Core Insights - AXIL Brands, Inc. reported strong financial and operational results for the third quarter ended February 28, 2025, highlighting a successful execution of its multi-channel growth strategy [3][4] - The company achieved a positive Adjusted EBITDA of $0.9 million, a significant improvement from a loss in the prior-year period, indicating a meaningful inflection point in operational performance [4][6] - AXIL is proactively addressing risks associated with evolving U.S. trade policy by accelerating its supply chain transition strategy and enhancing domestic manufacturing capabilities [4] Financial Performance - Revenue for 3Q25 was $6.9 million, compared to $6.5 million in the prior year period, reflecting a year-over-year increase [6] - Gross profit margin improved slightly to 71.7% in 3Q25 from 71.5% in the prior year period [6] - Operating expenses as a percentage of sales decreased significantly to 63.3% in 3Q25 from 73.1% in the prior year period [6] - Net income for 3Q25 was $0.6 million, down from $0.8 million in the prior year period [6] - Adjusted EBITDA for 3Q25 was $0.9 million, compared to an Adjusted EBITDA loss of $11 thousand in the prior year period [6][8] Cash Flow and Balance Sheet - Net cash provided by operating activities for the nine months ended February 28, 2025, was $1.7 million, up from $0.3 million for the same period in the prior year [6][12] - Cash as of February 28, 2025, was $4.7 million, an increase from $3.3 million as of May 31, 2024 [6][9] - Total assets increased to $12.95 million as of February 28, 2025, compared to $10.97 million as of May 31, 2024 [9][10] Operational Strategy - The company is focusing on expanding into new geographic markets and deepening retail distribution to drive growth [3][4] - AXIL is taking decisive actions to enhance long-term resilience and control over its cost structure in response to new tariffs [4]

Core Insights - AXIL Brands, Inc. is focusing on expanding its offline retail presence and entering international markets as part of an 18-month marketing initiative [1][2] - The company aims to raise awareness about hearing loss, which affects over 1.5 billion people globally, while promoting its innovative hearing solutions [2] - By the end of 2026, AXIL targets a balanced revenue mix of 30% from retail, 30% from online sales, and 30% from international markets [2] Group 1 - AXIL is recognized for pioneering the in-ear hearing protection category and is leveraging its industry leadership to reach new customers worldwide [1][3] - The company is expanding partnerships with major retailers and distributors in the U.S. to enhance its offline presence [3] - AXIL has secured strategic distribution agreements in major hubs across the European Union and is negotiating in Asia-Pacific markets [3] Group 2 - The initiatives aim to make AXIL's products accessible to a broader audience, addressing both recreational and occupational hearing protection needs [3] - The company is exploring options for its legacy hair care and skin care subsidiary to maintain focus on its core business while maximizing shareholder value [4] - AXIL Brands manufactures and markets premium hearing enhancement and protection products, including ear plugs, earmuffs, and earbuds, under the AXIL brand [5]

Company Overview - AXIL Brands, Inc. is a leader in innovative hearing protection, enhancement, and Bluetooth/wireless technology [1] - The company is publicly traded on NYSE American under the ticker AXIL and operates globally, selling products in the U.S., Canada, the European Union, and Asia [5] New Product Launch - AXIL has entered into a multi-year licensing agreement with Feld Entertainment to produce Monster Jam-branded hearing protection products [1][2] - The new product line will include earbuds, earmuffs, hearing devices, and ear plugs designed for both adults and youth [2] - These products will feature AXIL's signature sound quality and hearing protection functionality, aimed at fans of all ages [2] Market Availability - The Monster Jam-branded products are expected to be available for purchase in the spring of 2025 through various retail outlets and online platforms [2] Strategic Partnership - The collaboration with Feld Entertainment aims to enhance hearing safety while capturing the excitement of motorsports [3] - This partnership allows Monster Jam fans to showcase their fandom through the new hearing protection products [4] Company Mission - AXIL's CEO emphasized the commitment to superior hearing safety and the goal of providing high-quality hearing protection for fans [3] - The company aims to create products that allow fans to enjoy events while safeguarding their hearing [3] Industry Context - Feld Entertainment is a leader in live touring family entertainment, producing events that entertain millions globally [4] - The Monster Jam brand extends beyond live events into consumer products, content, and merchandise, enhancing year-round engagement with fans [3]

Core Insights - AXIL Brands, Inc. is showcasing its MX Series hearing protection lineup at the NASCAR Daytona 500 event from February 13 to February 16, 2025, highlighting its commitment to innovative hearing solutions [1][2] - The company aims to enhance the race experience for NASCAR fans and professionals through its advanced hearing protection and enhancement technologies [3] Company Overview - AXIL Brands is a manufacturer and marketer of premium hearing enhancement and protection products, including ear plugs, earmuffs, and earbuds, and operates under the AXIL brand [6] - The company also offers premium hair and skincare products under its Reviv3 brand, with a market presence in the United States, Canada, the European Union, and Asia [6] Industry Context - NASCAR is the leading motorsport organization in the United States, sanctioning over 1,200 races annually across various series and regions, providing a significant platform for consumer engagement and strategic partnerships for companies like AXIL [5]

Core Insights - AXIL Brands, Inc. has launched the MX Series Earmuff line, designed for outdoor enthusiasts, professionals, and hobbyists, featuring three advanced models with customizable outer plates for aesthetic and functional purposes [1][3] Product Features - The MX Series Earmuffs include improved circuitry for superior sound clarity, reliable noise reduction, and seamless Bluetooth audio integration, all in a compact design [3][7] - The models include: - MX Passive: Offers top-tier passive noise reduction - MX Electronic: Combines electronic hearing enhancement with automatic noise protection - MX PRO: Features electronic hearing amplification, Bluetooth wireless audio, automatic noise protection, and a 3.5mm audio jack for two-way communication [7][8] - The earmuffs are designed for exceptional comfort with lightweight materials and multiple pad selections for customization [7] Availability - The MX Series Earmuffs will be available for purchase on AXIL's website starting February 15, 2025, and at select global retailers from March 15, 2025 [4] Company Overview - AXIL Brands is a global consumer products company specializing in premium hearing enhancement and protection products, including ear plugs, earmuffs, and earbuds, marketed under the AXIL brand [5]

Core Viewpoint - AXIL Brands, Inc. demonstrated relative resilience in its stock performance despite broader market declines, with a slight increase in share price following its earnings report for Q2 fiscal 2025, contrasting with the S&P 500's decline [1] Revenue & EPS Analysis - The company reported diluted earnings per share of 8 cents, a 60% increase from 5 cents in the same quarter last year, attributed to a higher weighted average share count [2] - Net sales were $7.73 million, down 8.2% from $8.42 million year-over-year, due to timing differences in post-Thanksgiving sales events [2] Segmental Performance - Hearing Enhancement & Protection segment, the largest for AXIL, generated $7.45 million in revenues, a 9.1% decline from $8.19 million in Q2 fiscal 2024, with gross profit down 12.5% to $5.32 million [3] - Hair & Skin Care segment revenues increased by 23.3% to $284,545, with slight growth in gross profit to $173,507, benefiting from higher distributor sales [4] Key Business Metrics - Gross profit decreased by 12.1% year-over-year to $5.5 million, with gross margin falling to 71.1% from 74.3% due to higher costs and increased discounts [5] - Operating income declined 46.8% to $0.7 million, leading to an operating margin of 8.7%, down from 15% [6] - Adjusted EBITDA was $1.01 million, down 28.9% year-over-year, with the adjusted EBITDA margin contracting to 13.1% [7] Costs & Expenses - Total operating expenses were $4.83 million, a 3.4% decline from $5 million, primarily due to reduced advertising costs [8] - Selling, general and administrative expenses decreased 2.7% to $3.97 million, while research and development expenses remained flat at $0.86 million [9] Cash & Debt - As of November 30, 2024, AXIL held $5.21 million in cash, up from $3.25 million in May 2024, attributed to effective working capital management [10] - Total debt remained stable at $3.81 million, with a net cash position improving to $1.4 million from a net debt position of $0.55 million a year ago [11] Management Commentary & Outlook - Management is focused on geographic expansion and product offerings, incurring approximately $130,000 in consulting fees for these initiatives, although benefits have yet to materialize [12] - The company is optimizing e-commerce strategies and diversifying sales channels, remaining optimistic about long-term growth and market share capture [13] Factors Influencing Results - The timing of sales recognition for post-Thanksgiving events significantly impacted quarterly revenue, while rising stock-based compensation and new product costs added margin pressures [14] Other Developments - AXIL transitioned to a new corporate headquarters and warehouse, indicating a commitment to operational growth and efficiency, with no major changes in product warranty or revenue recognition policies [15]

Financial Performance - Revenue for 2Q25 was $7.7 million, a decrease of 8.3% compared to $8.4 million in the prior year period[9] - Gross profit margin was 71.1% in 2Q25, down from 74.3% in the prior year period[9] - Net income for 2Q25 was $0.6 million, compared to $1.0 million in the prior year period, reflecting a decline of 40%[9] - Adjusted EBITDA for 2Q25 was $1.0 million, down from $1.4 million in the prior year period, representing a decrease of 28.6%[9] - Adjusted EBITDA as a percentage of sales was 13.1% in 2Q25, down from 16.9% in the prior year period[11] - Net income for the six months ended November 30, 2024, was $523,901, a decrease of 55.3% compared to $1,172,527 in 2023[17] - Total cash at the end of the period was $5,213,897, down from $5,962,431 in 2023, reflecting a decrease of 12.6%[17] - Cash provided by operating activities increased to $1,904,174, up 52.0% from $1,252,113 in the previous year[17] Operating Expenses - Operating expenses as a percentage of sales increased to 62.4% in 2Q25 from 59.3% in the prior year period[9] - Stock-based compensation rose significantly to $602,464, compared to $102,215 in the prior year, indicating a 493.5% increase[17] - Accounts receivable saw a negative change of $962,337, worsening from a negative change of $600,626 in 2023[17] - Inventory levels improved with a positive change of $729,534, compared to a negative change of $1,040,351 in the previous year[17] Strategic Initiatives - The company is expanding its retail presence, currently in over 1,000 locations, including Bass Pro Shops and select Walmart stores[5] - AXIL plans to launch a successor series to its TRACKR earmuffs in the first half of calendar year 2025, focusing on technological leadership and improved functionality[6] - The company aims to diversify its distribution strategy and establish additional international distribution agreements[4] - The company is focused on expanding its distribution channels and developing new products to drive net sales growth[19] - AXIL Brands operates in multiple regions including the United States, Canada, the European Union, and Asia, indicating a broad market presence[18] Challenges and Commitments - The company anticipates potential challenges in generating sufficient revenue and managing operational costs amid economic uncertainties[19] - AXIL Brands is committed to enhancing its product offerings in hearing enhancement and protection, as well as hair and skincare products[18]

[Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) This report contains forward-looking statements about financial performance, liquidity, capital needs, operational plans, and industry outlook, subject to various risks and uncertainties - This report contains forward-looking statements regarding financial performance, liquidity, capital needs, operational plans, and industry outlook, which are subject to various risks and uncertainties[9](index=9&type=chunk) - Key risk factors include unstable market and economic conditions (inflation, interest rates, recession), geopolitical events, financial performance and liquidity, ability to obtain capital, international market risks, regulatory changes, intellectual property protection, cybersecurity, competition, labor shortages, raw material availability, and product liability claims[10](index=10&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents AXIL Brands, Inc.'s unaudited consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, with comprehensive notes on organization, accounting policies, and detailed financial breakdowns [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets | Metric | Nov 30, 2024 (Unaudited) | May 31, 2024 | | :--------------------------------- | :----------------------- | :----------- | | Total Current Assets | $10,047,382 | $7,966,860 | | Total Other Assets | $3,662,317 | $3,007,501 | | **TOTAL ASSETS** | **$13,709,699** | **$10,974,361** | | Total Current Liabilities | $3,999,262 | $2,798,045 | | Total Long Term Liabilities | $888,286 | $480,530 | | **Total Liabilities** | **$4,887,548** | **$3,278,575** | | **Total Stockholders' Equity** | **$8,822,151** | **$7,695,786** | - Total Assets increased by **24.9%** from May 31, 2024, to November 30, 2024, driven by increases in cash (**60.2%**) and accounts receivable (**183.3%**)[17](index=17&type=chunk) - Total Liabilities increased by **49.1%** over the same period, primarily due to higher current liabilities (**42.9%**) and long-term lease liabilities[17](index=17&type=chunk) [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) For the Three Months Ended November 30 | Metric | 2024 | 2023 | Change (%) | | :----- | :----------- | :----------- | :--------- | | Sales, net | $7,732,574 | $8,421,677 | -8.2% | | Gross profit | $5,498,047 | $6,257,939 | -12.2% | | Income from operations | $672,871 | $1,263,912 | -46.8% | | NET INCOME | $633,706 | $1,018,075 | -37.8% | | Basic EPS | $0.10 | $0.17 | -41.2% | | Diluted EPS | $0.08 | $0.05 | +60.0% | For the Six Months Ended November 30 | Metric | 2024 | 2023 | Change (%) | | :----- | :----------- | :----------- | :--------- | | Sales, net | $13,583,846 | $14,527,946 | -6.5% | | Gross profit | $9,651,695 | $10,905,505 | -11.5% | | Income from operations | $532,169 | $1,437,669 | -63.0% | | NET INCOME | $523,901 | $1,172,527 | -55.4% | | Basic EPS | $0.08 | $0.20 | -60.0% | | Diluted EPS | $0.06 | $0.06 | 0.0% | - Gross profit margin for both the three and six months ended November 30, 2024, was **71.1%**, down from **74.3%** and **75.1%** respectively in the prior year[19](index=19&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) For the Six Months Ended November 30, 2024 | Item | Amount | | :-------------------------- | :----------- | | Balance, May 31, 2024 | $7,695,786 | | Stock options expense | $211,055 | | Stock-based compensation | $391,409 | | Preferred shares converted to common | — | | Net income | $523,901 | | Balance, November 30, 2024 | $8,822,151 | - Total Stockholders' Equity increased by **$1,126,365** (**14.6%**) from May 31, 2024, to November 30, 2024[22](index=22&type=chunk) - During the six months ended November 30, 2024, **11,118,250** preferred shares were converted into **555,913** common shares[22](index=22&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the Six Months Ended November 30 | Cash Flow Activity | 2024 | 2023 | Change (%) | | :----------------- | :----------- | :----------- | :--------- | | Operating Activities | $1,904,174 | $1,252,113 | +52.1% | | Investing Activities | $(107,623) | $(70,845) | +51.9% | | Financing Activities | $163,470 | $(51,519) | N/A | | NET INCREASE IN CASH | $1,960,021 | $1,129,749 | +73.5% | | CASH - End of period | $5,213,897 | $5,962,431 | -12.5% | - Net cash provided by operating activities significantly increased, primarily due to strategic inventory management and the forgiveness of accounts payable[26](index=26&type=chunk) - Financing activities shifted from using cash in 2023 to providing cash in 2024, mainly due to advances from a related party[26](index=26&type=chunk) [Condensed Notes to Unaudited Consolidated Financial Statements](index=12&type=section&id=Condensed%20Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the unaudited consolidated financial statements, covering the company's organization, significant accounting policies, and specific breakdowns of balance sheet and income statement items, as well as information on equity, commitments, related party transactions, concentrations, and segment reporting [Note 1 – Organization](index=12&type=section&id=Note%201%20%E2%80%93%20Organization) - Company changed its name from Reviv3 Procare Company to **AXIL Brands, Inc.** effective February 14, 2024[27](index=27&type=chunk) - Uplisted from over-the-counter markets to the **NYSE American stock exchange** on February 14, 2024[27](index=27&type=chunk) - Engaged in manufacturing, marketing, sale, and distribution of high-tech hearing/audio enhancement and protection products, and professional quality hair/skin care products[27](index=27&type=chunk) [Note 2 – Basis of Presentation and Summary of Significant Accounting Policies](index=12&type=section&id=Note%202%20%E2%80%93%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) - Unaudited consolidated financial statements are prepared in accordance with SEC rules and GAAP, with normal and recurring adjustments[28](index=28&type=chunk) - A **1-for-20 reverse stock split** was effected on January 16, 2024, with retroactive effect for all periods presented[29](index=29&type=chunk)[89](index=89&type=chunk) - Reclassified **$202,930** and **$385,185** from General and administrative to Professional and consulting for the three and six months ended November 30, 2023, respectively[31](index=31&type=chunk) - Adopted ASC 326, 'Financial Instruments - Credit Losses' on June 1, 2023, and ASU 2020-06, 'Debt – Debt with Conversion and Other Options' effective June 1, 2024, with no material impact[33](index=33&type=chunk)[76](index=76&type=chunk) - Revenue for products is recognized upon shipment, while revenue for services (extended warranty) is recognized ratably over the warranty period[46](index=46&type=chunk) [Note 3 – Accounts Receivable, net](index=21&type=section&id=Note%203%20%E2%80%93%20Accounts%20Receivable,%20net) Accounts Receivable, net | Metric | Nov 30, 2024 | May 31, 2024 | | :-------------------------- | :----------- | :----------- | | Customers receivable | $794,275 | $524,730 | | Merchant processor receivable | $746,123 | $78,417 | | Less: Allowance for credit losses | $(96,180) | $(93,312) | | **Accounts receivables, net** | **$1,444,218** | **$509,835** | - Accounts receivables, net, increased by **183.3%** from May 31, 2024, to November 30, 2024, primarily due to a significant increase in merchant processor receivables[79](index=79&type=chunk) Bad Debt Expense | Period | 2024 | 2023 | Change (%) | | :----- | :------ | :------ | :--------- | | 3 months | $9,169 | $11,461 | -19.9% | | 6 months | $27,954 | $64,327 | -56.5% | [Note 4 – Inventory, net](index=21&type=section&id=Note%204%20%E2%80%93%20Inventory,%20net) Inventory, net | Metric | Nov 30, 2024 | May 31, 2024 | | :------------ | :----------- | :----------- | | Finished Goods | $2,543,218 | $3,190,344 | | Raw Materials | $121,271 | $203,679 | | **Inventory** | **$2,664,489** | **$3,394,023** | - Inventory, net, decreased by **21.4%** from May 31, 2024, to November 30, 2024[80](index=80&type=chunk) - The company provided **$46,895** as an obsolescence reserve on slow-moving inventory as of November 30, 2024[80](index=80&type=chunk) [Note 5 – Property and Equipment](index=21&type=section&id=Note%205%20%E2%80%93%20Property%20and%20Equipment) Total Property, Plant and Equipment, net | Metric | Nov 30, 2024 | May 31, 2024 | | :-------------------------- | :----------- | :----------- | | Total Property, plant and equipment, net | $305,433 | $260,948 | - Property and equipment, net, increased by **17.0%** from May 31, 2024, to November 30, 2024[81](index=81&type=chunk) Depreciation Expense | Period | 2024 | 2023 | Change (%) | | :----- | :------ | :------ | :--------- | | 3 months | $11,405 | $8,410 | +35.6% | | 6 months | $21,298 | $17,272 | +23.3% | [Note 6 – Intangible Assets](index=22&type=section&id=Note%206%20%E2%80%93%20Intangible%20Assets) Intangible Assets | Metric | Nov 30, 2024 | May 31, 2024 | | :------------------ | :----------- | :----------- | | Intangible assets, net | $324,907 | $309,104 | | Goodwill | $2,152,215 | $2,152,215 | - Intangible assets, net, increased by **5.1%** from May 31, 2024, to November 30, 2024, with a new addition of **$41,840** for Product Certification Testing[82](index=82&type=chunk) Amortization Expense | Period | 2024 | 2023 | Change (%) | | :----- | :------ | :------ | :--------- | | 3 months | $23,035 | $19,375 | +18.9% | | 6 months | $26,037 | $35,522 | -26.8% | [Note 7 – Other Current Liabilities](index=22&type=section&id=Note%207%20%E2%80%93%20Other%20Current%20Liabilities) Other Current Liabilities | Metric | Nov 30, 2024 | May 31, 2024 | | :-------------------- | :----------- | :----------- | | Sales Tax Payable | $315,377 | $231,283 | | Accrued expenses | $12,387 | $92,543 | | Royalty Payment Accrual | — | $3,376 | | **Total other current liabilities** | **$331,395** | **$332,936** | - Total other current liabilities remained relatively stable, with a **36.4%** increase in Sales Tax Payable offset by an **86.6%** decrease in Accrued expenses[84](index=84&type=chunk) [Note 8 – Notes Payable](index=22&type=section&id=Note%208%20%E2%80%93%20Notes%20Payable) Notes Payable Outstanding Balance | Metric | Nov 30, 2024 | May 31, 2024 | | :---------------- | :----------- | :----------- | | Outstanding balance | $143,342 | $146,594 | - The company has an outstanding Economic Injury Disaster Loan (EIDL) from the CARES Act, with a balance of **$143,342** as of November 30, 2024[85](index=85&type=chunk)[86](index=86&type=chunk) - The entire outstanding loan balance of **$143,342** is due in fiscal year 2025[87](index=87&type=chunk) [Note 9 – Stockholders' Equity](index=23&type=section&id=Note%209%20%E2%80%93%20Stockholders'%20Equity) [Shares Authorized](index=23&type=section&id=Shares%20Authorized) - Authorized capital consists of **450,000,000** shares of common stock and **300,000,000** shares of preferred stock[88](index=88&type=chunk) - A **1-for-20 reverse stock split** was effective January 16, 2024, retroactively applied, without changing par value or authorized shares[89](index=89&type=chunk) [Preferred Stock](index=23&type=section&id=Preferred%20Stock) Series A Preferred Stock Outstanding | Metric | Nov 30, 2024 | May 31, 2024 | | :-------------------------------- | :----------- | :----------- | | Series A Preferred Stock outstanding | 31,133,500 | 42,251,750 | - During the six months ended November 30, 2024, **11,118,250** preferred shares were converted into **555,913** common shares[95](index=95&type=chunk) - Series A Preferred Stock is non-voting, has no dividend rights, and is convertible into common stock at a **twenty-to-one ratio** after the second anniversary of issuance[91](index=91&type=chunk)[92](index=92&type=chunk) [Common Stock](index=24&type=section&id=Common%20Stock) - As of November 30, 2024, **6,466,852** shares of common stock were issued and outstanding[96](index=96&type=chunk) [Stock Options](index=25&type=section&id=Stock%20Options) - The 2022 Equity Incentive Plan was amended to increase authorized shares for issuance by **800,000**, bringing the total to **2,050,000** shares[98](index=98&type=chunk)[99](index=99&type=chunk) - During the six months ended November 30, 2024, the company granted **629,000** stock options with a weighted average exercise price of **$4.17**[110](index=110&type=chunk) Stock Options Expense (6 months ended Nov 30) | Year | Amount | | :--- | :-------- | | 2024 | $211,055 | | 2023 | $102,215 | [Restricted Stock Awards and Restricted Shares Issued](index=27&type=section&id=Restricted%20Stock%20Awards%20and%20Restricted%20Shares%20Issued) - **15,000** restricted stock awards were granted to non-employee directors on February 14, 2024, with a total fair value of **$195,000**, vesting on the one-year anniversary[111](index=111&type=chunk) - **30,000** shares of restricted common stock, valued at **$298,800**, were granted to a former officer on May 28, 2024, vesting upon grant[112](index=112&type=chunk) - During the six months ended November 30, 2024, the company expensed **$391,409** related to restricted stock awards and expenses[114](index=114&type=chunk) [Note 10 – Commitments and Contingencies](index=28&type=section&id=Note%2010%20%E2%80%93%20Commitments%20and%20Contingencies) [Leases](index=28&type=section&id=Leases) - The company adopted ASU 2016-02, 'Leases' (ASC 842) effective June 1, 2019, recognizing right-of-use (ROU) assets and lease liabilities[115](index=115&type=chunk) - During the six months ended November 30, 2024, two new lease agreements were entered into, resulting in an initial lease liability and ROU asset of **$767,269**[119](index=119&type=chunk)[120](index=120&type=chunk) Operating Lease Costs (6 months ended Nov 30) | Year | Amount | | :--- | :------- | | 2024 | $67,739 | | 2023 | $37,317 | - As of November 30, 2024, the weighted average remaining lease term was **3.8 years** and the discount rate was **13.0%**[121](index=121&type=chunk) [Accounts Payable](index=29&type=section&id=Accounts%20Payable) - During the three months ended November 30, 2024, **$218,699** previously due in relation to royalties was forgiven and included in Sales and marketing[123](index=123&type=chunk) [Contingencies](index=29&type=section&id=Contingencies) - The company is involved in various lawsuits and legal proceedings, but management believes the ultimate liability is not expected to have a material adverse effect on financial results[124](index=124&type=chunk) [Note 11 – Related Party Transactions](index=30&type=section&id=Note%2011%20%E2%80%93%20Related%20Party%20Transactions) - Intrepid Global Advisors (managed by the CEO) provided advances and received **$127,000** in consulting fees for the six months ended November 30, 2024[125](index=125&type=chunk) Amounts Payable to Intrepid | Date | Amount | | :--- | :-------- | | Nov 30, 2024 | $178,520 | | May 31, 2024 | $11,798 | - BZ Capital Strategies (controlled by the CFO/COO) received **$75,000** in consulting fees for the six months ended November 30, 2024[125](index=125&type=chunk) [Note 12 – Concentrations](index=30&type=section&id=Note%2012%20%E2%80%93%20Concentrations) [Concentration of Credit Risk](index=30&type=section&id=Concentration%20of%20Credit%20Risk) - As of November 30, 2024, the company held approximately **$4,463,897** in cash in excess of federally insured limits[126](index=126&type=chunk) [Concentration of Revenue, Accounts Receivable, Product Line, and Supplier](index=30&type=section&id=Concentration%20of%20Revenue,%20Accounts%20Receivable,%20Product%20Line,%20and%20Supplier) - No single customer accounted for greater than **10%** of consolidated net sales for the three and six months ended November 30, 2024 and 2023[127](index=127&type=chunk) U.S. Consolidated Net Sales Concentration | Period | 2024 | 2023 | | :----- | :------ | :------ | | 3 months | 90.2% | 94.6% | | 6 months | 91.2% | 93.9% | - Manufacturing is outsourced primarily overseas, with the two largest vendors accounting for **73.2%** and **15.9%** of all purchases for the three months ended November 30, 2024[131](index=131&type=chunk) [Note 13 – Business Segment and Geographic Area Information](index=31&type=section&id=Note%2013%20%E2%80%93%20Business%20Segment%20and%20Geographic%20Area%20Information) [Business Segments](index=31&type=section&id=Business%20Segments) Net Sales by Segment (3 months ended Nov 30) | Segment | 2024 | 2023 | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | | Hair care and skin care | $284,545 | $230,741 | +23.3% | | Hearing enhancement and protection | $7,448,029 | $8,190,936 | -9.1% | Net Sales by Segment (6 months ended Nov 30) | Segment | 2024 | 2023 | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | | Hair care and skin care | $836,054 | $545,594 | +53.2% | | Hearing enhancement and protection | $12,747,792 | $13,982,352 | -8.8% | Segment Gross Profit (3 months ended Nov 30) | Segment | 2024 | 2023 | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | | Hair care and skin care | $173,507 | $172,583 | +0.5% | | Hearing enhancement and protection | $5,324,540 | $6,085,356 | -12.5% | Segment Gross Profit (6 months ended Nov 30) | Segment | 2024 | 2023 | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | | Hair care and skin care | $429,996 | $394,107 | +9.1% | | Hearing enhancement and protection | $9,221,699 | $10,511,398 | -12.3% | - The Hearing enhancement and protection segment remains the larger contributor to sales and gross profit, despite year-over-year declines, while the Hair care and skin care segment showed significant sales growth[133](index=133&type=chunk) [Geographic Area Information](index=32&type=section&id=Geographic%20Area%20Information) - Geographic sales information is detailed in Note 12 – Concentrations, indicating a high concentration of sales in the U.S[134](index=134&type=chunk) [Note 14 – Income Taxes](index=33&type=section&id=Note%2014%20%E2%80%93%20Income%20Taxes) Income Tax Expense | Period | 2024 | 2023 | Change (%) | | :----- | :------ | :------ | :--------- | | 3 months | $67,250 | $364,393 | -81.5% | | 6 months | $67,250 | $430,382 | -84.4% | - The company recorded a significantly lower income tax expense for both the three and six months ended November 30, 2024, compared to the prior year[136](index=136&type=chunk) - The company does not have any uncertain tax positions and its 2020-2023 Corporate Income Tax Returns are subject to IRS examination[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, liquidity, and capital resources for the periods ended November 30, 2024, highlighting a decrease in net sales and income from operations, primarily attributed to the timing of post-Thanksgiving sales events and increased costs, while also discussing improved operating cash flows and the company's strategy for growth [Overview](index=34&type=section&id=Overview) - The company operates in two reportable segments: high-tech hearing and audio enhancement/protection products, and professional quality hair and skin care products[141](index=141&type=chunk)[142](index=142&type=chunk) - The overall business strategy focuses on direct-to-consumer campaigns, expanding market share, optimizing e-commerce, building sales teams, and enhancing value through strategic partnerships[143](index=143&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) The company experienced a decline in net sales, gross profit, and net income for both the three and six months ended November 30, 2024, compared to the prior year, largely due to the timing of post-Thanksgiving sales events, reduced advertising, and increased cost of sales as a percentage of revenue, despite some growth in hair and skin care products and distribution channels for AXIL products, with Adjusted EBITDA also decreasing [For the Three Months Ended November 30, 2024 Compared to the Three Months Ended November 30, 2023](index=36&type=section&id=For%20the%20Three%20Months%20Ended%20November%2030,%202024%20Compared%20to%20the%20Three%20Months%20Ended%20November%2030,%202023) Financial Performance (3 months ended Nov 30) | Metric | 2024 | 2023 | Change (%) | | :----- | :----------- | :----------- | :--------- | | Net sales | $7,732,574 | $8,421,677 | -8.2% | | Gross profit | $5,498,047 | $6,257,939 | -12.2% | | Gross profit margin | 71.1% | 74.3% | -3.2 pp | | Income from operations | $672,871 | $1,263,912 | -46.8% | | Net income | $633,706 | $1,018,075 | -37.8% | | Adjusted EBITDA | $1,013,952 | $1,425,176 | -28.8% | | Adjusted EBITDA as % of Sales | 13.1% | 16.9% | -3.8 pp | - The decrease in net sales was primarily due to the timing of post-Thanksgiving sales events (recognized in Q3 this fiscal year vs. Q2 in prior year) and reduced advertising expenditure[148](index=148&type=chunk) - Operating expenses decreased by **3%** but income from operations fell by **46.8%** due to lower sales, increased non-cash stock-based compensation, and lower gross profit, partially offset by a **$220,000** forgiveness of accounts payable[151](index=151&type=chunk)[152](index=152&type=chunk) [For the Six Months Ended November 30, 2024 Compared to the Six Months Ended November 30, 2023](index=36&type=section&id=For%20the%20Six%20Months%20Ended%20November%2030,%202024%20Compared%20to%20the%20Six%20Months%20Ended%20November%2030,%202023) Financial Performance (6 months ended Nov 30) | Metric | 2024 | 2023 | Change (%) | | :----- | :----------- | :----------- | :--------- | | Net sales | $13,583,846 | $14,527,946 | -6.5% | | Gross profit | $9,651,695 | $10,905,505 | -11.5% | | Gross profit margin | 71.1% | 75.1% | -4.0 pp | | Income from operations | $532,169 | $1,437,669 | -63.0% | | Net income | $523,901 | $1,172,527 | -55.4% | | Adjusted EBITDA | $1,186,275 | $1,688,112 | -29.7% | | Adjusted EBITDA as % of Sales | 8.7% | 11.6% | -2.9 pp | - Net sales decreased by **6%** primarily due to the timing of post-Thanksgiving sales events and reduced advertising expenditure, despite strength in distribution channels for AXIL products and increased hair/skin care sales[155](index=155&type=chunk)[156](index=156&type=chunk) - Income from operations decreased by **63%** due to lower gross profit, increased non-cash stock-based compensation (**$500,249** increase), and higher professional and consulting fees, partially offset by a **$220,000** forgiveness of accounts payable[159](index=159&type=chunk)[160](index=160&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) - Management believes current cash balances and anticipated cash flow from operations will be sufficient to meet working capital requirements for at least one year[163](index=163&type=chunk)[164](index=164&type=chunk) - The company expects to earn net income and positive cash flows from operations during the current fiscal year ending May 31, 2025[163](index=163&type=chunk) - The company may require additional capital in the future for operations or acquisitions, which may not be available on favorable terms or at all[163](index=163&type=chunk)[169](index=169&type=chunk) [Cash Flows](index=40&type=section&id=Cash%20Flows) Operating cash flows significantly improved due to strategic inventory increases and forgiveness of accounts payable, while investing activities used more cash for intangibles and property/equipment, and financing activities shifted from cash usage to provision, primarily from related party advances [Operating Activities](index=40&type=section&id=Operating%20Activities) Net Cash Provided by Operating Activities (6 months ended Nov 30) | Year | Amount | | :--- | :---------- | | 2024 | $1,904,174 | | 2023 | $1,252,113 | - The **52.1%** improvement was primarily due to strategic inventory increases to accommodate new product variations and packaging, and a **$220,000** forgiveness of accounts payable[165](index=165&type=chunk) [Investing Activities](index=40&type=section&id=Investing%20Activities) Net Cash Used in Investing Activities (6 months ended Nov 30) | Year | Amount | | :--- | :--------- | | 2024 | $(107,623) | | 2023 | $(70,845) | - Cash used in investing activities increased by **51.9%** due to purchases of intangibles and property and equipment for business expansion[166](index=166&type=chunk) [Financing Activities](index=40&type=section&id=Financing%20Activities) Net Cash Provided by (Used in) Financing Activities (6 months ended Nov 30) | Year | Amount | | :--- | :-------- | | 2024 | $163,470 | | 2023 | $(51,519) | - The shift to cash provided by financing activities in 2024 was primarily due to **$166,722** in advances from a related party, partially offset by note payable repayments[167](index=167&type=chunk) - As of November 30, 2024, the company had an outstanding Economic Injury Disaster Loan (EIDL) of **$143,342**[168](index=168&type=chunk) [Off-Balance Sheet Arrangements](index=40&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of November 30, 2024, the company does not have any material off-balance sheet arrangements[170](index=170&type=chunk) [Critical Accounting Policies](index=40&type=section&id=Critical%20Accounting%20Policies) - Critical accounting policies involve significant estimates and assumptions related to revenue recognition, impairment of intangible and long-lived assets, inventory, stock compensation, and evaluation of contingencies[172](index=172&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, AXIL Brands, Inc. is not required to provide specific quantitative and qualitative disclosures about market risk - The company is not required to provide information on market risk as it is a smaller reporting company[174](index=174&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of November 30, 2024, with no material changes in internal control over financial reporting identified during the quarter [Disclosure Controls and Procedures](index=42&type=section&id=Disclosure%20Controls%20and%20Procedures) - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of November 30, 2024[175](index=175&type=chunk) [Changes in Internal Control over Financial Reporting](index=42&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal control over financial reporting during the fiscal quarter ended November 30, 2024[176](index=176&type=chunk) [PART II - OTHER INFORMATION](index=43&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various lawsuits and legal proceedings in the ordinary course of business, but management believes the ultimate liability from these matters is not expected to have a material adverse effect on financial results, though outcomes are inherently uncertain - The company is involved in various lawsuits and legal proceedings that arise in the ordinary course of business[178](index=178&type=chunk) - Management believes that the ultimate liability in connection with these matters is not expected to have a material adverse effect on results of operations, financial position, or cash flows[179](index=179&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, AXIL Brands, Inc. is not required to provide specific risk factor disclosures in this report - As a smaller reporting company, the registrant is not required to provide the information required by this Item 1A[180](index=180&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - None reported for unregistered sales of equity securities and use of proceeds[181](index=181&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - None reported for defaults upon senior securities[182](index=182&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable for mine safety disclosures[183](index=183&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended November 30, 2024 - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended November 30, 2024[184](index=184&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, equity incentive plan details, certifications, and the office lease agreement - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, 2022 Equity Incentive Plan, CEO/CFO Certifications, and an Office Lease Agreement[186](index=186&type=chunk) [Signatures](index=45&type=section&id=Signatures) The report is duly signed on behalf of AXIL Brands, Inc. by its Chief Executive Officer and Chairman of the Board of Directors, Jeff Toghraie, and its Chief Financial Officer, Chief Operating Officer and Director, Jeff Brown - The report is signed by Jeff Toghraie, Chief Executive Officer and Chairman of the Board of Directors, and Jeff Brown, Chief Financial Officer, Chief Operating Officer and Director[191](index=191&type=chunk)

Financial Performance - Revenue for the second quarter ended November 30, 2024, was $7.7 million, a decrease from $8.4 million in the prior year period [8] - Gross profit as a percentage of sales was 71.1% in 2Q25, down from 74.3% in the prior year period [8] - Operating expenses as a percentage of sales increased to 62.4% in 2Q25 from 59.3% in the prior year period [8] - Net income for 2Q25 was $0.6 million, compared to $1.0 million in the prior year period [8] - Adjusted EBITDA for 2Q25 was $1.0 million, down from $1.4 million in the prior year period [8] Operational Strategy - The company is diversifying its distribution strategy for hearing protection and enhancement products beyond online sales, establishing relationships with international distributors [4] - AXIL is making significant inroads into the retail channel, with products available in over 1,000 retail locations, including Bass Pro Shops and select Walmart stores [5] - Plans to launch a successor series to the TRACKR earmuffs in the first half of calendar year 2025, focusing on technological leadership and improved product functionality [6] Financial Position - The company reported a solid cash position of $5.2 million at the end of 2Q25, allowing for internal financing of strategic growth plans [7] - Net cash provided by operating activities for the six months ended November 30, 2024, was $1.9 million, compared to $1.3 million for the prior year period [8] Market Presence - AXIL Brands operates in the United States, Canada, the European Union, and throughout Asia, focusing on premium hearing enhancement and protection products as well as hair and skincare products [18]

Core Insights - AXIL Brands, Inc. has launched the 'X Series' Earplugs, which aim to provide superior hearing protection while maintaining comfort and style [1][2] - The earplugs are designed for various lifestyles and activities, addressing the needs of over two-thirds of Americans who require consistent hearing protection [2][3] Product Features - The 'X Series' includes two models: X20 Passive Earplugs and X30i Dynamic Sound-Filtered Earplugs, both featuring innovative designs and superior comfort [4][5] - X20 Passive Earplugs are made from hypoallergenic silicone, fitting over 95% of ear sizes, and come in eight dynamic colors [4] - X30i Dynamic Sound-Filtered Earplugs feature advanced acoustic filters and an easy toggle switch for users to switch between hearing modes [5] Market Availability - The 'X Series' Earplugs will be available for purchase starting November 21, 2024, on AXIL's website and select global retailers [6] Company Overview - AXIL Brands is an emerging global consumer products company specializing in premium hearing enhancement and protection products, as well as hair and skincare products [7]