AXIL Brands(AXIL) - 2025 Q3 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section outlines that the report contains forward-looking statements subject to various risks and uncertainties, advising careful evaluation - This report contains forward-looking statements regarding future events, financial performance, liquidity, capital needs, operational plans, and industry outlook, which are subject to various risks and uncertainties[9] - Actual results may differ due to factors such as unstable market conditions, economic downturns, geopolitical events, financial performance, capital access, international market risks, regulatory changes, and competition[10] - The company does not assume an obligation to update forward-looking statements, except as required by law, and advises careful evaluation of described factors[12] PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for AXIL Brands, Inc. and its subsidiary, covering the balance sheets, statements of operations, changes in stockholders' equity, and cash flows for the periods ended February 28, 2025, and February 29, 2024, along with accompanying condensed notes Consolidated Balance Sheets This section presents the company's consolidated balance sheets, detailing assets, liabilities, and equity for the specified periods | Metric | Feb 28, 2025 (Unaudited) | May 31, 2024 | | :-------------------------------- | :----------------------- | :----------- | | ASSETS | | | | Total Current Assets | $9,251,172 | $7,966,860 | | Total Other Assets | $3,699,775 | $3,007,501 | | TOTAL ASSETS | $12,950,947 | $10,974,361 | | LIABILITIES & EQUITY | | | | Total Current Liabilities | $2,449,751 | $2,798,045 | | Total Long Term Liabilities | $844,330 | $480,530 | | Total Liabilities | $3,294,081 | $3,278,575 | | Total Stockholders' Equity | $9,656,866 | $7,695,786 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $12,950,947 | $10,974,361 | - Total assets increased by $1,976,586 (18.0%) from May 31, 2024, to February 28, 2025, driven by increases in cash, accounts receivable, property and equipment, intangible assets, and right-of-use assets[16] - Total current liabilities decreased by $348,294 (12.4%) primarily due to decreases in customer deposits, contract liabilities, income tax liability, and other current liabilities, partially offset by an increase in lease liability[16] - Total stockholders' equity increased by $1,961,080 (25.5%) mainly due to net income, stock options expense, stock-based compensation, and preferred shares converted to common stock, leading to a positive retained earnings balance[16][17] Consolidated Statements of Operations This section presents the company's consolidated statements of operations, detailing revenues, expenses, and net income for the specified periods | Metric | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2025 | 9 Months Ended Feb 29, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Sales, net | $6,922,367 | $6,469,343 | $20,506,213 | $20,997,289 | | Cost of sales | $1,955,939 | $1,845,017 | $5,888,090 | $5,467,458 | | Gross profit | $4,966,428 | $4,624,326 | $14,618,123 | $15,529,831 | | Total Operating Expenses | $4,383,319 | $4,728,205 | $13,502,845 | $14,196,041 | | Income (Loss) From Operations | $583,109 | $(103,879) | $1,115,278 | $1,333,790 | | Net Income | $576,662 | $781,091 | $1,100,563 | $1,953,618 | | Basic EPS | $0.09 | $0.13 | $0.17 | $0.33 | | Diluted EPS | $0.07 | $0.04 | $0.13 | $0.11 | - For the three months ended February 28, 2025, net sales increased by 7.0% YoY, gross profit increased by 7.4% YoY, and the company reported income from operations of $583,109 compared to a loss of $(103,879) in the prior year[18] - For the nine months ended February 28, 2025, net sales decreased by 2.3% YoY, gross profit decreased by 5.9% YoY, and income from operations decreased by 16.4% YoY[18] Consolidated Statements of Changes in Stockholders' Equity This section details changes in the company's stockholders' equity, including net income, stock-based compensation, and share conversions | Metric | Feb 28, 2025 (9 Months) | Feb 29, 2024 (9 Months) | | :-------------------------------- | :---------------------- | :---------------------- | | Balance, May 31 | $7,695,786 | $6,671,959 | | Stock options expense | $416,935 | $153,320 | | Stock based compensation / Restricted stock awards | $443,582 | $7,994 | | Preferred shares converted to common | $0 | $0 | | Net income | $1,100,563 | $1,953,618 | | Balance, End of Period | $9,656,866 | $8,786,891 | - Total stockholders' equity increased from $7,695,786 as of May 31, 2024, to $9,656,866 as of February 28, 2025, primarily driven by net income and significant stock-based compensation expenses[21][22] - During the nine months ended February 28, 2025, 14,478,250 preferred shares were converted into 723,913 common shares[21] Consolidated Statements of Cash Flows This section presents the company's consolidated cash flow statements, categorizing cash movements from operating, investing, and financing activities | Cash Flow Activity | 9 Months Ended Feb 28, 2025 | 9 Months Ended Feb 29, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | $1,734,230 | $339,323 | | Net Cash Used in Investing Activities | $(255,778) | $(80,192) | | Net Cash Provided by (Used in) Financing Activities | $11,142 | $(204,246) | | Net Increase in Cash | $1,489,594 | $54,885 | | Cash - End of period | $4,743,470 | $4,887,567 | - Net cash provided by operating activities significantly increased to $1,734,230 for the nine months ended February 28, 2025, from $339,323 in the prior year, primarily due to inventory management and accounts payable forgiveness[25][170] - Net cash used in investing activities increased to $255,778 (from $80,192 in prior year) due to purchases of intangibles and property and equipment[25][171] - Net cash provided by financing activities was $11,142 (compared to $204,246 used in prior year), primarily from related party advances partially offset by note payable repayments[25][172] Condensed Notes to Unaudited Consolidated Financial Statements This section provides detailed notes to the unaudited consolidated financial statements, explaining accounting policies and specific financial items Note 1 – Organization This note describes AXIL Brands, Inc.'s rebranding, NYSE American uplisting, and its business segments in hearing protection and hair/skin care - The Company changed its name from Reviv3 Procare Company to AXIL Brands, Inc. effective February 14, 2024[26] - AXIL Brands, Inc. is engaged in the manufacturing, marketing, sale, and distribution of high-tech hearing and audio enhancement/protection products and professional quality hair and skin care products[26] - The Company successfully uplisted from the over-the-counter (OTC) markets to the NYSE American stock exchange on February 14, 2024[26] Note 2 – Basis of Presentation and Summary of Significant Accounting Policies This note details the basis of preparing financial statements, including a reverse stock split, revenue recognition, and other key accounting policies - A 1-for-20 reverse stock split was effected on January 16, 2024, with retroactive effect on all periods presented in the financial statements[28] - Revenue recognition follows ASC 606, a five-step process, with revenue for products recognized upon shipment and for services (extended warranty) recognized ratably over the warranty period[38][45] - Contract liabilities, primarily for unfulfilled warranty services and customer right of return, amounted to $1,148,322 as of February 28, 2025, with expected recognition over one to three years[46] - Stock-based compensation is accounted for under ASC 718, with fair value estimated using the Black-Scholes model and recognized on a straight-line basis over the vesting period[67][106] - The company adopted ASC 842 (Leases) effective June 1, 2019, recognizing right-of-use assets and lease liabilities for operating leases with terms greater than 12 months[72] Note 3 – Accounts Receivable, net This note details the composition of net accounts receivable, including customer and merchant processor receivables and the allowance for credit losses | Component | Feb 28, 2025 | May 31, 2024 | | :-------------------------- | :----------- | :----------- | | Customers receivable | $776,313 | $524,730 | | Merchant processor receivable | $117,156 | $78,417 | | Less: Allowance for credit losses | $(92,079) | $(93,312) | | Accounts receivables, net | $801,390 | $509,835 | - The provision for credit losses decreased significantly for both the three-month period ($3,880 vs. $79,068 YoY) and the nine-month period ($31,834 vs. $143,395 YoY) ended February 28, 2025[79] Note 4 – Inventory, net This note details the composition of net inventory, including finished goods, raw materials, and the obsolescence reserve | Component | Feb 28, 2025 | May 31, 2024 | | :---------------- | :----------- | :----------- | | Finished Goods | $2,728,309 | $3,190,344 | | Raw Materials | $16,127 | $203,679 | | Inventory | $2,744,436 | $3,394,023 | | Inventory at third party locations | $322,012 | $58,242 | | Inventory in-transit | $127,750 | $15,738 | | Obsolescence reserve | $23,448 | $46,895 | - The obsolescence reserve on slow-moving inventory decreased from $46,895 to $23,448[80] Note 5 – Property and Equipment This note details the company's property and equipment, including additions, categories, and accumulated depreciation | Category | Feb 28, 2025 | May 31, 2024 | | :-------------------------- | :----------- | :----------- | | Promotional display racks | $39,565 | $30,709 | | Furniture and Fixtures | $67,653 | $5,759 | | Computer Equipment | $18,558 | $22,130 | | Plant Equipment | $351,078 | $264,168 | | Office equipment | $8,838 | $8,838 | | Automobile | $24,347 | $24,347 | | Less: Accumulated Depreciation | $(135,004) | $(95,003) | | Total Property, plant and equipment, net | $375,035 | $260,948 | - Depreciation expense for the three months ended February 28, 2025, was $18,703, up from $8,237 in the prior year. For the nine months, it was $40,001, up from $25,508[81] Note 6 – Intangible Assets This note details the company's intangible assets, including licensing rights, customer relationships, trade names, and goodwill | Category | Feb 28, 2025 | May 31, 2024 | | :-------------------------- | :----------- | :----------- | | Licensing Rights | $22,080 | $34,024 | | Customer Relationships | $70,000 | $70,000 | | Trade Names | $275,000 | $275,000 | | Website | $100,000 | $100,000 | | Product Certification Testing | $101,690 | $- | | Less: Accumulated Amortization | $(210,977) | $(169,920) | | Intangible assets, net | $357,793 | $309,104 | | Goodwill | $2,152,215 | $2,152,215 | - Amortization expense for the three months ended February 28, 2025, was $26,963, up from $19,375 in the prior year. For the nine months, it was $53,000, down from $58,126[83] Note 7 – Other Current Liabilities This note details the composition of other current liabilities, including sales tax payable and accrued expenses | Component | Feb 28, 2025 | May 31, 2024 | | :-------------------- | :----------- | :----------- | | Credit Cards | $245 | $5,734 | | Royalty Payment Accrual | $- | $3,376 | | Sales Tax Payable | $197,536 | $231,283 | | Accrued expenses | $12,898 | $92,543 | | Total other current liabilities | $210,679 | $332,936 | Note 8 – Notes Payable This note details the company's outstanding notes payable, specifically the EIDL loan, its balance, interest rate, and repayment terms - Outstanding balance of the EIDL loan was $140,958 as of February 28, 2025, down from $146,594 as of May 31, 2024[86] - Interest expense for the three months ended February 28, 2025, was $1,271, and for the nine months, it was $2,567[85] Note 9 – Stockholders' Equity This note details the company's authorized capital, preferred and common stock, and equity incentive plan, including stock option grants and restricted awards - Authorized capital consists of 450,000,000 common shares and 300,000,000 preferred shares, both with $0.0001 par value[88] - During the nine months ended February 28, 2025, 14,478,250 preferred shares were converted into 723,913 common shares. As of February 28, 2025, 27,773,500 Series A Preferred Stock shares were outstanding[95] - The 2022 Equity Incentive Plan was amended to increase authorized shares for issuance to 2,050,000. Stock options granted during the nine months ended February 28, 2025, totaled 634,000 shares, with a weighted average exercise price of $4.17[100][101][113] - Stock options expense for the nine months ended February 28, 2025, was $416,935. Restricted stock awards and expense totaled $443,582 for the same period, including grants to non-employee directors and a former officer/consultant[113][118] Note 10 – Commitments and Contingencies This note outlines the company's lease commitments, operating lease costs, and management's assessment of legal contingencies - The company entered into two new lease agreements during the nine months ended February 28, 2025, for a warehouse and new corporate headquarters, with expiration dates in September 2027 and January 2029[73][123] | Lease Metric | Feb 28, 2025 | May 31, 2024 | | :-------------------------- | :----------- | :----------- | | Operating lease assets, net | $672,221 | $36,752 | | Total lease liability, net | $710,260 | $36,752 | | Current portion | $(227,418) | $(36,752) | | Non-current portion | $482,842 | $- | - Operating lease costs for the three months ended February 28, 2025, were $66,108 (up from $18,659 YoY), and for the nine months, they were $133,847 (up from $55,976 YoY)[124] - During the nine months ended February 28, 2025, $218,699 previously due in relation to royalties was forgiven and included in Sales and marketing expenses[127] - Management believes that the ultimate liability from legal proceedings is not expected to have a material adverse effect on results of operations, financial position, or cash flows[128] Note 11 – Related Party Transactions This note details transactions with related parties, including consulting fees and advances involving entities associated with the CEO and CFO - Intrepid Global Advisors (managed by the CEO) was paid approximately $178,000 in consulting fees for the nine months ended February 28, 2025[129] - Amounts payable to Intrepid were $28,576 as of February 28, 2025, compared to $11,798 as of May 31, 2024[129] - BZ Capital Strategies (controlled by the CFO/COO) was paid $100,000 in consulting fees for the nine months ended February 28, 2025[129] Note 12 – Concentrations This note addresses concentrations of credit risk, revenue, geographic sales, accounts receivable, and key suppliers - The company held approximately $3,993,470 in cash in excess of federally insured limits ($250,000) as of February 28, 2025[130] - No single customer accounted for greater than 10% of consolidated net sales for the three and nine months ended February 28, 2025[131] - Approximately 92.8% of consolidated net sales for the three months ended February 28, 2025, and 91.1% for the nine months, were to U.S. customers[132][133] - As of February 28, 2025, two customers accounted for 38.9% of accounts receivable[134] - The two largest manufacturing vendors accounted for 68.3% and 26.2% of all purchases for the three months ended February 28, 2025, and 65.1% and 26.5% for the nine months[135] Note 13 – Business Segment and Geographic Area Information This note provides financial information by business segment (hair/skin care, hearing protection) and geographic area, detailing sales and gross profit | Segment | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2025 | 9 Months Ended Feb 29, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Sales, net | | | | | | Hair care and skin care | $472,302 | $476,864 | $1,308,356 | $1,022,458 | | Hearing enhancement and protection | $6,450,065 | $5,992,479 | $19,197,857 | $19,974,831 | | Total net sales | $6,922,367 | $6,469,343 | $20,506,213 | $20,997,289 | | Segment gross profit | | | | | | Hair care and skin care | $255,968 | $247,859 | $685,964 | $641,966 | | Hearing enhancement and protection | $4,710,460 | $4,376,467 | $13,932,159 | $14,887,865 | | Total segment gross profit | $4,966,428 | $4,624,326 | $14,618,123 | 15,529,831 | | Consolidated total assets | $12,950,947 | $12,713,718 | $12,950,947 | $12,713,718 | - The hearing enhancement and protection segment's sales increased by 7.6% for the three months ended February 28, 2025, but decreased by 3.9% for the nine months compared to the prior year[137] - The hair care and skin care segment's sales slightly decreased by 1.0% for the three months but increased by 28.0% for the nine months ended February 28, 2025[137] Note 14 – Income Taxes This note details the company's income tax expense or benefit and its exposure to IRS examination for prior tax returns | Period | Income Tax Expense (Benefit) | | :-------------------------- | :-------------------------- | | 3 Months Ended Feb 28, 2025 | $53,085 | | 3 Months Ended Feb 29, 2024 | $(827,436) | | 9 Months Ended Feb 28, 2025 | $120,335 | | 9 Months Ended Feb 29, 2024 | $(397,054) | - The company has no uncertain tax positions and its corporate income tax returns for 2021, 2022, 2023, and 2024 are subject to IRS examination[141] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis provides an overview of AXIL Brands, Inc.'s business, strategic initiatives, and a detailed analysis of its financial performance for the three and nine months ended February 28, 2025. It covers net sales, gross profit, operating expenses, net income, and non-GAAP measures like EBITDA and Adjusted EBITDA, along with discussions on liquidity, cash flows, and critical accounting policies Overview This section provides an overview of AXIL Brands, Inc.'s business, strategic initiatives, and potential divestiture of its hair and skin care segment - AXIL Brands, Inc. operates in two reportable segments: high-tech hearing and audio enhancement/protection products and professional quality hair and skin care products[145][146] - The company's strategy focuses on expanding market share through direct-to-consumer campaigns, optimizing e-commerce, building sales teams for distribution channels, strategic partnerships, and expanding offline retail presence and international markets[147] - The company is exploring options for its hair care and skin care business, including a potential divestiture, though there is no assurance of timely completion or benefits[148] Business Update This section details AXIL's supply chain transition strategy, including domestic manufacturing and mitigation of tariff-related cost increases - In response to U.S. trade policy changes and tariffs, AXIL has accelerated its supply chain transition strategy, including relocating senior manufacturing leadership to the United States and establishing domestic manufacturing capabilities[149][150] - The company anticipates some near-term product cost increases due to tariffs but expects to mitigate this through current inventory levels, supply chain optimization, pricing strategies, and sourcing adjustments, aiming for enhanced resilience and competitiveness long-term[151] Results of Operations This section analyzes the company's financial performance, including net sales, gross profit, operating expenses, and net income for the specified periods Three Months Ended February 28, 2025 Compared to February 29, 2024 For the three months ended February 28, 2025, net sales increased by 7.0% to $6.92 million, driven by direct-to-consumer sales and strengthened distribution channels. Gross profit rose by 7.4% to $4.97 million, with a stable gross margin of 71.7%. Operating expenses decreased by 7.3% due to lower advertising costs, leading to an income from operations of $0.58 million, a significant improvement from a loss in the prior year. Adjusted EBITDA increased substantially to $0.89 million | Metric | 3 Months Ended Feb 28, 2025 | 3 Months Ended Feb 29, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net sales | $6,922,367 | $6,469,343 | $453,024 | 7.0% | | Gross profit | $4,966,428 | $4,624,326 | $342,102 | 7.4% | | Gross profit as % of sales | 71.7% | 71.5% | 0.2% | - | | Total operating expenses | $4,383,319 | $4,728,205 | $(344,886) | (7.3%) | | Income (loss) from operations | $583,109 | $(103,879) | $686,988 | - | | Net income | $576,662 | $781,091 | $(204,429) | (26.2%) | | Adjusted EBITDA (Non-GAAP) | $890,546 | $(11,052) | $901,598 | - | | Adjusted EBITDA as % of Sales | 12.9% | (0.2%) | 13.1% | - | - The increase in sales was primarily due to a shift of post-Thanksgiving holidays into the third quarter of fiscal year 2025, strengthened distribution channels for AXIL products, and increased distributor sales of hair and skin care products[155] - Operating expenses decreased due to lower advertising costs, reflecting a more targeted and efficient advertising approach, despite incurring approximately $195,000 in consulting fees for new geographic market expansion (including $116,000 in stock-based compensation)[158] Nine Months Ended February 28, 2025 Compared to February 29, 2024 For the nine months ended February 28, 2025, net sales decreased by 2.3% to $20.51 million, mainly due to reduced advertising in earlier quarters. Gross profit declined by 5.9% to $14.62 million, with gross margin decreasing to 71.3% due to higher cost of sales from increased distributor sales. Operating expenses decreased by 4.9%, but income from operations decreased by 16.4% due to higher non-cash stock-based compensation. Adjusted EBITDA, however, increased by 23.8% to $2.08 million, benefiting from strong Q3 performance, accounts payable forgiveness, and reduced advertising | Metric | 9 Months Ended Feb 28, 2025 | 9 Months Ended Feb 29, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net sales | $20,506,213 | $20,997,289 | $(491,076) | (2.3%) | | Gross profit | $14,618,123 | $15,529,831 | $(911,708) | (5.9%) | | Gross profit as % of sales | 71.3% | 74.0% | (2.7%) | - | | Total operating expenses | $13,502,845 | $14,196,041 | $(693,196) | (4.9%) | | Income from operations | $1,115,278 | $1,333,790 | $(218,512) | (16.4%) | | Net income | $1,100,563 | $1,953,618 | $(853,055) | (43.7%) | | Adjusted EBITDA (Non-GAAP) | $2,076,821 | $1,677,058 | $399,763 | 23.8% | | Adjusted EBITDA as % of Sales | 10.1% | 8.0% | 2.1% | - | - The decrease in net sales was primarily due to reduced advertising expenditure affecting direct-to-consumer sales in the first and second quarters, partially offset by strong third-quarter performance[162] - Gross profit margin decreased due to an increase in cost of sales as a percentage of revenue, attributable to increased sales to distributors in both segments, which bear lower margins[163][164] - Operating expenses decreased due to a net decrease in advertising expenses and a $220,000 forgiveness of accounts payable, partially offset by a $699,203 increase in stock-based compensation and higher professional and consulting fees[165] Liquidity and Capital Resources This section discusses the company's ability to meet its financial obligations, its capital needs, and strategies for revenue growth - The company expects current cash balances and anticipated cash flow from operating activities to be sufficient to meet working capital requirements for at least one year from the issuance date of the financial statements[169] - Management is focused on growing existing product lines, introducing new products, and expanding the customer base to increase revenues[169] - The company may require additional capital in the future through equity or debt financing, which may not be available on favorable terms, and failure to secure such financing could materially affect growth strategy and financial performance[174] Cash Flows This section analyzes the company's cash flows from operating, investing, and financing activities, highlighting significant changes and drivers - Net cash provided by operating activities significantly improved to $1,734,230 for the nine months ended February 28, 2025, from $339,323 in the prior year, driven by inventory management and accounts payable forgiveness[170] - Net cash used in investing activities increased to $255,778 (from $80,192 in prior year) due to purchases of intangibles and property and equipment[171] - Net cash provided by financing activities was $11,142 (compared to $204,246 used in prior year), primarily from related party advances partially offset by note payable repayments[172] Off-Balance Sheet Arrangements This section confirms that the company did not have any material off-balance sheet arrangements as of February 28, 2025 - As of February 28, 2025, the company did not have any material off-balance sheet arrangements[175] Critical Accounting Policies This section outlines the company's critical accounting policies, emphasizing the use of significant estimates and assumptions in financial reporting - Critical accounting policies involve significant estimates and assumptions, including revenue recognition, impairment of intangible and long-lived assets, inventory valuation, stock compensation, and evaluation of contingencies[177] - Actual results could materially differ from these estimates if future events or circumstances lead to unanticipated consequences[178] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, AXIL Brands, Inc. is exempt from providing specific quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[179] Item 4. Controls and Procedures The company's CEO and CFO concluded that its disclosure controls and procedures were effective as of February 28, 2025. There have been no material changes in internal control over financial reporting during the fiscal quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of February 28, 2025[180] - No changes in internal control over financial reporting occurred during the fiscal quarter ended February 28, 2025, that have materially affected or are reasonably likely to materially affect internal control over financial reporting[181] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various lawsuits and legal proceedings in the ordinary course of business. While the outcome cannot be predicted with certainty, management believes the ultimate liability will not have a material adverse effect on its financial condition or results of operations - The company is involved in various lawsuits and legal proceedings that arise in the ordinary course of business[184] - Management records a liability when a loss is probable and estimable, and believes that the ultimate liability from these matters is not expected to have a material adverse effect on the company's results of operations, financial position, or cash flows[185] Item 1A. Risk Factors As a smaller reporting company, AXIL Brands, Inc. is not required to provide specific risk factor disclosures - The company is not required to provide risk factor information as it qualifies as a smaller reporting company[186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the conversion of Series A Preferred Stock into common stock, exempt from registration under Section 4(a)(2) of the Securities Act - During the third quarter of fiscal year 2025, 3,360,000 shares of Series A Preferred Stock were converted into 168,000 shares of common stock[187] - The issuance of these securities was deemed exempt from registration pursuant to Section 4(a)(2) of the Securities Act[187] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities during the reporting period[188] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the company[189] Item 5. Other Information During the quarter ended February 28, 2025, no director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement - No director or officer adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the quarter ended February 28, 2025[190] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate organizational documents, the Amended and Restated 2022 Equity Incentive Plan, various certifications (CEO, CFO), and XBRL financial statements - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, Amended and Restated 2022 Equity Incentive Plan, Form of Restricted Stock Award Agreement, CEO and CFO certifications (Sarbanes-Oxley Act), and iXBRL formatted financial statements[191] Signatures This section contains the official signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report's accuracy - The report is duly signed on April 8, 2025, by Jeff Toghraie, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer), and Jeff Brown, Chief Financial Officer, Chief Operating Officer and Director (Principal Financial Officer and Principal Accounting Officer)[194][196]