AXIL Brands(AXIL) - 2025 Q4 - Annual Report

Cautionary Note Regarding Forward-Looking Information This section highlights that the Annual Report on Form 10-K contains forward-looking statements regarding future events, financial performance, liquidity, capital needs, and industry trends, which are subject to various risks and uncertainties[12] - Key factors that could cause actual results to differ from forward-looking statements include unstable market conditions, economic downturns, geopolitical events, supply chain disruptions, regulatory changes, cybersecurity risks, and the ability to obtain additional capital[13] PART I This part details the company's business operations, risk factors, legal proceedings, and other foundational information ITEM 1. BUSINESS. AXIL Brands, Inc. is engaged in the manufacturing, marketing, sale, and distribution of hearing enhancement and protection products, and professional-grade hair and skin care products. The company operates primarily through two segments, with a recent focus on expanding market share, optimizing e-commerce, and developing new service-based revenue streams General Overview & Corporate History This section outlines the company's recent name change, asset acquisition, and the incorporation of a new marketing subsidiary - AXIL Brands, Inc. (formerly Reviv3 Procare Company) changed its name on February 14, 2024, to reflect its broader operations, following the acquisition of Axil & Associated Brands Corp. assets in June 2022[19] - The company incorporated a new wholly owned subsidiary, Sharper Vision Marketing Inc., on May 5, 2025, to offer marketing services and capitalize on internal marketing expertise[19] Business Segments & Strategy The company's strategy focuses on market share expansion, e-commerce optimization, and technological improvements across its primary business segments Revenue Contribution by Segment (FY2025) | Segment | Revenue Contribution | | :-------------------------------- | :------------------- | | Hearing Enhancement and Protection | 94% | | Hair and Skin Care | 6% | - The company's strategy focuses on driving growth by expanding market share in existing channels, developing new online and traditional platforms, optimizing e-commerce, building sales teams, and enhancing value through strategic partnerships[22] - AXIL prioritizes technological improvements in hearing enhancement and protection, evaluates expansion into adjacent verticals, and plans to internalize marketing functions to optimize efficiency and explore third-party revenue opportunities[23] Hearing Enhancement and Protection Segment This segment designs, manufactures, and distributes advanced hearing products for diverse markets, leveraging patents and expanding global distribution - AXIL designs, manufactures, markets, and distributes advanced hearing enhancement and protection products, including earplugs, earmuffs, earbuds, and outdoor speakers with Bluetooth and wireless audio technologies[24] - Products serve sporting goods, tactical, industrial, recreational, military, law enforcement, and federal agencies, with sales primarily direct-to-consumer via its website and third-party e-commerce platforms, dealers, and national retail chains[24][25] - The company holds three active patents, one patent pending, and six registered trademarks in this segment, and is expanding distribution and licensing agreements across various target markets globally[26] Hair and Skin Care Segment This segment offers professional-grade hair and skin care products through multi-channel sales, targeting a growing global market - AXIL's hair and skin care segment offers professional-grade products under the Reviv3 Procare® brand, with outsourced manufacturing and a product line including shampoos, conditioners, scalp treatments, and skin health solutions[30][31] - Sales are driven by a multi-channel strategy including direct-to-consumer, domestic and international distributors, and professional salon partnerships, with 12 exclusive distribution agreements across the U.S., Canada, Europe, and Asia[32][35] - The global hair care market is projected to grow from approximately $113.9 billion in 2025 to $213.5 billion by 2032, driven by consumer interest in premium, clean, and specialized products[33] Key Customers and Suppliers The company's sales are primarily direct-to-consumer, with significant reliance on a limited number of vendors for both business segments - For the fiscal year ended May 31, 2025, no single customer accounted for more than 10% of net sales in the hearing enhancement and protection segment (94% of consolidated net sales); approximately 80% of consolidated net sales were direct-to-consumer via Shopify and Amazon[36] - The company relies on a limited number of vendors; in fiscal year 2025, two vendors accounted for 90% of total purchases in the hearing segment (67% and 23% respectively), and two vendors accounted for 98% in the hair and skin care segment (79% and 19% respectively)[38] Customer Service and Support The company emphasizes responsive and empathetic customer service through an integrated support platform - The company's customer service approach emphasizes listening, empathy, timely responses, and follow-up, utilizing an integrated platform to track support tickets and conversations[39] Governmental Regulation & Environmental Matters AXIL operates under diverse and evolving regulations across multiple jurisdictions, maintaining compliance with environmental laws - AXIL is subject to diverse and evolving laws and regulations across multiple jurisdictions (U.S., Canada, Europe, Australia, New Zealand, Africa) covering consumer health, safety, and environmental protection[40] - The company believes it is in compliance with applicable environmental laws and regulations, and continued compliance is not expected to materially affect capital expenditures, earnings, or competitive position[41] Intellectual Property The company protects its technology and proprietary rights through active U.S. patents, pending applications, and federally registered trademarks - As of May 31, 2025, AXIL held three active U.S. patents (expiring 2035-2038) and one pending U.S. patent application, along with seven federally registered trademarks, to protect its technology and proprietary rights[46][47] - The company also owns domain names reviveprocare.com and www.goaxil.com, acknowledging that domain name regulation is subject to change and could impact business[48] Seasonality The business experiences typical seasonal variations in consumer demand that do not materially impact overall operating results - The business experiences typical variations in consumer demand around certain holidays and promotional periods, consistent with industry norms, but these do not materially impact overall operating results[49] Human Capital Management The company focuses on recruiting, retaining, and integrating employees, prioritizing health and safety for its approximately ten full-time staff - As of May 31, 2025, the company had approximately ten full-time employees, all in the United States, none covered by collective bargaining agreements[50] - Human capital objectives include identifying, recruiting, retaining, incentivizing, and integrating employees, with a focus on health and safety through training, risk assessments, and compliance reviews[50][51] Available Information The company files various reports with the SEC, which are accessible on www.sec.gov and its investor websites - The company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other information with the SEC, available on www.sec.gov and in the Investors section of its websites (reviveprocare.com and www.goaxil.com)[54](index=54&type=chunk) ITEM 1A. RISK FACTORS. Investing in AXIL's securities involves a high degree of risk, including those related to the execution of strategic initiatives, market acceptance of products, inflationary pressures, supply chain disruptions, reliance on limited suppliers, complex and evolving regulations, changes in trade policies, maintaining effective internal controls, the need for additional capital, stock price volatility, IT system failures, cybersecurity breaches, economic downturns, and shifts in consumer behavior Risks Related to Our Business and Operations Future growth depends on successful execution of strategic initiatives and market acceptance of products, both subject to significant management and capital commitments - Future growth depends on successful execution of strategic initiatives, including retail and international expansion, which require significant management and capital commitments[56] - Failure of existing or new products to achieve or maintain market acceptance could harm the business, results of operations, and financial condition[56] Risks Related to Our Supply Chain and Cost Structure The company faces inflationary pressures, supply chain disruptions, and inventory forecasting challenges, which could increase costs and impact sales - The company is subject to inflationary pressures and supply chain risks, including increased raw material costs, transportation delays, and disruptions in supplier relationships, which could increase expenses or limit product delivery[57] - Inaccurate inventory forecasting may lead to excess inventory (write-downs) or stockouts (missed sales, lost revenues), impacting customer satisfaction and margins[58] - Reliance on a limited number of third-party suppliers for key components and raw materials poses risks of disruption, delays, capacity constraints, or financial deterioration, potentially leading to production delays and increased costs[59] Risks Related to Legal and Regulatory Matters The business is subject to complex and evolving regulations and trade policies, with non-compliance or changes potentially leading to significant costs and operational burdens - The business is subject to complex and evolving local, regional, state, federal, and international regulations, with changes potentially imposing significant compliance costs and operational burdens[60] - Changes in U.S. and international trade policies, including tariffs and import rules (e.g., all inbound shipments subject to tariffs from August 29, 2025), could increase costs, disrupt operations, and negatively impact margins[61] - Failure to maintain effective internal control over financial reporting could result in material misstatements, financial restatements, regulatory scrutiny, increased costs, and loss of investor confidence[62] Risks Related to Our Capital and Securities The company may require additional capital, which could dilute existing stockholders, and its common stock price may experience volatility - The company may need additional capital through equity or debt financings, which may not be available on attractive terms or at all, potentially delaying growth initiatives and diluting existing stockholders[63][64] - The common stock price may be volatile due to factors such as financial performance, changes in product demand, execution of growth strategy, market speculation, trading liquidity, macroeconomic trends, and key personnel changes[65][66] Risks Related to Technology and Cybersecurity IT system failures or cybersecurity breaches could disrupt operations, harm reputation, and lead to legal or regulatory liabilities - A failure of IT systems or a cybersecurity breach could disrupt business operations, harm reputation, and expose the company to legal or regulatory liabilities, despite implemented prevention and mitigation measures[67] Risks Related to Macroeconomic and External Conditions Economic downturns or shifts in consumer behavior, influenced by external factors, may reduce product demand and adversely impact profitability - Economic downturns or shifts in consumer behavior, influenced by factors like inflation, tariffs, supply chain disruptions, and geopolitical events, may reduce consumer demand for products, adversely impacting revenue and profitability[68] ITEM 1B. UNRESOLVED STAFF COMMENTS. This item is not applicable to the company, indicating no unresolved comments from the SEC staff ITEM 1C. CYBERSECURITY. Cybersecurity is an integral part of the company's Enterprise Risk Management (ERM) program, with continuous analysis and updates to policies, standards, and processes. The company employs controls like firewalls, anti-malware, and access controls, conducts third-party testing, and provides employee training. Executive management and the Board oversee cybersecurity risks, with regular reports to the Audit Committee and full Board - Cybersecurity is integrated into the company's ERM program, with established controls, an Incident Response Plan, and continuous updates to policies and practices[70] - The company utilizes firewalls, anti-malware, intrusion prevention/detection systems, and access controls, and engages third parties for periodic assessments and testing[70] - Executive management is responsible for assessing and managing cybersecurity risks, with the Board and Audit Committee providing oversight and receiving regular quarterly reports on risks and significant incidents[71] ITEM 2. PROPERTIES. The company leases two primary facilities: a 2,793 square foot office space in Beverly Hills, California, under a lease commencing November 1, 2024, and expiring January 31, 2029; and a 6,050 square foot office and warehouse space in American Fork, Utah, under a sublease from October 1, 2024, through September 30, 2027. Both facilities are considered adequately maintained and suitable for current business needs - The principal executive office is a 2,793 sq ft leased space in Beverly Hills, California, with a lease term from November 1, 2024, to January 31, 2029, and a monthly base rent of $11,168 for the first 12 months[73] - The company also leases a 6,050 sq ft office and warehouse space in American Fork, Utah, under a sublease from October 1, 2024, to September 30, 2027, with a base rent of $7,684 per month for the first 12 months[74] ITEM 3. LEGAL PROCEEDINGS. The company is periodically involved in various lawsuits and legal proceedings arising in the ordinary course of business. Management accrues liabilities for probable and estimable losses, reevaluating them quarterly. While outcomes are uncertain, management believes ultimate liability will not materially adversely affect results of operations, financial position, or cash flows - The company is involved in various lawsuits and legal proceedings in the ordinary course of business[76] - Liabilities are recorded when a loss is probable and estimable, with reevaluation as matters progress[76] - Management believes ultimate liability from these matters is not expected to have a material adverse effect on financial results, though legal proceedings are inherently uncertain[76] ITEM 4. MINE SAFETY DISCLOSURES. This item is not applicable to the company PART II This part provides information on the company's common equity market, financial condition, results of operations, and market risk disclosures ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. The company's common stock trades on the NYSE American under the symbol 'AXIL'. As of August 18, 2025, there were 6,657,717 common shares outstanding held by 167 stockholders of record. The company has never paid cash dividends and does not expect to in the foreseeable future, with any future decisions at the Board's discretion. No unregistered securities were issued during the fourth quarter of fiscal year 2025 - Common stock trades on the NYSE American under the symbol 'AXIL'[80] Common Stock Outstanding (August 18, 2025) | Title of Class | Shares Outstanding | | :------------- | :----------------- | | Common Stock | 6,657,717 | - The company has never paid cash dividends on its common stock and does not expect to in the foreseeable future[81] - No unregistered securities were issued during the fourth quarter of 2025[82] ITEM 6. [RESERVED] This item is reserved and contains no information ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This section provides management's perspective on the company's financial condition and results of operations for the fiscal years ended May 31, 2025, and 2024. It covers an overview of the business, recent updates, detailed financial performance, liquidity and capital resources, off-balance sheet arrangements, and critical accounting policies and estimates Overview & Business Update The company operates in two segments, with strategic initiatives for growth, addressing temporary tariff disruptions, and building supply chain resilience - The company operates in two reportable segments: hair and skin care, and hearing enhancement and protection, with a new subsidiary for marketing services[85] - A strategic supply arrangement with a national membership-based retail chain is expected to drive revenue growth and enhance brand visibility in fiscal 2026[88] - The company experienced a temporary disruption in Q4 FY2025 due to newly imposed international tariffs, leading to increased cost of goods sold and softer sales, but management implemented operational efficiencies to mitigate the impact[91] - Progress is being made on a supply chain transition strategy to build resilience against elevated U.S. tariffs and geopolitical risks, including relocating manufacturing leadership to the U.S. and developing domestic production capabilities[92] Results of Operations This section details the company's consolidated financial performance, including net sales, cost of sales, gross profit, operating expenses, and net income for fiscal years 2025 and 2024 Consolidated Results of Operations (Fiscal Years Ended May 31) | Metric | 2025 ($) | 2024 ($) | | :-------------------------------- | :----------- | :----------- | | Sales, net | 26,257,522 | 27,498,539 | | Cost of sales | 7,615,954 | 7,321,838 | | Gross profit | 18,641,568 | 20,176,701 | | Total operating expenses | 17,480,203 | 18,673,321 | | Income from operations | 1,161,365 | 1,503,380 | | Net income after tax | 854,988 | 2,003,134 | | Total EBITDA (Non-GAAP) | 1,321,399 | 1,735,706 | | Total Adjusted EBITDA (Non-GAAP) | 2,430,333 | 2,002,889 | | Adjusted EBITDA as % of Sales | 9.3% | 7.3% | - Net sales decreased by $1,241,017 (4.5%) in FY2025, primarily due to reduced advertising expenditure affecting direct-to-consumer sales and temporary disruption from international tariff changes[98] - Cost of sales increased by $294,116 (4.0%) in FY2025, and as a percentage of net revenues, increased from 26.6% to 29.0%, mainly due to lower-margin distributor sales and elevated input/logistics costs from tariffs[99] - Gross profit decreased by $1,535,133 (7.6%) in FY2025, with gross profit margin declining from 73.4% to 71.0% due to increased cost of sales as a percentage of revenue and higher discounts[100] - Operating expenses decreased by $1,193,118 (6.4%) in FY2025, primarily from a net decrease in advertising expenses and a $220,000 forgiveness of accounts payable, partially offset by an $841,751 increase in non-cash stock-based compensation[101] Net Income Per Common Share (Fiscal Years Ended May 31) | Metric | 2025 ($) | 2024 ($) | | :----- | :------- | :------- | | Basic | 0.13 | 0.57 | | Diluted| 0.10 | 0.21 | Liquidity and Capital Resources The company assesses its ability to meet working capital needs, detailing cash flow activities and outstanding loan obligations - The company believes it has sufficient liquidity to meet working capital needs for at least one year from the issuance date of the financial statements, based on current cash balances and anticipated operating cash flows[106][107] Cash Flows (Fiscal Years Ended May 31) | Cash Flow Activity | 2025 ($) | 2024 ($) | | :-------------------------------- | :---------- | :----------- | | Net cash provided by operating activities | 1,928,661 | 2,677 | | Net cash used in investing activities | (394,298) | (160,525) | | Net cash used in financing activities | (18,385) | (1,420,958) | | Net increase (decrease) in cash and cash equivalents | 1,515,978 | (1,578,806) | - Net cash provided by operating activities significantly improved to $1,928,661 in FY2025 from $2,677 in FY2024, driven by increased inventory levels, substantial decrease in advertising expense, and a $220,000 forgiveness of accounts payable[110] - Net cash used in financing activities decreased substantially in FY2025 to $18,385 from $1,420,958 in FY2024, primarily due to the absence of preferred stock repurchases that occurred in the prior year[112] - The company has a secured Economic Injury Disaster Loan (EIDL) outstanding of $140,229 as of May 31, 2025, with a maturity date of May 18, 2050[113] Off-Balance Sheet Arrangements As of May 31, 2025, the company did not have any material off-balance sheet arrangements - As of May 31, 2025, the company did not have any off-balance sheet arrangements that are material to investors[115] Critical Accounting Policies and Estimates Key accounting policies and estimates include allowance for doubtful accounts, revenue recognition, and goodwill impairment testing, requiring significant management judgment - Critical accounting policies and estimates include the allowance for doubtful accounts, revenue recognition (ASC 606), and goodwill impairment testing[116][117][118][119] - Revenue recognition involves a five-step process, with transaction price considering discounts, promotional incentives, and expected returns, requiring judgment based on historical experience and market conditions[118][221][226] - Goodwill is tested for impairment at least annually, or more frequently if indicators suggest potential impairment, using qualitative and quantitative assessments (discounted cash flow method)[119][240][241] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As a smaller reporting company, AXIL Brands, Inc. is not required to provide the information typically required by this item regarding quantitative and qualitative disclosures about market risk ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. This section presents the audited consolidated financial statements of AXIL Brands, Inc. and its subsidiaries for the fiscal years ended May 31, 2025, and 2024, along with the report of the independent registered public accounting firm and detailed notes to the financial statements Report of Independent Registered Public Accounting Firm Salberg & Company, P.A. issued an unqualified opinion on the consolidated financial statements for fiscal years 2025 and 2024, with no critical audit matters identified - Salberg & Company, P.A. issued an unqualified opinion on the consolidated financial statements of AXIL Brands, Inc. for the fiscal years ended May 31, 2025, and 2024[192] - The audit determined that there were no critical audit matters[196] Consolidated Balance Sheets This table presents the company's financial position, including assets, liabilities, and stockholders' equity, as of May 31, 2025, and 2024 Consolidated Balance Sheet Highlights (May 31) | Metric | 2025 ($) | 2024 ($) | | :------------------------- | :----------- | :----------- | | Cash | 4,769,854 | 3,253,876 | | Total Current Assets | 9,255,648 | 7,966,860 | | Total Assets | 12,869,795 | 10,974,361 | | Total Current Liabilities | 2,462,824 | 2,798,045 | | Total Liabilities | 3,210,087 | 3,278,575 | | Total Stockholders' Equity | 9,659,708 | 7,695,786 | Consolidated Statements of Operations This table summarizes the company's revenues, expenses, and net income for the fiscal years ended May 31, 2025, and 2024 Consolidated Statements of Operations Highlights (Fiscal Years Ended May 31) | Metric | 2025 ($) | 2024 ($) | | :------------------------------ | :----------- | :----------- | | Sales, net | 26,257,522 | 27,498,539 | | Cost of sales | 7,615,954 | 7,321,838 | | Gross profit | 18,641,568 | 20,176,701 | | Total Operating Expenses | 17,480,203 | 18,673,321 | | INCOME FROM OPERATIONS | 1,161,365 | 1,503,380 | | INCOME BEFORE PROVISION FOR INCOME TAXES | 1,308,816 | 1,782,929 | | Provision (benefit) for income taxes | 453,828 | (220,205) | | NET INCOME | 854,988 | 2,003,134 | | Basic EPS | 0.13 | 0.57 | | Diluted EPS | 0.10 | 0.21 | Consolidated Statements of Changes in Stockholders' Equity This section details changes in the company's equity accounts, including preferred stock, common stock, additional paid-in capital, and retained earnings for fiscal years 2025 and 2024 Changes in Stockholders' Equity (Fiscal Years Ended May 31) | Metric | May 31, 2025 ($) | May 31, 2024 ($) | | :------------------------- | :--------------- | :--------------- | | Preferred Stock Amount | 2,777 | 4,225 | | Common Stock Amount | 666 | 591 | | Additional Paid-in Capital | 8,935,547 | 7,825,240 | | Retained Earnings (Accumulated Deficit) | 720,718 | (134,270) | | Total Stockholders' Equity | 9,659,708 | 7,695,786 | - In FY2025, stock options expense was $624,559 and stock-based compensation was $484,375; net income for the year was $854,988[203] - In FY2024, preferred stock buyback resulted in a $1,246,490 reduction in total stockholders' equity, and net income was $2,003,134[204] Consolidated Statements of Cash Flows This table presents the company's cash inflows and outflows from operating, investing, and financing activities for the fiscal years ended May 31, 2025, and 2024 Consolidated Statements of Cash Flows Highlights (Fiscal Years Ended May 31) | Cash Flow Activity | 2025 ($) | 2024 ($) | | :-------------------------------- | :---------- | :----------- | | Net cash provided by operating activities | 1,928,661 | 2,677 | | Net cash used in investing activities | (394,298) | (160,525) | | Net cash used in financing activities | (18,385) | (1,420,958) | | Net increase (decrease) in cash | 1,515,978 | (1,578,806) | | Cash - End of year | 4,769,854 | 3,253,876 | - Operating activities provided significantly more cash in 2025 ($1,928,661) compared to 2024 ($2,677), largely due to inventory management, reduced advertising, and accounts payable forgiveness[110][207] - Cash used in investing activities increased in 2025 to $394,298, primarily for intangibles (product testing) and property/equipment[111][207] - Cash used in financing activities decreased substantially in 2025 to $18,385, mainly because there were no preferred stock repurchases, unlike the $1,246,490 in 2024[112][207] Notes to Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, balances, and transactions Note 1 – Organization This note describes the company's corporate history, including its name change, stock exchange uplisting, asset acquisition, and new subsidiary formation - AXIL Brands, Inc. (formerly Reviv3 Procare Company) changed its name on February 14, 2024, and uplisted to the NYSE American stock exchange[209][210] - The company acquired assets of Axil & Associated Brands Corp. in June 2022 and incorporated Sharper Vision Marketing Inc. on May 5, 2025[209] Note 2 – Basis of Presentation and Summary of Significant Accounting Policies This note outlines the financial statement preparation basis, consolidation principles, reverse stock split impact, and key accounting policies for revenue, goodwill, and leases - Financial statements are prepared in accordance with U.S. GAAP and include consolidated subsidiaries, with all significant intercompany accounts and transactions eliminated[211] - The company effected a 1-for-20 reverse stock split on January 16, 2024, with retroactive effect on all periods presented[212] - Revenue is recognized in accordance with ASC 606, typically upon shipment, considering discounts, promotional incentives, and expected returns[221][222] - Goodwill is tested for impairment annually on May 31st, or more frequently if indicators dictate, using qualitative and quantitative assessments (discounted cash flow method)[240][241] - The company adopted ASC Topic 842, Leases, on June 1, 2019, recognizing right-of-use (ROU) assets and lease liabilities for leases over 12 months[254] Note 3 – Accounts Receivable, net This note details the composition of accounts receivable, including customer and merchant processor balances, and the allowance for credit losses Accounts Receivable, net (May 31) | Metric | 2025 ($) | 2024 ($) | | :------------------------- | :---------- | :--------- | | Customers receivable | 922,616 | 524,730 | | Merchant processor receivable | 185,719 | 78,417 | | Less: Allowance for credit losses | (104,390) | (93,312) | | Accounts receivables, net | 1,003,945 | 509,835 | - The company recognized a net recovery from credit losses of $4,519 in FY2025, compared to a provision of $25,471 in FY2024[267] Note 4 – Inventory, net This note provides a breakdown of inventory, including finished goods and raw materials, and details changes in inventory held at third-party locations and obsolescence reserves Inventory, net (May 31) | Metric | 2025 ($) | 2024 ($) | | :------------ | :---------- | :--------- | | Finished Goods| 2,509,840 | 3,190,344 | | Raw Materials | 23,818 | 203,679 | | Inventory, net| 2,533,658 | 3,394,023 | - Inventory held at third-party locations increased from $58,242 in 2024 to $109,706 in 2025, and inventory in-transit increased from $15,738 to $174,564[268] - The company provided $0 as obsolescence reserve on slow-moving inventory in FY2025, compared to $46,895 in FY2024[268] Note 5 – Property and Equipment This note details the company's property and equipment, including various asset categories, estimated useful lives, and accumulated depreciation Property and Equipment, net (May 31) | Category | Estimated Life | 2025 ($) | 2024 ($) | | :----------------------- | :------------- | :---------- | :--------- | | Promotional display racks | 2 years | 62,944 | 30,709 | | Furniture and fixtures | 5 years | 57,137 | 5,759 | | Computer equipment | 3 years | 18,558 | 22,130 | | Plant equipment | 5-10 years | 390,028 | 264,168 | | Office equipment | 5-10 years | 8,838 | 8,838 | | Automobile | 5 years | 24,347 | 24,347 | | Less: Accumulated depreciation | | (149,591) | (95,003) | | Total Property, plant and equipment, net | | 412,261 | 260,948 | - Depreciation expense totaled $62,171 in FY2025, with $31,431 classified within cost of sales and the remainder in general and administrative expenses[269] Note 6 – Intangible Assets This note outlines the company's intangible assets, including licensing rights, customer relationships, trade names, and product certification testing, along with goodwill and intellectual property details Intangible Assets, net (May 31) | Category | Estimated Life | 2025 ($) | 2024 ($) | | :----------------------- | :------------- | :---------- | :--------- | | Licensing rights | 3 years | 22,080 | 34,024 | | Customer relationships | 3 years | 70,000 | 70,000 | | Trade names | 10 years | 275,000 | 275,000 | | Website | 5 years | 100,000 | 100,000 | | Product certification testing | 3 years | 180,815 | - | | Less: Accumulated amortization | | (244,304) | (169,920) | | Intangible assets, net | | 403,591 | 309,104 | - Amortization expense amounted to $86,327 in FY2025 and $95,649 in FY2024[270] - Goodwill remained constant at $2,152,215 as of May 31, 2025, and 2024[271] - The company holds three active U.S. patents (expiring 2035-2038) and seven federally registered trademarks, but has not capitalized costs associated with internally developed intellectual property[272][273] Note 7 – Other Current Liabilities This note provides a breakdown of other current liabilities, including credit cards, sales tax payable, and accrued expenses Other Current Liabilities (May 31) | Metric | 2025 ($) | 2024 ($) | | :-------------------- | :------- | :------- | | Credit Cards | 1,863 | 5,734 | | Sales Tax Payable | 218,828 | 231,283 | | Royalty Payment Accrual | - | 3,376 | | Accrued expenses | 24,307 | 92,543 | | Total other current liabilities | 244,998 | 322,936 | Note 8 – Notes Payable This note details the company's secured Economic Injury Disaster Loan (EIDL), including its outstanding balance, interest rate, maturity date, and payment schedule - As of May 31, 2025, the company had a secured Economic Injury Disaster Loan (EIDL) outstanding of $140,229, with a 3.75% annual interest rate and maturity on May 18, 2050[275][276] EIDL Loan Payments Due (Fiscal Year Ended May 31) | Fiscal Year | Total ($) | | :---------- | :-------- | | 2026 | 3,574 | | 2027 | 3,712 | | 2028 | 3,852 | | 2029 | 3,999 | | 2030 | 4,152 | | Thereafter | 120,940 | | Total | 140,229 | Note 9 – Stockholders' Equity This note details changes in authorized shares, preferred stock conversions, and stock option and restricted stock award activity for fiscal years 2025 and 2024 - On May 19, 2025, the authorized shares of common stock were reduced from 450,000,000 to 15,000,000, and preferred stock from 300,000,000 to 28,000,000[278] - In FY2025, 14,478,250 preferred shares were converted into 723,913 common shares; as of May 31, 2025, 27,773,500 Series A Preferred Stock shares were outstanding[285] - The company granted 634,000 stock options in FY2025 to officers and an employee, with exercise prices ranging from $4.00 to $4.01 per share, vesting over 48 months or one year[298][299][300][302] Stock Option Activity (Fiscal Years Ended May 31) | Metric | Number of Options (2025) | Weighted Average Exercise Price (2025) ($) | Number of Options (2024) | Weighted Average Exercise Price (2024) ($) | | :------------------------- | :----------------------- | :----------------------------------------- | :----------------------- | :----------------------------------------- | | Outstanding as of June 1 | 268,750 | 1.83 | 268,750 | 1.83 | | Granted | 634,000 | 4.17 | - | - | | Outstanding as of May 31 | 902,750 | 3.48 | 268,750 | 1.83 | | Less: Unvested at May 31 | (511,500) | 4.03 | - | - | | Vested at May 31 | 391,250 | 2.74 | 268,750 | 1.83 | - The company expensed $624,559 for stock options and $484,375 for restricted stock awards in FY2025[302][309] Note 10 – Commitments and Contingencies This note outlines the company's operating lease agreements for office and warehouse spaces, including maturity schedules, and details royalty forgiveness - The company entered into new operating lease agreements for a corporate office in Beverly Hills (Nov 2024-Jan 2029) and a warehouse in American Fork, Utah (Oct 2024-Sep 2027)[311][312] Operating Lease Liabilities Maturities (May 31, 2025) | Fiscal Year | Total ($) | | :---------- | :-------- | | 2026 | 246,575 | | 2027 | 257,647 | | 2028 | 206,270 | | 2029 | 119,790 | | Total | 830,282 | | Less: Imputed interest | (213,070) | | Present value of lease liabilities | 617,212 | - During FY2025, $218,699 previously due in royalties was forgiven and included in Sales and marketing expenses[316] Note 11 – Related Party Transactions This note details transactions with related parties, including consulting fees and working capital advances involving the CEO and CFO - Jeff Toghraie, CEO and Chairman, is the managing director of Intrepid Global Advisors, which received $227,100 in consulting fees in FY2025[318] - Intrepid provided $6,950,210 in advances and received $6,962,230 in repayments in FY2025; these advances are short-term and non-interest bearing[318] - Jeff Brown, CFO, COO, and Board member, has a controlling interest in BZ Capital Strategies, which was paid $120,000 in consulting fees in FY2025[319] Note 12 – Concentrations This note identifies concentrations of risk related to cash balances, customer sales, and reliance on a limited number of vendors across both business segments - The company held approximately $4,019,854 in cash in excess of federally insured limits at May 31, 2025[321] - For hearing enhancement and protection, no single customer accounted for >10% of sales in FY2025; international sales were ~5% of segment net sales[322][323] - Two vendors accounted for 90% of hearing segment purchases in FY2025 (67% and 23% respectively)[325] - For hair and skin care, one customer accounted for 36% of segment net sales (2.1% consolidated) in FY2025; international sales were ~31% of segment net sales[326][327] - Two vendors represented ~98% of hair and skin care segment purchases in FY2025 (79% and 19% respectively)[330] Note 13 – Business Segment and Geographic Area Information This note provides financial performance data by reportable segment (Hearing Enhancement and Protection, Hair and Skin Care) and geographic area - The company operates in two reportable segments: Hearing Enhancement and Protection and Hair and Skin Care, with the CEO as the Chief Operating Decision Maker (CODM)[332][333] Segment Performance (Fiscal Years Ended May 31) | Metric (2025) | Hearing Enhancement and Protection ($) | Hair and Skin Care ($) | Consolidated ($) | | :------------------------------------- | :------------------------------------- | :--------------------- | :--------------- | | Sales, net | 24,735,101 | 1,522,421 | 26,257,522 | | Gross profit | 17,806,856 | 834,712 | 18,641,568 | | Segment non-cash operating income | 3,511,895 | 157,060 | 3,668,955 | | Total Assets | 8,109,272 | 4,760,523 | 12,869,795 | | Payments for property and equipment and intangible assets | 392,428 | 1,870 | 394,298 | | Depreciation and amortization | 144,955 | 3,543 | 148,498 | - Approximately 93% of consolidated net sales in FY2025 were to customers located in the U.S., with all company assets also located in the U.S.[337] Note 14 – Income Taxes This note details the company's income tax expense, deferred tax assets, and net operating loss (NOL) carryforwards for federal and state jurisdictions Income Tax Expense (Benefit) (Fiscal Years Ended May 31) | Category | 2025 ($) | 2024 ($) | | :------- | :------- | :--------- | | Current | | | | Federal | 206,950 | 92,406 | | State | 61,530 | 81,870 | | Deferred | | | | Federal | 268,985 | (394,481) | | State | (83,637) | - | | Total | 453,828 | (220,205) | Deferred Tax Assets (May 31) | Category | 2025 ($) | 2024 ($) | | :------------------------ | :---------- | :--------- | | Property, Plant and Equipment | (101,415) | - | | Intangibles | (59,238) | - | | Net operating loss | 90,060 | 231,587 | | Stock-based compensation | 163,018 | - | | Others | (46,186) | - | | Total net deferred tax assets | 46,239 | 231,587 | - As of May 31, 2025, the company had California net operating loss (NOL) carryforwards of $1,289,587, with no federal or Utah NOL carryforwards[341] - In FY2025, the company utilized approximately $465,613 of federal NOLs and $123,216 of California NOLs, and management believes remaining NOLs will be fully realized[342] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in or disagreements with the company's accountants on accounting and financial disclosure matters ITEM 9A. CONTROLS AND PROCEDURES. Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of May 31, 2025, concluding they were effective. They also assessed the effectiveness of internal control over financial reporting based on COSO criteria, concluding it was effective. The annual report does not include an attestation report from the registered public accounting firm - The CEO and CFO concluded that disclosure controls and procedures were effective as of May 31, 2025[124] - Management assessed and concluded that internal control over financial reporting was effective as of May 31, 2025, based on COSO criteria[126] - The annual report does not include an attestation report from the registered public accounting firm regarding internal control over financial reporting[127] ITEM 9B. OTHER INFORMATION. This section provides updates on Rule 10b5-1 trading plans, the upcoming 2025 Annual Meeting of Stockholders, and new employment agreements for the Chief Executive Officer and Chief Financial Officer - No Rule 10b5-1 trading plans were adopted, modified, or terminated by directors or executive officers during the quarter ended May 31, 2025[129] - The 2025 Annual Meeting of Stockholders is scheduled for December 17, 2025, with stockholders of record as of October 22, 2025, entitled to vote[130] - On August 18, 2025, the company entered into new employment agreements with CEO Jeff Toghraie and CFO Jeff Brown, formalizing their terms of employment, including base salaries ($275,000 and $225,000 respectively) and annual bonus opportunities (not less than 40% of base salary)[131][132] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. This item is not applicable to the company PART III This part covers information on directors, executive officers, corporate governance, executive compensation, and security ownership ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. This section provides information on the company's directors and executive officers, including their ages, positions, and biographies. It also details the composition and independence of the Board's standing committees (Audit, Compensation, and Nominating and Corporate Governance), and outlines the company's Code of Business Conduct and Ethics, Section 16(a) reporting compliance, and Insider Trading Policy Information about Directors and Executive Officers This section lists the company's directors and executive officers, their ages, positions, and provides brief biographies highlighting their experience Directors and Executive Officers (as of August 18, 2025) | Name | Age | Director Class | Position | | :----------- | :-- | :------------- | :------------------------------------- | | Jeff Toghraie| 58 | Class III | Chief Executive Officer and Chairman | | Jeff Brown | 43 | Class III | Chief Financial Officer, COO, Director | | Manu Ohri | 69 | Class II | Director | | Peter Dunne | 84 | Class II | Director | | Nancy Hundt | 57 | Class I | Director | - Jeff Toghraie has served as CEO and Chairman since June 2015, bringing over 20 years of industry experience and expertise in implementing complex strategies[137][138] - Jeff Brown has served as CFO since May 2024 and COO since March 2017, bringing over 15 years of operational experience and deep industry knowledge[139][140] Board Committees The Board has three standing committees (Audit, Compensation, and Nominating and Corporate Governance), with all members qualifying as independent directors - The Board consists of five directors and has three standing committees: Audit, Compensation, and Nominating and Corporate Governance[149] - Each member of the standing committees qualifies as an independent director under SEC and NYSE American rules, and the Board is comprised of a majority of independent directors[149][178] Board Committee Membership (as of August 18, 2025) | Name | Audit | Compensation | Nominating and Corporate Governance | | :---------- | :---- | :----------- | :---------------------------------- | | Jeff Toghraie | | | | | Jeff Brown | | | | | Peter Dunne | X | X | X* | | Nancy Hundt | X | X* | X | | Manu Ohri+ | X* | X | X | * Committee chairperson. + Audit committee financial expert. Code of Business Conduct and Ethics The Board adopted a Code of Business Conduct and Ethics applicable to all directors, employees, and officers, available on the company's website - The Board adopted a Code of Business Conduct and Ethics applicable to all directors, employees, and officers, with the full text available on the Investors section of the company's website[152] Delinquent Section 16(a) Reports All Section 16 filing requirements for executive officers, directors, and major stockholders were complied with during fiscal year 2025 - To the best of the company's knowledge, all Section 16 filing requirements applicable to executive officers, directors, and greater than 10% stockholders were complied with during the fiscal year ended May 31, 2025[153] Insider Trading Policy The company's Insider Trading Policy prohibits certain transactions like short sales, derivatives, hedging, or pledging company securities without approval - The company's Insider Trading Policy prohibits officers, directors, employees, and agents from engaging in short sales, investing in company-based derivative securities, hedging, or pledging company securities in margin accounts without prior approval[154] ITEM 11. EXECUTIVE COMPENSATION. This section details the compensation for the company's named executive officers (NEOs), Jeff Toghraie (CEO) and Jeff Brown (CFO/COO), for fiscal years 2025 and 2024, including salaries, option awards, and other compensation. It also outlines the terms of their new employment agreements, outstanding equity awards, and compensation for non-employee directors Summary Compensation Table This table summarizes the compensation for named executive officers, including salaries, option awards, and other compensation for fiscal years 2025 and 2024 Summary Compensation for Named Executive Officers (Fiscal Years Ended May 31) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | | :-------------------------- | :--- | :--------- | :-------- | :--------------- | :---------------- | :----------------------------------------- | :-------------------------------------------- | :------------------------- | :---------- | | Jeff Toghraie | 2025 | — | — | — | 1,403,500 | — | — | 227,100 | 1,630,600 | | Chief Executive Officer and Chairman | 2024 | — | — | — | — | — | — | — | — | | Jeff Brown | 2025 | 144,000 | — | — | 1,002,500 | — | — | 120,000 | 1,266,500 | | Chief Operating Officer, Chief Financial Officer, and Director | 2024 | 144,000 | 67,000 | — | — | — | — | — | 211,000 | - The value of option awards represents the fair value computed in accordance with FASB ASC Topic 718[161] - All Other Compensation for Mr. Toghraie and Mr. Brown consists of consulting fees paid to firms where they are managing director or co-owner/Chairman/CFO, respectively[161] Executive Employment Agreements New employment agreements for the CEO and CFO formalize their base salaries, annual bonus opportunities, and provisions for change of control or termination - On August 18, 2025, new employment agreements were entered into with CEO Jeff Toghraie and CFO Jeff Brown, formalizing their continued employment[160] - Mr. Toghraie's annual base salary is $275,000, and Mr. Brown's is $225,000, with both eligible for an annual bonus target of not less than 40% of their base salary[132][162] - Agreements include provisions for fully vested common stock shares (500,000 for Mr. Toghraie, 175,000 for Mr. Brown) upon a Change of Control, and severance payments upon termination without Cause or resignation for Good Reason[132][162] Outstanding Equity Awards at Fiscal Year-End This table details the outstanding equity awards for named executive officers, including exercisable and unexercisable options, exercise prices, and expiration dates Outstanding Equity Awards for NEOs (as of May 31, 2025) | Name | Grant Date | Number of securities underlying unexercised options () exercisable | Number of securities underlying unexercised options () unexercisable | Option exercise price ($) | Option expiration date | | :---------- | :--------- | :---------------------------------------------------------------- | :-------------------------------------------------------------------- | :------------------------ | :--------------------- | | Jeff Toghraie | 5/10/2022 | 155,000 | — | 1.80 | 4/20/2032 | | | 10/14/2024 | 58,333 | 291,667 | 4.01 | 10/31/2034 | | Jeff Brown | 5/10/2022 | 110,000 | — | 1.80 | 4/20/2032 | | | 10/14/2024 | 41,667 | 208,333 | 4.01 | 10/31/2034 | - Options granted on October 14, 2024, vest and become exercisable in 48 equal monthly installments beginning on October 31, 2024[167] Director Compensation This table outlines the compensation for non-employee directors, primarily consisting of restricted stock awards, for the fiscal year ended May 31, 2025 Non-Employee Director Compensation (Fiscal Year Ended May 31, 2025) | Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | | :---------- | :------------------------------ | :--------------- | :------------------------- | :-------- | | Peter Dunne | — | 20,750 | — | 20,750 | | Nancy Hundt | — | 20,750 | — | 20,750 | | Manu Ohri | — | 20,750 | — | 20,750 | - Compensation for non-employee directors consisted of 5,000 restricted stock awards each, granted on January 13, 2025, with a grant date fair value of $20,750 per director, vesting on January 13, 2026[170][171] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. This section provides details on the beneficial ownership of the company's common stock by principal stockholders (owning more than 5%), directors, and executive officers as of August 18, 2025. It also includes information on the company's equity compensation plans, outlining the number of securities to be issued and remaining available for future issuance Beneficial Ownership This table details the beneficial ownership of common stock by principal stockholders, directors, and executive officers, including their respective percentages Beneficial Ownership of Common Stock (as of August 18, 2025) | Name of Beneficial Owner | Number of Shares Beneficially Owned | Percent | | :----------------------- | :---------------------------------- | :------ | | Jeff Toghraie | 3,537,038 | 46.1% | | Don Frank Nathaniel Vasquez | 1,276,251 | 19.2% | | Shircoo, Inc. | 534,510 | 8.0% | | Jeff Brown | 287,643 | 4.2% | | Peter Dunne | 31,250 | * | | Nancy Hundt | 12,273 | * | | Manu Ohri | 20,001 | * | | All Current Executive Officers and Directors as a Group (5 persons) | 3,888,205 | 49.6% | * Represents beneficial ownership of less than 1% of the outstanding common stock. - Jeff Toghraie's beneficial ownership includes shares held directly by Intrepid Global Advisors, shares with shared voting power with Don Frank Nathaniel Vasquez, exercisable options, and shares convertible from Series A Preferred Stock[175] - The calculation of percentage ownership is based on 6,657,717 shares of common stock outstanding on August 18, 2025[174] Equity Compensation Plan Information This table provides information on the company's equity compensation plans, including outstanding options, weighted-average exercise price, and securities available for future issuance Equity Compensation Plan Information (as of May 31, 2025) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) ($) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :--------------------------------------------- | :------------------------------------------------------------------------------------------ | :---------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 902,750 | 3.48 | 1,122,385 | | Equity compensation plans not approved by security holders | - | - | - | | Total | 902,750 | 3.48 | 1,122,385 | - The Plan provides for an annual increase in authorized shares, subject to Board approval, equal to the lesser of 4% of outstanding common stock or a smaller number determined by the administrator[176] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. This section outlines the Board's determination of director independence, identifying Peter Dunne, Nancy Hundt, and Manu Ohri as independent directors. It also details related party transactions, including consulting fees and working capital advances with Intrepid Global Advisors (associated with the CEO) and consulting fees with BZ Capital Strategies (associated with the CFO) Director Independence The Board determined that a majority of its directors, including all committee members, qualify as independent under NYSE American and SEC rules - The Board determined that Peter Dunne, Nancy Hundt, and Manu Ohri qualify as independent directors under NYSE American listing standards and SEC rules[178] - The Board is comprised of a majority of independent directors, and all Board committee members are independent[178] Related Party Transactions This section details consulting fees and working capital advances with entities associated with the CEO and CFO - Intrepid Global Advisors, where CEO Jeff Toghraie is managing director, received approximately $227,100 in consulting fees in FY2025 and provided $6,950,210 in working capital advances, with $6,962,230 in repayments[180] - BZ Capital Strategies, where CFO Jeff Brown has a controlling interest, was paid $120,000 in consulting fees for FY2025[181] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. This section details the fees paid to Salberg & Company, P.A., the independent registered public accounting firm, for audit and audit-related services for the fiscal years ended May 31, 2025, and 2024. All services performed were pre-approved by the Audit Committee Principal Accountant Fees (Fiscal Years Ended May 31) | Fee Category | 2025 ($) | 2024 ($) | | :------------------ | :------- | :------- | | Audit fees | 132,800 | 126,000