AXIL Brands(AXIL) - 2026 Q1 - Quarterly Report

FORM 10-Q Cover Page AXIL Brands, Inc. filed its Form 10-Q for Q1 FY2026, trading on NYSE American as a non-accelerated, smaller reporting company - AXIL Brands, Inc. filed its Quarterly Report on Form 10-Q for the period ended August 31, 2025, with its common stock traded on The NYSE American LLC under the symbol AXIL, classified as a non-accelerated filer and a smaller reporting company[2][3][4] Cautionary Note Regarding Forward-Looking Statements This section warns that forward-looking statements are subject to various risks and uncertainties that could materially alter actual results - The report contains forward-looking statements regarding future events and financial performance, which are subject to various risks and uncertainties that could cause actual results to differ materially[8][9][10] PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with explanatory notes Consolidated Balance Sheets Total assets and liabilities increased, driven by accounts receivable, inventory, and accounts payable, alongside a rise in stockholders' equity | Metric | August 31, 2025 (Unaudited) | May 31, 2025 | | :-------------------------------- | :-------------------------- | :----------- | | Total Assets | $15,355,888 | $12,869,795 | | Cash | $4,086,624 | $4,769,854 | | Accounts receivable, net | $2,778,751 | $1,003,945 | | Inventory, net | $3,889,462 | $2,533,658 | | Total Liabilities | $5,162,674 | $3,210,087 | | Accounts payable | $2,391,752 | $866,573 | | Income tax liability | $501,370 | $310,369 | | Total Stockholders' Equity | $10,193,214 | $9,659,708 | Consolidated Statements of Operations The company achieved net income in Q1 2025, a turnaround from a prior-year net loss, driven by increased sales and operating efficiency | Metric | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :-------------------------------- | :--------------------------------- | :--------------------------------- | | Sales, net | $6,856,218 | $5,851,272 | | Cost of sales | $2,221,284 | $1,697,624 | | Gross profit | $4,634,934 | $4,153,648 | | Total Operating Expenses | $4,223,196 | $4,294,350 | | Income (Loss) from Operations | $411,738 | $(140,702) | | Provision for income taxes | $115,058 | $- | | NET INCOME (LOSS) | $334,294 | $(109,805) | | Basic EPS | $0.05 | $(0.02) | | Diluted EPS | $0.04 | $(0.02) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased due to net income and stock-based compensation, with prior-year preferred stock conversions also impacting capital | Metric | August 31, 2025 | May 31, 2025 | | :-------------------------- | :-------------- | :----------- | | Total Stockholders' Equity | $10,193,214 | $9,659,708 | | Net income for the period | $334,294 | N/A | | Stock options expense | $176,488 | N/A | | Stock-based compensation | $22,724 | N/A | - For the three months ended August 31, 2024, preferred stock conversions resulted in 555,913 shares of common stock[21] Consolidated Statements of Cash Flows Net cash decreased due to operating activities, driven by increased accounts receivable and inventory, partially offset by financing activities | Cash Flow Activity | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :----------------------------------- | :--------------------------------- | :--------------------------------- | | Net cash (used in)/provided by operating activities | $(739,194) | $897,318 | | Net cash used in investing activities | $(94,497) | $(41,840) | | Net cash provided by financing activities | $150,461 | $39,370 | | Net (decrease)/increase in cash | $(683,230) | $894,848 | | Cash - End of period | $4,086,624 | $4,148,724 | Condensed Notes to Unaudited Consolidated Financial Statements These notes provide detailed explanations of accounting policies, financial statement line items, and other relevant disclosures Note 1 – Organization AXIL Brands, Inc. manufactures and distributes high-tech hearing and audio protection, and hair/skin care products globally - AXIL Brands, Inc. (formerly Reviv3 Procare Company) is headquartered in Beverly Hills, California, operating through subsidiaries like AXIL Distribution Company and Sharper Vision Marketing Inc[24][25] - The company's product lines include high-tech hearing and audio enhancement/protection and professional quality hair and skin care products, sold globally[24] Note 2 – Basis of Presentation and Summary of Significant Accounting Policies This note outlines the basis of presentation, key accounting policies, and recent accounting pronouncements, covering revenue recognition, inventory, goodwill, stock-based compensation, and leases - The unaudited consolidated financial statements are prepared in accordance with SEC rules and U.S. GAAP, with all significant intercompany balances and transactions eliminated[26] - Revenue is recognized when performance obligations are satisfied, generally upon product shipment, with variable consideration for returns estimated based on historical data[37][41][43] - The company adopted ASU No. 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' effective June 1, 2025, which will expand annual income tax disclosures[78][79] Note 3 – Accounts Receivable, net Accounts receivable, net, significantly increased due to a rise in customer receivables, with the company recognizing a net recovery from credit losses | Metric | August 31, 2025 | May 31, 2025 | | :-------------------------- | :-------------- | :----------- | | Customers receivable | $2,540,473 | $922,616 | | Merchant processor receivable | $345,543 | $185,719 | | Less: Allowance for credit losses | $(107,265) | $(104,390) | | Total Accounts receivables, net | $2,778,751 | $1,003,945 | - The company recognized a net recovery from credit losses of $158 for the three months ended August 31, 2025, compared to a provision of $18,785 in the prior year[80] Note 4 – Inventory, net Inventory, net, increased substantially due to a significant rise in finished goods and inventory in-transit | Metric | August 31, 2025 | May 31, 2025 | | :---------------- | :-------------- | :----------- | | Finished Goods | $3,874,121 | $2,509,840 | | Raw Materials | $15,341 | $23,818 | | Total Inventory | $3,889,462 | $2,533,658 | - Inventory in-transit increased from $174,564 as of May 31, 2025, to $747,536 as of August 31, 2025[81] Note 5 – Property and Equipment Net property and equipment decreased slightly, while depreciation expense increased significantly year-over-year | Metric | August 31, 2025 | May 31, 2025 | | :-------------------------------- | :-------------- | :----------- | | Total Property, plant and equipment, net | $395,857 | $412,261 | | Accumulated depreciation | $(174,363) | $(149,591) | | Depreciation expense (3 months ended Aug 31) | $24,771 (2025) | $9,893 (2024) | Note 6 – Intangible Assets Net intangible assets increased due to higher product certification testing costs, with goodwill remaining constant and amortization expense rising substantially | Metric | August 31, 2025 | May 31, 2025 | | :-------------------------- | :-------------- | :----------- | | Total Intangible assets, net | $452,405 | $403,591 | | Product certification testing | $255,905 | $180,815 | | Accumulated amortization | $(281,620) | $(244,304) | | Goodwill | $2,152,215 | $2,152,215 | | Amortization expense (3 months ended Aug 31) | $37,316 (2025) | $3,002 (2024) | - The company holds three active U.S. patents and seven federally registered trademarks, considered material to its business[85] Note 7 – Other Current Liabilities Other current liabilities increased, mainly due to a rise in accrued expenses and the introduction of accrued interest | Metric | August 31, 2025 | May 31, 2025 | | :-------------------------- | :-------------- | :----------- | | Sales tax payable | $207,511 | $218,828 | | Accrued expenses | $86,734 | $24,307 | | Accrued interest | $149 | $- | | Total other current liabilities | $294,394 | $244,998 | Note 8 – Notes Payable The company has an outstanding Economic Injury Disaster Loan (EIDL) with a principal balance of $139,199, bearing 3.75% annual interest and payable until May 2050 | Metric | August 31, 2025 | May 31, 2025 | | :----------------------------------- | :-------------- | :----------- | | Economic Injury Disaster Loan Program (EIDL) | $139,199 | $140,229 | | Less: Current portion | $(3,459) | $(3,574) | | Non-current portion | $135,740 | $136,655 | - Interest expense related to the EIDL was $1,312 for the three months ended August 31, 2025, compared to $1,495 in the prior year[88] Note 9 – Stockholders' Equity This note details the company's capital structure, including authorized shares, preferred and common stock, stock options, and restricted stock awards, highlighting changes and compensation expenses - Authorized common stock was reduced from 450,000,000 to 15,000,000 shares, and preferred stock from 300,000,000 to 28,000,000 shares, effective May 19, 2025[91] - As of August 31, 2025, 27,773,500 shares of Series A Preferred Stock were outstanding, convertible into common stock at a twenty-to-one ratio, subject to a 5% beneficial ownership limit[95][96] - Stock options expense for the three months ended August 31, 2025, was $176,488, and restricted stock awards expense was $22,724[112][114] Note 10 – Commitments and Contingencies The company entered new operating lease agreements for facilities in Beverly Hills and American Fork, with terms extending to 2029, and expects no material adverse effect from legal contingencies - New operating leases commenced in November 2024 (Beverly Hills) and October 2024 (American Fork), with a weighted average remaining term of 3.1 years and a discount rate of 13.1% as of August 31, 2025[116][117][120] | Lease Liability Maturity (Fiscal Year-End) | Amount | | :--------------------------------------- | :------- | | 2026 (nine months remaining) | $183,736 | | 2027 | $257,647 | | 2028 | $206,270 | | 2029 | $119,790 | | Total | $767,443 | | Less: Imputed interest | $(207,039) | | Present value of lease liabilities | $560,404 | - Operating lease costs for the three months ended August 31, 2025, were $63,161, up from $18,659 in the prior year[119] Note 11 – Related Party Transactions The company engages in transactions with related parties, including consulting fees paid to entities managed by its Chairman/CEO and CFO/COO, and short-term advances from the CEO's entity - Intrepid Global Advisors, managed by the CEO, provided $1,207,693 in advances and received $1,056,202 in repayments during the three months ended August 31, 2025, with consulting fees paid to Intrepid totaling $66,100[124] - BZ Capital Strategies, co-owned by the CFO/COO, received $40,000 in consulting fees for the three months ended August 31, 2025[125] Note 12 – Concentrations The company faces concentrations of credit risk in cash deposits, and significant customer and supplier concentrations, with one customer accounting for 28% of net sales and 66% of gross accounts receivable - Cash held in excess of federally insured limits was $3,586,624 as of August 31, 2025[126] - One customer represented 28% of consolidated net sales and 66% of gross accounts receivable for the three months ended August 31, 2025[127][129] - The two largest manufacturing vendors accounted for 91% of all purchases for the three months ended August 31, 2025[130] Note 13 – Business Segment and Geographic Area Information The company operates in two segments: Hearing Enhancement and Protection (primary revenue driver) and Hair and Skin Care (operating loss), with most sales to U.S. customers | Segment | Sales, net (3 months ended Aug 31, 2025) | Sales, net (3 months ended Aug 31, 2024) | Segment non-cash operating income (loss) (3 months ended Aug 31, 2025) | Segment non-cash operating income (loss) (3 months ended Aug 31, 2024) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------------------------------------- | :--------------------------------------------------------------------- | | Hearing enhancement and protection | $6,579,666 | $5,299,763 | $1,026,295 | $394,217 | | Hair and skin care | $276,552 | $551,509 | $(36,074) | $105,413 | | Consolidated | $6,856,218 | $5,851,272 | $990,221 | $499,630 | - Approximately 95% of consolidated net sales for the three months ended August 31, 2025, were to customers located in the U.S., consistent with 92% in the prior year[135] Note 14 – Income Taxes The company recorded an income tax expense of $115,058 for the three months ended August 31, 2025, and expects its tax positions to be upheld - Income tax expense for the three months ended August 31, 2025, was $115,058[138] - The company's 2022, 2023, and 2024 Corporate Income Tax Returns are subject to IRS examination[138] Note 15 – Subsequent Events Subsequent to the reporting period, two preferred stock holders converted 2,000,000 shares of preferred stock into 100,000 shares of common stock - On September 2 and September 15, 2025, 2,000,000 shares of preferred stock were converted into 100,000 shares of common stock[139] 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 condition, results of operations, and cash flows, covering business strategy, recent developments, and critical accounting policies Overview AXIL Brands, Inc. focuses on high-tech hearing/audio enhancement and protection products, and professional hair/skin care, emphasizing direct-to-consumer campaigns, e-commerce, and strategic partnerships - The company operates in two reportable segments: hearing enhancement and protection, and hair and skin care, with a new subsidiary planned for marketing services[143][144] - Key strategic initiatives include expanding market share through online and traditional platforms, optimizing e-commerce, building sales teams, and seeking strategic partnerships[145] - Recent developments include a material order from a national membership-based retail chain, a partnership with a major Canadian salon chain, and media recognition in military publications[146][147][149] Results of Operations The company achieved a net income of $334,294, a significant improvement from a prior-year net loss, driven by a 17.2% increase in net sales and a 1.7% decrease in operating expenses | Metric | Three months ended August 31, 2025 | Three months ended August 31, 2024 | Change (%) | | :----------------------------------- | :--------------------------------- | :--------------------------------- | :--------- | | Sales, net | $6,856,218 | $5,851,272 | +17.2% | | Gross profit | $4,634,934 | $4,153,648 | +11.6% | | Gross profit as % of sales | 67.6% | 71.0% | -3.4 pp | | Total operating expenses | $4,223,196 | $4,294,350 | -1.7% | | Income (loss) from operations | $411,738 | $(140,702) | +392.6% | | Net income (loss) after tax | $334,294 | $(109,805) | N/A | | Adjusted EBITDA (Non-GAAP) | $674,355 | $172,323 | +291.3% | | Adjusted EBITDA as % of Sales, net | 9.8% | 2.9% | +6.9 pp | - The increase in net sales was primarily due to a material order from a leading national membership-based retail chain[155] - Cost of sales as a percentage of net revenues increased to 32.4% (from 29.0%) due to tighter margins on the material wholesale order[156] Liquidity and Capital Resources The company expects sufficient liquidity for at least one year, planning to manage expenses and potentially seek additional capital for growth - The company anticipates sufficient liquidity for at least one year based on current cash balances and expected operating cash flows[163][164] - Future cash demands may exceed historical levels, and additional capital may be sought, though there's no assurance of availability on favorable terms[164] Cash Flows for the three months ended August 31, 2025 and 2024 Net cash used in operating activities increased significantly due to inventory and accounts receivable, while investing activities increased cash used, and financing activities provided cash from related party advances - Net cash used in operating activities was $(739,194) for the three months ended August 31, 2025, a decrease from $897,318 provided in the prior year, mainly due to increased inventory and accounts receivable from a large wholesale order[165] - Net cash used in investing activities increased to $(94,497) in 2025, from $(41,840) in 2024, due to purchases of intangibles and property/equipment[166] - Net cash provided by financing activities was $150,461 in 2025, up from $39,370 in 2024, primarily from net advances from a related party[167] Off-Balance Sheet Arrangements As of August 31, 2025, the company reported no material off-balance sheet arrangements that would significantly affect its financial condition or results of operations - The company did not have any material off-balance sheet arrangements as of August 31, 2025[170] Significant Accounting Policies and Estimates This section reiterates the company's significant accounting policies and estimates, focusing on areas requiring management's judgment, such as accounts receivable, revenue recognition, and goodwill impairment - Key accounting policies and estimates include the allowance for credit losses, revenue recognition (transfer of control upon shipment, considering discounts and returns), and annual goodwill impairment testing[172][173][174] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, AXIL Brands, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing market risk disclosures as a smaller reporting company[176] ITEM 4. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and procedures were effective as of August 31, 2025, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were deemed effective as of August 31, 2025, following an evaluation by the CEO and CFO[177] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended August 31, 2025[178] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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 its financial position or results of operations - The company records liabilities for probable and estimable losses from legal proceedings, reevaluating accruals as matters progress[182] - Management does not expect the ultimate liability from current legal matters to have a material adverse effect on the company's financial results[182] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended May 31, 2025 - No material changes to risk factors were reported since the Annual Report on Form 10-K for the year ended May 31, 2025[183] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the second quarter of fiscal year 2026, 2,000,000 shares of Series A Preferred Stock were converted into 100,000 shares of common stock, exempt from registration under Section 4(a)(2) of the Securities Act - 2,000,000 shares of Series A Preferred Stock were converted into 100,000 shares of common stock in Q2 FY2026[184] - The issuance was exempt from registration under Section 4(a)(2) of the Securities Act[184] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[185] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Mine Safety Disclosures are not applicable to AXIL Brands, Inc[186] ITEM 5. OTHER INFORMATION 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 August 31, 2025 - No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the quarter[187] ITEM 6. EXHIBITS This section lists the exhibits filed as part of the Form 10-Q, including amendments to the Certificate of Incorporation, Bylaws, employment agreements, and certifications - Exhibits include various amendments to the Certificate of Incorporation and Bylaws, employment agreements for Jeff Toghraie and Jeff Brown, and Sarbanes-Oxley Act certifications[188] SIGNATURES - The report was signed on October 7, 2025, 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][193]