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 audited Financial Statements and notes thereto for the year ended October 31, 2022, included under Item 8 - Financial Statements and Supplementary Data in this 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.

We are focused on growing and incubating innovative and profitable products into mature, dominant brands, with a current focus on the distribution of electronic nicotine delivery systems ("ENDS"), also known as "e-cigarettes". Our business plan is to diversify into distributing other delivery system products.

Our principal business activity is presently focused around our A&R Distribution Agreement with Bidi, pursuant to which Bidi granted us an exclusive worldwide right to distribute Bidi's ENDS as well as non-electronic nicotine delivery systems and related componentsfor sale and resale to both retail level customers and non-retail level customers. Currently, such products consist solely of the "BIDI® Stick", Bidi's disposable, tamper resistant ENDS product made with medical-grade components, a UL-certified battery and technology designed to deliver a consistent vaping experience for adult smokers 21 and over. We presently distribute products to wholesalers and retailers of ENDS products, having ceased all direct-to-consumer sales in February 2021.





Potential Impact of COVID-19

In March 2020, the World Health Organization (the "WHO") announced a global health emergency because of a new strain of coronavirus ("COVID-19") originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure.

We were indirectly impacted by supply chain issues and regulatory oversight in the fiscal year 2022. 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 additional revenue.

FDA PMTA Determinations, 11th Circuit Decision and Impact on Our Business

As the principal manufacturer of the products we distribute, Bidi's interactions with FDA and related legal proceedings are of significant importance to our business. Please see Item 1 - Business - FDA PMTA Determinations, 11th Circuit Decision and Impact on Our Business for information on this important topic.

Phillip Morris License Agreement

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, VEEBA, has been custom developed and is now being distributed in Canada and in the United Kingdom, with additional market launches planned this fiscal year.





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Reverse Stock Split

We effected the 1-for-12 Reverse Stock Split of our Common Stock on July 20, 2021. As a result of the Reverse Stock Split, every twelve (12) shares of our pre-Reverse Stock Split Common Stock were combined and reclassed into one share of our Common Stock. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares of Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole number. In connection with the Reverse Stock Split, the Board approved appropriate and proportional adjustments to all outstanding securities or other rights convertible or exercisable into shares of Common Stock, including, without limitation, all preferred stock, warrants, options, and other equity compensation rights. All historical share and per-share amounts reflected throughout our consolidated financial statements and other financial information in this Report have been adjusted to reflect the Reverse Stock Split as if the split occurred as of the earliest period presented. The par value per share of the Common Stock was not affected by the Reverse Stock Split.





Going Concern

Our financial statements are prepared in accordance with U.S. GAAP applicable to a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued.

In accordance with Financial Accounting Standards Board (the "FASB"), Accounting Standards Update ("ASU") No. 2014-15, 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 financial statements are issued. As shown in the accompanying consolidated financial statements, the Company has incurred significant recurring losses and negative cash flows from operations. These factors raised substantial doubt about our ability to continue as a going concern.

In response to the above, we assessed our management's plans to alleviate that doubt. We had positive working capital as of October 31, 2022 of $7.5 million. We considered that our losses and negative cash flows were due to various factors such as: (i) uncertainty surrounding the PMTA process with FDA and (ii) the MDO that was issued to Bidi Vapor on its flavored ENDS product. However, the MDO was set aside and remanded by the 11th Circuit and the ability to appeal such decision has passed thereby facilitating the advancement of the flavored BIDI® Sticks for sale in the United States (pending FDA's review of the flavored PMTAs). Concurrently, the PMTA of the tobacco-flavored (Classic) BIDI® Sticks for sale in the United States continues to move through scientific review (pending FDA's review of that PMTA). Management's assessment included the preparation of cash flow forecasts which considered increases in revenues considering the favorable ruling obtained on the MDO as disclosed above.

We believe that our available cash and the cash to be provided by future operating activities should enable us to meet our estimated liquidity needs for the next 12 months after the date that the financial statements are issued. Because of the above factors, we believe that this alleviates the substantial doubt in connection with our ability to continue as a going concern.

However, there is no assurance that our plans will be achieve their desired results due to the current economic climate in the United States and globally. 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 uncertainties.





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Liquidity and Capital Resources

We believe we have sufficient cash on hand as of January 20, 2023. We had been awaiting the outcome of Bidi's merit-based case pending in the Eleventh Circuit Court of Appeals with respect to the MDO issued by the FDA in September 2021. The Eleventh Circuit Court of Appeals finally ruled in favor of Bidi on August 23, 2022, so our business and financial condition will not be materially adversely affected, including our ability to generate increased revenues from sales of all Bidi stick flavors and our liquidity in Fiscal year ("FY") 2023 and likely FY 2024 and beyond. Bidi's scientific study has now gone into review by the FDA, which can take a considerable length of time, in which period allows us to market and sell. Other than the ongoing PMTA reviews, we have no known current demands or commitments and are not aware of any events or uncertainties as of October 31, 2022 that will result in or that are reasonably likely to materially increase or decrease our current requirements for cash and resulting improved liquidity.

As of October 31, 2022, we had working capital of approximately $7.5 million and total cash of approximately $3.7 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 several 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 COVID-19; however, we are unable to presently estimate any potential future impacts from COVID-19 and an extended impact could have a material and adverse effect on our sales, earnings, and liquidity. The Company was indirectly impacted by supply chain issues and regulatory oversight. In FY 22 , the Company believes 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 additional revenue.

We had also been impacted by Bidi's receipt of a MDO from the FDA. However, in the fiscal fourth quarter of FY 2022 that MDO was eliminated for Bidi by the Eleven Circuit Court of Appeals decision. For additional information regarding the impact to our revenues during the last fiscal quarter of fiscal year 2022, please see the section entitled "Revenues" below. 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, other working capital financing that will be available to us in FY 2022 and our continual and increasing 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 $1.90. 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.

However, there is no assurance that our plans will be achieve their desired results due to the current economic climate in the United States and globally. 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 uncertainties.





Cash Flows:

Cash flow used in operations was approximately ($5.7) million for fiscal year 2022, compared to cash flow used in operations of approximately ($9.3) million for fiscal year 2021. The decrease in cash flow used in operations for the fiscal year 2022 was primarily due to the decrease in inventory purchases and inventory deposits in the current year, partially offset by the decrease in accounts payable - related party. We anticipate that our cash flows from operations and sales in fiscal year 2023 will improve based on the minimum purchase obligations set forth in the Sub-Distribution Agreements, partially offset by minimal increases in costs as we ramp up our sales and marketing efforts. Additionally, we are in the process of developing a working capital line of credit with a third-party financial firm, which can supply us with short-term cash needs as our customer growth requires many more orders of product for interim short time intervals.

Cash flow provided by financing activities was approximately $1.6 million for fiscal year 2022, compared to cash flow provided by financing activities of approximately $9.7 for fiscal year 2021. The decrease in cash flow from financing activities for the fiscal year 2022 was primarily due to the $8.3 million in net proceeds from the firm commitment underwritten offering in September 2021, which consisted of shares of Common Stock and warrants to purchase shares of Common Stock, and the approximately $1.7 million in cash received from the exercise of warrants, offset by approximately $0.3 million, which was the cash amount that was paid in connection with the withholding of 92,871 shares to satisfy tax obligations due upon such issuances to certain employees.





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Results of Operations

Year ended October 31, 2022, compared to year ended October 31, 2021





Revenues:

Revenues for fiscal year 2022 were approximately $12.8 million, compared to approximately $58.8 million in the prior fiscal year. Revenues decreased in fiscal year 2022, primarily in the first two fiscal quarters, generally due to (i) increased competition, which we believe was the result of the lack of enforcement by federal and state authorities against sub-par and low-priced vaping products that continued to enter the market illegally without FDA authorization and (ii) Bidi's receipt of the MDO, which limited our ability in most of fiscal year 2022 to sell flavored BIDI® Sticks in the United States. On August 23, 2022, the 11th Circuit set aside (i.e., vacated) the MDO issued to the non-tobacco flavored BIDI® Sticks and remanded Bidi's PMTA back to the FDA for further review. In light of the 11th Circuit decision, the Company anticipates having the continued ability to market and sell the non-tobacco flavored BIDI® Sticks, subject to FDA's enforcement discretion, for the duration of the PMTA scientific review. 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:

Gross profit in fiscal year 2022 was approximately $1.2 million, compared to approximately $11.9 million for fiscal year 2021. Total cost of revenue was approximately $11.5 million for fiscal year 2022, compared to approximately $46.8 million for fiscal year 2021. The decrease in gross profit volume is primarily driven by the downturn in sales of the Products, beginning in the fiscal year 2021 and continuing through the end of fiscal year 2022, which was primarily the result of the negative impact the PMTA and the impact the regulatory landscape had on our business. Additionally, the cost of the discounts, coupons and promotions programs, that we implemented in the third quarter of fiscal year 2021 to assist in growing and retaining the customer base and store shelf space, which continued through current year contributed a lower gross profit margin per unit of Products sales, as these discounts, coupons and promotions decreased our revenues.





Operating Expenses:

Total operating expenses were approximately $15.6 million for fiscal year 2022, compared to approximately $22.4 million for fiscal year 2021. For the fiscal year 2022, operating expenses consisted primarily of advertising and promotion fees of approximately $2.7 million, stock option compensation expense of approximately $6.0 million, professional fees of approximately $3.2 million, salaries and wages of $1.7 million, and all other general and administrative expenses of approximately $2.0 million. In fiscal year 2021, operating expenses consisted of advertising and promotional expenses of approximately $3.2 million, which included commissions paid to QuikfillRx pursuant to the Service Agreement dated March 31, 2020, as amended on June 2, 2020 (the "Amended Service Agreement"), and general and administrative expenses of approximately $10.2 million. General and administrative expenses in the fiscal year 2021 consisted primarily of legal fees, salaries, professional fees, merchant fees, and other service fees, and were necessary for our Reverse Stock Split process, the process for the uplisting to Nasdaq, and to a lesser degree some of the indirect costs incurred relating to our Common Stock and warrants offering in September 2021. Additionally, we incurred legal and other costs related to the FDA's PMTA/MDO process for limiting the sales of flavored BIDI sticks. We expect future operating expenses to increase while we generate increased sales growth and invest in the Company's infrastructure to support the planned business growth.





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Income Taxes:

We have Federal net operating loss ("NOL") carryforwards of approximately $12.3 million and state NOL carryforwards of approximately $85 thousand. With the changes instituted by the CARES Act, the Federal NOLs have an indefinite life and will not expire. Our federal and state tax returns for the 2020 and 2021

tax years generally remain subject to examination by U.S. and various state authorities. A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all the deferred tax assets will not be realized. Management determined that a valuation allowance of approximately $4.2 million for the year ended on October 31, 2022, was necessary to reduce the deferred tax asset to the amount that will more likely than not be realized.

Please refer to Note 7, Income Tax, in the Notes to the Consolidated Financial Statements in this Report for additional information related to our income taxes.





Net Income (Loss):

Net loss for fiscal year 2022 was approximately $(14.4) million, or $(0.36) basic and diluted net loss per share, compared to a net loss of approximately $(9.0) million, or $(0.38) basic and diluted net loss per share, for fiscal year 2021. The increase in net loss for the fiscal year 2022, as compared to net loss in fiscal year 2021, is attributable to the revenues and expenses factors noted above. Weighted-average common stock shares outstanding were 39,710,389 on October 31, 2022, as compared to 24,000,246 on October 31, 2021. The increase in the weighted-average shares in fiscal year 2022 was primarily attributable to the conversion of 3,000,000 shares of Series A Convertible Preferred Stock to 25,000,000 shares of common stock and the exercise of 855,605 common stock warrants issued in connection with our 2021 public underwritten offering.





Accrued Expenses:

During fiscal year 2022, we accrued approximately $33,900 for a quarterly bonus and approximately $18,000 for approved expenses payable to QuikfillRx based on our applicable gross quarterly sales for the three months ended October 31, 2022. During fiscal year 2021, we accrued approximately $3,800 for a quarterly bonus and approximately $180,000 for a monthly retainer plus approved expenses payable to QuikfillRx based on our applicable gross quarterly sales for the three months ended October 31, 2021.

Excise taxes totaling approximately $6,600 were accrued based on taxable sales during the fourth quarter of fiscal year 2022, compared to excise taxes of approximately $2,200 that were accrued in fiscal year 2021 based on taxable sales during the fourth quarter of fiscal year 2021.





Concentrations:

Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and revenue.





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Concentration of Purchases and Accounts Payable- Related Party:

For the year ended October 31, 2022, 100% of the inventories of Products, consisting solely of the BIDI® Stick, were purchased from Bidi, a related party company that is owned by Nirajkumar Patel, our Chief Science and Regulatory Officer and director, in the amount of approximately $1.5 million, as compared to $61.9 million for the year ended October 31, 2021. There was no related party accounts payable balance as of October 31, 2022. In fiscal year 2021, such inventories accounted for 100% of the total related party accounts payable.

On April 29, 2022, our company and Bidi agreed to cancel the $2.9 million inventory order paid in advance in fiscal year 2021 and this was a credit against the accounts payable due to Bidi. Inventory quality control expenses were paid by us on behalf of Bidi during the year ended October 31, 2022 in the amount of approximately $0.7 million and were offset as a credit against the existing accounts payable balance-related party. A credit of $2.9 million was applied on August 1, 2022, resulting in a related-party receivable balance due from Bidi of $2.1 million, to be applied on future orders of Product. On October 31, 2022, our company and Bidi agreed to a return for short-coded or expiring inventory. An additional credit of $1.5 million and $108,000 for recycling costs was applied on October 31, 2022, to the related-party receivable balance due from Bidi.

As of October 31, 2022, we had a related-party receivable balance due from Bidi of $3.7 million, in which $1.5 million of the receivable is classified as current and $2.2 million is classified as non-current. The receivable balance will be realized through Bidi applying 5% credits on all future orders of Product until the entire balance is extinguished.

Concentration of Revenues and Accounts Receivable:

For the fiscal year 2022, (i) approximately 31% of the revenue from the sale of Products, solely consisting of the BIDI® Stick, was generated from Favs Business in the amount of approximately $3.9 million, (ii) approximately 15% of the revenue from the sale of the Products was generated from H.T. Hackney Co. in the amount of approximately $1.9 million, and (iii) approximately 12% of the revenue from the sale of Products, solely consisting of the BIDI Stick, was generated from GPM, in the amount of approximately $1.5 million. In Fiscal year 2021, approximately 23% of the revenue from the sale of Products, solely consisting of the BIDI® Stick, was generated from Favs Business in the amount of approximately $13.9 million and approximately 16% of the revenue from the sale of the Products was generated from MMS Distro in the amount of approximately $9.6 million.

Favs Business with an outstanding balance of approximately $375,000 and QuikTrip Corporation, with an outstanding balance of approximately $85,000, accounted for approximately 65% and 15% of the total accounts receivable from customers, respectively, as of October 31, 2022. Favs Business with an outstanding balance of approximately $1.0 million and C Store Master, with an outstanding balance of approximately $322,000, accounted for approximately 50% and 16% of the total accounts receivable from customers, respectively, as of October 31, 2021.





Cash and Restricted Cash

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents on October 31, 2022, or October 31, 2021. Cash and restricted cash on October 31, 2022, and October 31, 2021, were $3.7 million and $7.8 million, respectively.

Restricted cash consists of cash held short-term in escrow as required. As of October 31, 2022, and October 31, 2021, we had $0 and $65,007 in restricted cash, respectively, for amounts held in escrow.





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Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, (or GAAP). The preparation of the consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure or inclusion of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to allowance for doubtful accounts, and income tax provisions. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

We believe that the assumptions associated with our revenue recognition have the greatest potential impact on our financial statements. Therefore, we consider this to be our only critical accounting policy and we do not consider any of our estimates to be critical accounting estimates.

However, we consider Revenue Recognition the most critical accounting policy for the Company that could create a material misevaluation of Product Revenue if not adhered to and implemented successfully. We adopted ASC 606, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), in the second quarter of fiscal year 2020, as this was the first quarter that we generated revenues. Under ASC 606, we recognize revenue when a customer obtains control of promised goods, in an amount that reflects the consideration that we expect to receive in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to the customer.





Revenue Recognition Policy



Products Revenue

We generate product revenue from the sale of the Products (as defined above) to non-retail customers. We recognize revenue at a point in time based on management's evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the Products has been transferred to the customer. In most situations, transfer of control is considered complete when the products have been shipped to the customer. However, when we enter a consignment agreement with a new customer, once we ship and deliver the requested amount of the Products the customer ordered to it distribution center for its retail sales location, we retain ownership of the delivered Products until they are delivered to their retail stores. When the Products are sold in the stores and the funds, as stated in the consignment agreement, are remitted to us, then we record the revenues in our financial records. We determined that a customer obtains control of the Product upon shipment when title of such product and risk of loss transfer to the customer. Our shipping and handling costs are fulfillment costs, and such amounts are classified as part of cost of sales. The advance payment is not considered a significant financing component because the period between when we transfer a promised good to a customer and when the customer pays for that good is short. We offer credit sales arrangements to non-retail (or wholesale) customers and monitor the collectability of each credit sale routinely.

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