021, separate from the judicial
appeal of the MDO in its entirety, Bidi filed a 21 C.F.R. § 10.75 internal FDA
review request specifically of the decision to include the Arctic (menthol)
BIDI® Stick in the MDO. In May 2022, the FDA issued a determination that it
views the Arctic BIDI® Stick as a flavored ENDS product.
On September 29, 2021, Bidi petitioned the U.S. Court of Appeals for the
Eleventh Circuit to review the FDA's denial of the PMTAs for its non-tobacco
flavored BIDI® Stick ENDS, arguing that it was arbitrary and capricious under
the APA, as well as ultra vires, for the FDA not to conduct any scientific
review of the company's comprehensive applications, as required by the TCA, to
determine whether the BIDI® Sticks are "appropriate for the protection of the
public health". Bidi further argued that the FDA violated due process and the
APA by failing to provide fair notice of the FDA's new requirement for ENDS
companies to conduct long-term comparative smoking cessation studies for their
flavored products.
On October 14, 2021, Bidi requested that the FDA re-review the MDO and
reconsider its position that Bidi did not include certain scientific data in its
applications sufficient to allow the PMTAs to proceed to scientific review. In
light of this request, on October 22, 2021 pursuant to 21 C.F.R. § 10.35(a), the
FDA issued an administrative stay of Bidi's MDO pending its re-review.
Subsequently, the FDA lifted its administrative stay on December 17, 2021.
Following the lifting of the FDA's administrative stay, Bidi filed a renewed
motion to stay the MDO with the U.S. Court of Appeals for the Eleventh Circuit.
On February 1, 2022, the U.S. Court of Appeals for the Eleventh Circuit granted
Bidi's motion to stay (i.e., put on hold) the MDO, pending the litigation on the
merits. The court-ordered stay means that the MDO is not legally in force.
Accordingly, we anticipate being able to continue marketing and selling the
Products, subject to the FDA's enforcement discretion, while Bidi continues with
its merits case challenging the legality of the MDO. The FDA has indicated that
it is prioritizing enforcement against companies that have either not submitted
PMTAs, whose PMTAs have been refused acceptance or filing by the FDA, or whose
PMTAs remain subject to MDOs. Oral arguments in the merits-based proceeding were
held on May 17, 2022.
In the event that the U.S. Court of Appeals for the Eleventh Circuit issues a
ruling adverse to Bidi, or if the FDA otherwise chooses to enforce the MDO
against Bidi, Bidi will be forced to cease the continued sale of its non-tobacco
flavored BIDI® Sticks in the United States, thereby resulting in us being unable
to distribute such Products, and our business and financial condition would be
materially adversely affected. We cannot provide any assurances as to the timing
or outcome of the merits-based case.
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.
Change of Control
On February 6, 2019, we entered into a Share Purchase Agreement (the "Share
Purchase Agreement"), by and among us, GMRZ Holdings LLC, a Nevada limited
liability company ("GMRZ"), our then-controlling stockholder, and Kaival
Holdings, LLC, a Delaware limited liability company ("KH"), pursuant to which,
on February 20, 2019, GMRZ sold 504,000,000 shares of our restricted common
stock, representing approximately 88.06 percent of our then issued and
outstanding shares of common stock, to KH, and KH paid GMRZ consideration in the
amount set forth in the Share Purchase Agreement. The consummation of the
transactions contemplated by the Share Purchase Agreement resulted in a change
in control, with KH becoming our largest controlling stockholder. Nirajkumar
Patel and Eric Mosser are the sole voting members of KH.
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Description of Business
We are focused on growing and incubating innovative and profitable products into
mature, dominant brands. Pursuant to the Distribution Agreement, Bidi granted us
an exclusive worldwide right to distribute the Products for sale and resale to
both retail level customers and non-retail level customers. We ceased all
retail/direct-to-consumer sales in February 2021. Pursuant to the terms of the
Distribution Agreement, Bidi provides us with all the branding, logos, and
marketing materials to be utilized by us in connection with our marking and
promotion of the Products. We do not manufacture any of the Products we resell.
Currently, the Products consist of the "BIDI® Stick," a disposable,
tamper-resistant ENDS Product. In June 2022, we entered into the Third A&R
Distribution Agreement, which, among other items, modifies various terms and
provisions to reflect the terms of the PMI Licensing Agreement. Pursuant to the
Third A&R Distribution Agreement, the exclusive right to distribute the Products
is subject to a carve-out for, and exclusion, of the PMI Markets.
In connection with the Distribution Agreement, we entered into Sub-Distribution
Agreements, whereby we appointed the counterparties as non-exclusive
sub-distributors. Pursuant to the Sub-Distribution Agreements, the
sub-distributors agreed to purchase for resale the Products in such quantities
as they should need to properly service non-retail customers within the
Territory
We process all sales made only to non-retail customers in the United States,
with all sales to non-retail customers made through Bidi's age-restricted
website, www.wholesale.bidivapor.com. We ceased all retail/direct-to-consumer
sales in February 2021 in order to better ensure youth access prevention and to
comply with the Prevent All Cigarette Trafficking ("PACT") Act. We provide all
customer service and support at our own expense. Bidi sets the minimum prices
for all sales made by us. We maintain adequate inventory levels of the Products
in order to meet the demands of our non-retail customers, and deliver the
Products sold to these customers.
Current Product Offerings
Pursuant to the Distribution Agreement, we sell and resell ENDS Products, also
referred to as ("e-cigarettes"), to non-retail level customers. Our primary
Product we resell is the "BIDI® Stick," a disposable, tamper-resistant ENDS
product that comes in a variety of flavor options for adult cigarette smokers.
The court-ordered stay means that the MDO is not legally in force. Accordingly,
we anticipate being able to continue marketing and selling the Products, subject
to the FDA's enforcement discretion, while Bidi continues with its merits case
challenging the legality of the MDO. The FDA has indicated that it is
prioritizing enforcement against companies that have either not submitted PMTAs,
whose PMTAs have been refused acceptance or filing by the FDA, or whose PMTAs
remain subject to MDOs. We are wholly dependent on Bidi to supply the BIDI®
Sticks to us for distribution. Accordingly, any supply or other issues that
impact Bidi, indirectly impacts us and our ability to operate our business.
In addition to the BIDI® Stick, we originally anticipated launching the
distribution of the "BIDI® Pouch" outside of the United States. The initial
planned February 2021 roll-out of the BIDI® Pouch was delayed due to COVID-19
based manufacturing and supply chain constraints. Due to these complications,
and in effort to prevent future bottlenecks, Bidi decided to move manufacturing
in-house. In 2021, Bidi modified the planned formulation of the BIDI® Pouch. The
original BIDI® Pouch formulation intended to utilize a tobacco-free (synthetic)
nicotine formulation, along with natural fibers and a chew-base filler in six
different flavors. However, the BIDI® Pouch product was placed on temporary hold
domestically in anticipation of the FDA's enforcement of synthetic nicotine
products as either unauthorized drugs under Section 201(g) of the Food, Drug and
Cosmetic Act ("FDCA") or as tobacco products under new FDA authority. On
March 15, 2022, the FDA Center for Tobacco Products ("CTP") was given the
authority to regulate products containing non-tobacco derived synthetic nicotine
after President Biden signed the Omnibus Budget Bill (H.R. 2741). Pursuant to
the new legislation, which included a rider amending the definition of a
"tobacco product" in the FDCA to include products containing nicotine from any
source, synthetic nicotine products became subject to the TCA requirements for
tobacco products, including the requirement for premarket authorization. Given
these developments, Bidi has decided not to launch the synthetic-nicotine BIDI®
Pouch at this time, but will instead seek a PMTA marketing authorization from
the FDA for the BIDI®Pouch made with tobacco-derived nicotine.
On July 14, 2021, we announced plans to launch our first Kaival-branded product,
a Hemp CBD product. In addition to our branded formulation, we anticipate that
we will also provide white label, wholesale solutions for other product
manufacturers through our subsidiary, Kaival Labs. However, as of the date of
this Quarterly Report, we have not launched any Kaival-branded products, nor
have we begun to offer white label, wholesale solutions to other product
manufacturers.
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
Going Concern
In February 2022, the U.S. Court of Appeals for the Eleventh Circuit granted
Bidi a judicial stay of the MDO previously issued by the FDA to Bidi in
September 2021. The ruling means that the MDO is not legally in force.
Accordingly, we anticipate being able to continue marketing and selling the
Products, subject to the FDA's enforcement discretion, while Bidi continues with
its merits case challenging the legality of the MDO. The FDA has indicated that
it is prioritizing enforcement against companies that have either not submitted
PMTAs, whose PMTAs have been refused acceptance or filing by the FDA, or whose
PMTAs remain subject to MDOs. Oral arguments in the merits case were held on May
17, 2022.
If the U.S. Court of Appeals for the Eleventh Circuit rules in favor of Bidi in
the merits case, we anticipate that the FDA will be compelled to place the
non-tobacco flavored ENDS back into the PMTA scientific review process. If this
is the outcome of the merits case, we anticipate being able to continue
marketing and selling the Products, subject to the FDA's enforcement discretion,
until the scientific review process is complete on each of Bidi's PMTA for the
non-tobacco flavored ENDS and the FDA issues its decision on each.
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If the U.S. Court of Appeals for the Eleventh Circuit rules against Bidi on the
merits case, if the FDA re-issues the MDO after completing its scientific review
process for each of Bidi's PMTAs for its non-tobacco flavored ENDS, or if the
FDA otherwise chooses to enforce the MDO against Bidi, we will be forced to
cease sales on the non-tobacco flavored BIDI® Sticks in the United States
market, leaving only the Tobacco (Classic) BIDI®Sticks product for sale in the
United States. If this is the outcome of the merits case, this combined with a
negative cash flow from operations may raise substantial doubt on our ability to
continue as a going concern.
Management plans to continue similar operations with increased marketing, which
we believe will result in increased revenue and net income. Further, we believe
that the PMI License Agreement will generate additional revenues through
royalties paid by PMPSA. However, there is no assurance that management's plan
will be successful due to the current economic climate in the United States and
globally.
The unaudited consolidated financial statements filed as part of this Quarterly
Report do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event that we cannot continue as a
going concern.
Liquidity and Capital Resources
We believe we have sufficient cash on hand as of June 13, 2022. However, we are
awaiting the outcome of Bidi's merit-based case pending in the U.S. Court of
Appeals for the Eleventh Circuit with respect to the MDO issued by the FDA in
September 2021. If the Eleventh Circuit Court of Appeals rules against Bidi, our
business and financial condition will be materially adversely affected,
including our ability to generate revenues and our liquidity. Other than the
ongoing MDO matters, we have no known current demands or commitments and are not
aware of any events or uncertainties as of April 30, 2022 that will result in or
that are reasonably likely to materially increase or decrease our current
requirements for cash.
At April 30, 2022, we had working capital of approximately $13.1 million and
total cash of approximately $4.7 million.
We intend to generally rely on cash from operations and equity and debt
offerings, to the extent necessary and available, to satisfy our liquidity
needs. There are a number of factors that could result in the need to raise
additional funds, including a decline in revenue or a lack of anticipated sales
growth and increased costs. Our efforts are directed toward generating positive
cash flow and profitability. If these efforts are not successful, we may need to
raise additional capital. Should capital not be available to us at reasonable
terms, other actions may become necessary in addition to cost control measures
and continued efforts to increase sales. These actions may include exploring
strategic options for the sale of the Company, the creation of joint ventures or
strategic alliances under which we will pursue business opportunities, or other
alternatives. We believe we have the financial resources to weather any
short-term impacts of the FDA's PMTA process and Bidi's receipt of a MDO from
the FDA; however, an extended impact, or a negative ruling in Bidi's
merits-based litigation case or the FDA ultimately not approving Bidi's PMTA if
it is re-evaluated could have a material and adverse effect on our sales,
earnings, and liquidity. At this time, we do not foresee the need for further
strategic financing for the next twelve months, given the financing we completed
in September 2021, as indicated below, and our continual sales efforts and
results.
In September 2021, we completed a firm commitment underwritten offering, which
offering was made pursuant to our Registration Statement on Form S-3 (File No.
333-258339) (the "Registration Statement"). The SEC declared the Registration
Statement effective on August 10, 2021. We sold 4,700,000 shares of our Common
Stock and warrants to purchase an additional 3,525,000 shares of our Common
Stock. We sold each share of our Common Stock and warrants to purchase 0.75
shares of our Common Stock at a combined public offering price of $1.70. We also
granted the underwriter the option to purchase an additional 705,000 shares of
our Common Stock and warrants to purchase an additional 528,750 shares of our
Common Stock. We received net proceeds from the offering of approximately $8.3
million. We have also received approximately $1.7 million from the exercise of
the warrants. We used the proceeds for general corporate purposes.
Cash Flows:
Cash flow used in operations was approximately $(4.6) million for the first six
months of fiscal year 2022, compared to $(5.2) million used in operations for
the first six months of fiscal year 2021. The decrease in cash flow used in
operations for the first six months of fiscal year 2022 compared to the first
six months of fiscal 2021 was primarily due to decrease in stock-based
compensation, accounts receivable, and accounts payable.
The net cash flow provided by financing activities was approximately $1.5
million for the first six months of fiscal year 2022, compared to cash flow used
in financing activities of approximately $78,000 for the first six months of
fiscal year 2021. Cash provided by financing activities during the first six
months of fiscal year 2022 resulted from the exercise of warrants by various
stockholders. The cash used in financing activities for the first six months of
fiscal year of 2022 and fiscal year 2021 consisted of cash used for the
settlement of RSUs issued to employees.
Results of Operations
Three months ended April 30, 2022, compared to three months ended April 30, 2021
Revenues:
Revenues for the second quarter of fiscal year 2022 were approximately $3.1
million, compared to approximately $18.1 million in the same period of the prior
fiscal year. In February 2022, Bidi was granted a judicial stay on the MDO
previously issued by the FDA prohibiting the marketing and sale of non-tobacco
flavored BIDI® Sticks, which had significantly impacted our revenues in previous
quarters. As a result of the grant of the judicial stay of the MDO, our revenues
increased in the second quarter of fiscal 2022, as compared to first quarter of
fiscal 2022. We expect this trend to continue as renewed distribution ramps up
and sales of non-tobacco flavored BIDI® Sticks increase, subject to the court
ruling in Bidi's favor in the pending merits-based case, and subject to the
FDA's enforcement discretion.
With respect to synthetic nicotine vaping products, on March 15, 2022, the FDA
was given the authority to regulate products containing non-tobacco derived
synthetic nicotine after President Biden signed the Omnibus Budget Bill (H.R.
2741). Pursuant to the new legislation, which amended the definition of a
"tobacco product" in the FDCA to include products containing nicotine from any
source, manufacturers of all currently marketed synthetic nicotine products were
required to submit a PMTA by May 14, 2022 to remain on the market. Products that
do not receive PMTA authorization (i.e., a Marketing Grant Order or "MGO")
within 60 days (i.e., by July 13, 2022) and that remain on the market thereafter
will be in violation of the statute and subject to FDA enforcement. We
anticipate that if the FDA begins enforcement against illegally-marketed or
synthetic-nicotine vaping products, there may be an increased demand for
compliant and legal vaping products, such as the BIDI® Stick.
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Cost of Revenue, net and Gross Profit (Loss):
Gross profit in the second quarter of fiscal year 2022 was approximately
$387,700, or approximately 12.7%, of revenues, net, compared to approximately
$6.3 million gross profit, or approximately 34.6%, of revenues, net, for the
second quarter of fiscal year 2021. Total cost of revenue, net was approximately
$2.7 million, or approximately 87.3%, of revenue, net for the second quarter of
fiscal year 2022, compared to approximately $11.9 million, or approximately
65.4%, of revenue, net for the second quarter of fiscal year 2021. The decrease
in gross profit is primarily driven by the decrease in overall sales and the
recognition of accumulated year-to-date credits/discounts/rebates given to
customers, totaling approximately $499,000, resulting in an offset to revenue,
net, during the second quarter of fiscal year 2022.
Operating Expenses:
Total operating expenses were approximately $5.4 million for the second quarter
of fiscal year 2022, compared to approximately $10.4 million for the second
quarter of fiscal year 2021. For the second quarter of fiscal year 2022,
operating expenses consisted primarily of advertising and promotion fees of
approximately $761,000, stock-based compensation expense of approximately $2.5
million, professional fees of approximately $163,000, and all other general and
administrative expenses of approximately $2.0 million. General and
administrative expenses in the second quarter of fiscal year 2022 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 2021, operating expenses were approximately
$10.4 million, consisting primarily of advertising and promotion fees of
approximately $801,000, professional fees totaling approximately $7.3 million,
and all other general and administrative expenses of approximately $2.3 million.
General and administrative expenses in the second quarter of fiscal year 2021
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.
Income Taxes:
During the second quarter of fiscal year 2022, we did not accrue a tax provision
for income taxes, due to the pre-tax loss of approximately ($5.1) million,
compared to a tax provision of approximately $187,000 for the second quarter of
fiscal year 2021, due to the amount of pre-tax income for that three-month
period. However, we did report a tax benefit of approximately $5,800 during
fiscal year 2022. The reduction from the second quarter of fiscal year 2021 was
due to the pre-tax operating loss recognized during the second quarter of fiscal
year 2022.
Net Loss:
As a result of the items noted above, the net loss for the second quarter of
fiscal year 2022 was approximately ($5.0) million, or ($0.16) basic and diluted
loss per share, compared to a net loss of approximately ($4.3) million, or
($0.18) basic and diluted earnings per share, for the second quarter of fiscal
year 2021. The increase in the net loss for the second quarter of fiscal year
2022, as compared to the second quarter of fiscal year 2021, is primarily
attributable to the decreased revenues and increase in customer
credits/discounts/rebates, as noted above.
Six months ended April 30, 2022, compared to six months ended April 30, 2021
Revenues:
Revenues for the first six months of fiscal year 2022 were approximately $6.0
million, compared to $55.5 million in the same period of the prior fiscal year.
Revenues decreased in the first six months of fiscal year 2022 compared to
fiscal year 2021, generally due to (i) Bidi's receipt of the MDO, which limited
our ability during the first six months of fiscal year 2022 to sell flavored
BIDI® Sticks in the United States and (ii) increased competition. A recent court
ruling in favor of Bidi granted a judicial stay on the MDO previously issued by
the FDA banning the marketing and sale of flavored BIDI® Sticks, amongst banning
these flavored sticks with other industry competitors. As a result of the
judicial stay of Bidi's MDO, we have begun to experience an upward trajectory of
revenues as renewed distribution ramps up and sales of flavored BIDI® Sticks
products increase, which sales remain subject to FDA's enforcement discretion
(and assuming that Bidi is successful in its currently pending merits-based
case). We also anticipate that if the FDA begins enforcement against
illegally-marketed or synthetic-nicotine vaping products, there may be an
increased demand for compliant and legal vaping products, such as the BIDI®
Stick.
Cost of Revenue and Gross Profit (Loss):
Gross loss in the first six months of fiscal year 2022 was approximately
($303,000), compared to gross profit of approximately $11.1 million profit for
the first six months of fiscal year 2021. Total cost of revenue was
approximately $6.2 million for the first six months of fiscal year 2022,
compared to $44.4 million for the first six months of fiscal year 2021. The
decrease in gross profit is primarily driven by the decrease in overall sales
and the recognition of accumulated year-to-date credits, discounts, and rebates
given to customers, totaling approximately $1.4 million, resulting in an offset
to revenue, net, during the six months ended April 30, 2022.
Operating Expenses:
Total operating expenses were approximately $7.5 million for the first six
months of fiscal year 2022, compared to approximately $14.7 million for the
first six months of fiscal year 2021. For the first six months of fiscal year
2022, operating expenses consisted of commissions paid pursuant to the Amended
Service Agreement of approximately $1.4 million and general and administrative
expense consisting of amortized stock option expense of approximately $2.8
million, professional fees of approximately $1.4 million, salaries and wages of
approximately $939,000, and all other general and administrative expenses of
approximately $1.0 million. General and administrative expenses in the first six
months of fiscal year 2022 consisted primarily of legal fees, salaries, other
professional fees, merchant fees, and other service fees. Total operating
expenses for the first six months of fiscal year 2021 were approximately $14.7
million. These operating expenses consisted primarily of advertising and
promotion fees of approximately $1.8 million; professional fees of approximately
$9.7 million; salary, wages, commissions, and bonuses of approximately $1.8
million; stock-based compensation expense of approximately $580,000;
professional fees of approximately $163,000; and general and administrative
expenses of approximately $820,000, which consisted primarily of insurance,
banking fees, merchant fees, business fess and other service fees.
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Income Taxes:
During the first six months of fiscal year 2022, we did not accrue a tax
provision for income taxes , due to the pre-tax loss of approximately ($7.8)
million. However, we did report a tax benefit of approximately $5,800 during
fiscal year 2022. During the first six months of fiscal year 2021, we accrued a
tax provision of approximately $293,100 related to tax liabilities for fiscal
year 2020.
Net Income (Loss):
Net loss for the first six months of fiscal year 2022 was approximately ($7.8)
million, or $(0.25) basic and diluted earnings per share, compared to net loss
for the first six months of fiscal year 2021, which was approximately ($3.9)
million, or $(0.17) basic and diluted earnings per share. The increase in the
net loss for the first six months of fiscal year 2022, as compared to the first
six months of fiscal year 2021, is primarily attributable to the decreased
revenues and increase in customer credits/discounts/rebates.
Weighted-average shares of Common Stock outstanding were 23,511,959 and
23,368,691 for the first six months of fiscal year 2022 and 2021, respectively.
Critical Accounting Policies and Estimates
Other than the policy changes disclosed in Note 2, Basis of Presentation and
Significant Accounting Policies, to the unaudited Consolidated Financial
Statements in Item 1 of Part I of this Quarterly Report, there have been no
material changes to our critical accounting policies and estimates during the
three months ended April 30, 2022 from those disclosed in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, of our
2021 Annual Report for the year ended October 31, 2021.
Emerging Growth Company
We are an "emerging growth company," that is exempt from certain financial
disclosure and governance requirements for up to five years as defined in the
Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). The JOBS Act eases
restrictions on the sale of securities and increases the number of stockholders
a company must have before becoming subject to the SEC's reporting and
disclosure rules. We have not elected to use the extended transition period for
complying with new or revised accounting standards under Section 102(b)(2) of
the JOBS Act, that allows us to delay the adoption of new or revised accounting
standards that have different effective dates for public and private companies
until those standards apply to private companies.
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