AXIL Brands(AXIL) - 2025 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements 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] - 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] PART I - FINANCIAL INFORMATION Item 1. Financial Statements (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 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] - Total Liabilities increased by 49.1% over the same period, primarily due to higher current liabilities (42.9%) and long-term lease liabilities[17] Consolidated Statements of Operations 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] Consolidated Statements of Changes in Stockholders' Equity 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] - During the six months ended November 30, 2024, 11,118,250 preferred shares were converted into 555,913 common shares[22] Consolidated Statements of Cash Flows 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] - Financing activities shifted from using cash in 2023 to providing cash in 2024, mainly due to advances from a related party[26] Condensed Notes to Unaudited Consolidated Financial Statements 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 - Company changed its name from Reviv3 Procare Company to AXIL Brands, Inc. effective February 14, 2024[27] - Uplisted from over-the-counter markets to the NYSE American stock exchange on February 14, 2024[27] - Engaged in manufacturing, marketing, sale, and distribution of high-tech hearing/audio enhancement and protection products, and professional quality hair/skin care products[27] Note 2 – Basis of Presentation and Summary of Significant Accounting Policies - Unaudited consolidated financial statements are prepared in accordance with SEC rules and GAAP, with normal and recurring adjustments[28] - A 1-for-20 reverse stock split was effected on January 16, 2024, with retroactive effect for all periods presented[29][89] - 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] - 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][76] - Revenue for products is recognized upon shipment, while revenue for services (extended warranty) is recognized ratably over the warranty period[46] Note 3 – Accounts Receivable, net 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] 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 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] - The company provided $46,895 as an obsolescence reserve on slow-moving inventory as of November 30, 2024[80] Note 5 – Property and Equipment 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] 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 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] 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 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] Note 8 – Notes Payable 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][86] - The entire outstanding loan balance of $143,342 is due in fiscal year 2025[87] Note 9 – Stockholders' Equity Shares Authorized - Authorized capital consists of 450,000,000 shares of common stock and 300,000,000 shares of preferred stock[88] - A 1-for-20 reverse stock split was effective January 16, 2024, retroactively applied, without changing par value or authorized shares[89] Preferred Stock 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] - 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][92] Common Stock - As of November 30, 2024, 6,466,852 shares of common stock were issued and outstanding[96] Stock Options - 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][99] - 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] Stock Options Expense (6 months ended Nov 30) | Year | Amount | | :--- | :-------- | | 2024 | $211,055 | | 2023 | $102,215 | Restricted Stock Awards and Restricted Shares Issued - 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] - 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] - During the six months ended November 30, 2024, the company expensed $391,409 related to restricted stock awards and expenses[114] Note 10 – Commitments and Contingencies Leases - The company adopted ASU 2016-02, 'Leases' (ASC 842) effective June 1, 2019, recognizing right-of-use (ROU) assets and lease liabilities[115] - 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][120] 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] Accounts Payable - 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] 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] Note 11 – Related Party Transactions - 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] 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] Note 12 – Concentrations Concentration of Credit Risk - As of November 30, 2024, the company held approximately $4,463,897 in cash in excess of federally insured limits[126] Concentration of Revenue, Accounts Receivable, Product Line, and Supplier - 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] 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] Note 13 – Business Segment and Geographic Area Information Business Segments 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] Geographic Area Information - Geographic sales information is detailed in Note 12 – Concentrations, indicating a high concentration of sales in the U.S[134] Note 14 – Income Taxes 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] - The company does not have any uncertain tax positions and its 2020-2023 Corporate Income Tax Returns are subject to IRS examination[137] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 - The company operates in two reportable segments: high-tech hearing and audio enhancement/protection products, and professional quality hair and skin care products[141][142] - 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] Results of Operations 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 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] - 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][152] For the Six Months Ended November 30, 2024 Compared to the Six Months Ended November 30, 2023 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][156] - 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][160] Liquidity and Capital Resources - 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][164] - The company expects to earn net income and positive cash flows from operations during the current fiscal year ending May 31, 2025[163] - 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][169] Cash Flows 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 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] Investing Activities 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] Financing Activities 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] - As of November 30, 2024, the company had an outstanding Economic Injury Disaster Loan (EIDL) of $143,342[168] Off-Balance Sheet Arrangements - As of November 30, 2024, the company does not have any material off-balance sheet arrangements[170] Critical Accounting Policies - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of November 30, 2024[175] Changes in Internal Control over Financial Reporting - 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] PART II - OTHER INFORMATION Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None reported for defaults upon senior securities[182] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable for mine safety disclosures[183] Item 5. Other Information 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] Item 6. Exhibits 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] 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]