Axil Brands Inc

Previous wording

On May 1, 2022, we entered into an Asset Purchase Agreement dated May 1, 2022 and amended on June 15, 2022 and September 8, 2022 with AXIL, a Delaware corporation, and a leader in hearing protection and enhancement products, for the acquisition of both the hearing protection business of AXIL consisting of ear plugs and ear muffs, and AXIL’s ear bud business. These businesses constituted substantially all of the business operations of AXIL. The acquisition was completed subsequently on June 16, 2022. On September 8, 2022, the Company and AXIL entered into an amendment to the Asset Purchase Agreement which eliminated the provision in the Asset Purchase Agreement requiring the Company to effectuate a reverse stock split of our Common Stock and preferred stock pursuant to the Asset Purchase Agreement within a certain period of time.

Current wording

On May 1, 2022, we entered into an Asset Purchase Agreement dated May 1, 2022 and amended on June 15, 2022 and September 8, 2022 with AXIL & Associated Brands, a leader in hearing protection and enhancement products, for the acquisition of both the hearing protection business of AXIL & Associated Brands consisting of ear plugs and ear muffs, and AXIL & Associated Brands’ ear bud business. These businesses constituted substantially all of the business operations of AXIL & Associated Brands. The acquisition was completed subsequently on June 16, 2022. On September 8, 2022, the Company and AXIL & Associated Brands entered into an amendment to the Asset Purchase Agreement which eliminated the provision in the Asset Purchase Agreement requiring the Company to effectuate a reverse stock split of our common stock and preferred stock pursuant to the Asset Purchase Agreement within a certain period of time.

Previous wording

As a result of the acquisition of AXIL’s assets, the Company has two reportable segments: hair care and skin care, and hearing enhancement and protection.

Current wording

As a result of the acquisition of AXIL & Associated Brands’ assets, the Company has two reportable segments: hair care and skin care, and hearing enhancement and protection.

Previous wording

For the Six months Ended November 30, 2023 Compared to the Six months Ended November 30, 2022

Current wording

For the Nine Months Ended February 29, 2024 Compared to the Nine Months Ended February 28, 2023

Previous wording

Net sales for the six months ended November 30, 2023 and 2022 were $14,527,946 and $10,969,357, respectively. Net sales for the six months ended November 30, 2023 increased by $3,558,589 or 32.4% for the six months ended November 30, 2023, as compared to the six months ended November 30, 2022. The increase was driven primarily by an increase in marketing campaign spend and strength in our sales channels for AXIL products.

Current wording

Net sales for the nine months ended February 29, 2024 and February 28, 2023 were $20,997,289 and $16,625,818, respectively. Net sales for the nine months ended February 29, 2024 increased by $4,371,471 or 26.3%, as compared to the nine months ended February 28, 2023. The increase was driven primarily by an increase in marketing campaign spend and strength in our sales channels for the Company’s products.

Previous wording

Cost of sales includes primarily the cost of products and freight-in costs. For the six months ended November 30, 2023, the overall cost of sales increased by $974,772 or 36.8%, as compared to the comparable period ended November 30, 2022, which was primarily due to the relative increase in sales of AXIL products. Cost of sales as a percentage of net revenues for the six months ended November 30, 2023 was 24.9% as compared to 24.1% for the comparable period in 2022. The marginal increase in cost of sales, as a percentage of sales, was primarily attributable to higher transportation costs. The Company will continue to work to increase efficiencies in procurement and logistics, as well as focus on enhanced production capabilities.

Current wording

Cost of sales primarily includes the cost of products and freight-in costs. For the nine months ended February 29, 2024, the overall cost of sales increased by $1,381,813 or 33.8%, as compared to the comparable period ended February 28, 2023, which was primarily due to the relative increase in sales of Company products. Cost of sales as a percentage of net revenues for the nine months ended February 29, 2024 was 26.0% as compared to 24.6% for the comparable period in 2023. The marginal increase in cost of sales, as a percentage of sales, was primarily attributable to higher transportation costs and lower margin product sales. The Company will continue to work to increase efficiencies in procurement and logistics, as well as focus on enhanced production capabilities.

Previous wording

Gross profit for the six months ended November 30, 2023 and 2022 was $10,905,505 and $8,321,688, respectively. Gross profit as a percentage of sales for the six months ended November 30, 2023, was 75.1% as compared to 75.9% for the same comparable period in 2022. The slight decrease in gross profit for the six months ended November 30, 2023 was primarily attributable to an increase in discounts and merchant fees related to sales of AXIL products.

Current wording

Gross profit for the nine months ended February 29, 2024 and February 28, 2023 was $15,529,831 and $12,540,173, respectively. Gross profit as a percentage of sales for the nine months ended February 29, 2024, was 74.0% as compared to 75.4% for the same comparable period in 2023. The decrease in the gross profit margin for the nine months ended February 29, 2024 was primarily attributable to an increase in sales of lower margin products in both our segments, partially offset by a decrease in discounts in our sales of AXIL products.

Previous wording

Operating expenses consisted of marketing and selling expenses, compensation and related taxes, professional and consulting fees, and general and administrative costs. Operating expenses for the six months ended November 30, 2023 and 2022 were $9,467,836 and $7,137,292, respectively. Operating expenses as a percentage of net revenues for the six months ended November 30, 2023, were 65.2% compared to 65.1% for the comparable period in 2022. Operating expenses increased by $2,330,544 or 32.7% year-over-year due to an increase in advertising and marketing expenses by $2,028,483 in the AXIL spend for expansion of current marketing campaigns and costs attributable to new product awareness, with an increase in spend of $714,318 for general and administrative costs as the Company requires more robust oversight in compliance and to enhance existing business processes. The increase in marketing, advertising and general and administrative costs, were partially offset by an overall reduction in approximately $300,000 in operating expenses for the Reviv3 business for the six months ended November 30, 2023 as compared to the comparable period in 2022.

Current wording

Operating expenses consisted of marketing and selling expenses, compensation and related taxes, professional and consulting fees, and general and administrative costs. Operating expenses increased by $3,056,852 or 27.4% from $11,139,189 for the nine months ended February 28, 2023 to $14,196,041 for the nine months ended February 29, 2024. Operating expenses as a percentage of net sales for the nine months ended February 29, 2024 were 67.6% compared to 67.0% for the comparable period in 2023. Operating expenses increased primarily due to a net increase in advertising and marketing expenses by $2,028,313 for expansion of current marketing campaigns and costs attributable to new product awareness, and a net increase of $891,181 for business general and administrative costs. The increase in general and administrative costs was primarily attributed to the increase in public related costs associated with our Uplist Transaction. Additionally, there was an increase of $638,067 for professional and consulting expenses to enhance existing business processes. This increase was partially offset by the optimization of our workforce resulting in an overall reduction of $500,709 for compensation and related taxes for the nine months ended February 29, 2024 as compared to the comparable period in 2023.

Previous wording

Income from operations for the six months ended November 30, 2023 and 2022 was $1,437,669 and $1,184,396, respectively. The increase in income from operations for the six months ended November 30, 2023, of $253,273 or 21.4% compared to the six months ended November 30, 2022, was primarily driven from the positive impact of the increase in sales and marketing efforts of AXIL products.

Current wording

Income from operations for the nine months ended February 29, 2024 and February 28, 2023 was $1,333,790 and $1,400,984, respectively. The decrease in income from operations for the nine months ended February 29, 2024, of $67,194 or 4.8% compared to the nine months ended February 28, 2023, was primarily driven by the increase in professional and compliance expenses due to the Uplist Transaction and an increase in sales of lower margin products.

Previous wording

Provision for income taxes amounted to $364,393 and $261,044 for the three months ended November 30, 2023 and 2022, respectively.

Current wording

For the nine months ended February 29, 2024 the provision for income taxes amounted to a benefit of $397,054, that was related to the reversal of fiscal year ended May 31, 2023 income tax liability due to filing of the federal and state tax returns, as well as additional net operating losses which can offset current year income tax liability. In addition, there are remaining net operating losses that created a deferred tax asset which management believes are fully realizable. Provision for income tax expense was $395,344 for the nine months ended February 28, 2023.

Previous wording

As a result of the above, we reported a net income of $1,172,527 and $902,427, for the six months ended November 30, 2023 and 2022, and respectively, an increase of $270,100.

Current wording

As a result of the above, we reported a net income of $1,953,618 and $1,064,475, for the nine months ended February 29, 2024 and February 28, 2023, respectively, an increase of $889,143.

Previous wording

Net sales for the three months ended November 30, 2023 and 2022 were $8,421,677 and $6,731,999, respectively. Net sales for the three months ended November 30, 2023 increased by $1,689,678 or 25.1% for the three months ended November 30, 2023, as compared to the three months ended November 30, 2022, also due to the increase in marketing campaign spend and strength in our sales channels for AXIL products.

Current wording

Net sales for the three months ended February 29, 2024 and February 28, 2023 were $6,469,343 and $5,656,461, respectively. Net sales for the three months ended February 29, 2024 increased by $812,882 or 14.4%, as compared to the three months ended February 28, 2023, due to the increase in marketing campaign spend and strength in our sales channels for AXIL products.

Previous wording

For the three months ended November 30, 2023, the overall cost of sales increased by $470,773 or 27.8%, as compared to the comparable period ended November 30, 2022, which was also primarily due to the relative increase in sales of AXIL products. Cost of sales as a percentage of net revenues for the three months ended November 30, 2023 was 25.7% as compared to 25.1% for the comparable period in 2022. The marginal increase in cost of sales, as a percentage of sales, was primarily attributable to an increase in transportation costs. As noted, the Company will continue to work to increase efficiencies in procurement and logistics.

Current wording

For the three months ended February 29, 2024, the overall cost of sales increased by $407,041 or 28.3%, as compared to the three months ended February 28, 2023, which was also primarily due to the relative increase in sales of the Company’s products. Cost of sales as a percentage of net revenues for the three months ended February 29, 2024 was 28.5% as compared to 25.4% for the comparable period in 2023. The marginal increase in cost of sales, as a percentage of sales, was primarily attributable to an increase in transportation costs. The Company will continue to work to increase efficiencies in procurement and logistics.

Previous wording

Gross profit for the three months ended November 30, 2023 and 2022 was $6,257,677 and $5,039,034, respectively. Gross profit as a percentage of sales for the three months ended November 30, 2023, was 74.3% as compared to 74.9% for the same comparable period in 2022. The slight decrease in gross profit for the three months ended November 30, 2023 was primarily attributable to the minor increase in product discounts and merchant fees related of AXIL products.

Current wording

Gross profit for the three months ended February 29, 2024 and 2023 was $4,624,326 and $4,218,485, respectively. Gross profit as a percentage of sales for the three months ended February 29, 2024, was 71.5% as compared to 74.6% for the comparable period in 2023. The decrease in the gross profit margin for the nine months ended February 29, 2024 was primarily attributable to an increase in sales of lower margin products in both our segments, partially offset by a decrease in discounts in our sales of AXIL products.

Previous wording

Operating expenses consisted of marketing and selling expenses, compensation and related taxes, professional and consulting fees, and general and administrative costs. Operating expenses for the three months ended November 30, 2023 and 2022 were $4,994,027 and $4,054,039, respectively. Operating expenses as a percentage of net revenues for the three months ended November 30, 2023, were 59.3% compared to 60.2% for the three months ended November 30, 2022. Operating expenses increased by $939,988 or 14.0% compared to the three months ended November 30, 2022, primarily due to an increase in advertising, marketing campaigns and sales related expenses by $858,311 in the AXIL spend for displaying our products through various advertising platforms, with an increase in spend of $167,494 for general and administrative costs as the Company requires more oversight in compliance. The increase in marketing, advertising and general and administrative costs, were partially offset by an overall reduction of approximately $100,000 in operating expenses for the Reviv3 products for the three months ended November 30, 2023 as compared to the comparable period in 2022.

Current wording

Operating expenses consisted of marketing and selling expenses, compensation and related taxes, professional and consulting fees, and general and administrative costs. Operating expenses increased by $726,308 or 18.1% from $4,001,897 in the three months ended February 28, 2023 to $4,728,205 in the three months ended February 29, 2024. Operating expenses as a percentage of net revenues for the three months ended February 29, 2024, were 73.1% compared to 70.7% for the three months ended February 29, 2024. The increase in operating expenses related primarily to a net increase in advertising and marketing expenses of $225,566 for expansion of current marketing campaigns and costs attributable to new product awareness, and a net increase of $336,235 for professional and consulting expenses and to enhance existing business processes. General and administrative costs increased by $296,440 primarily due to an increase in public related costs associated with our Uplist Transaction. This increase was partially offset by the optimization of our workforce resulting in an overall reduction of $131,933 for compensation and related taxes for the three months ended February 29, 2024 as compared to three months ended February 28, 2023.

Previous wording

As a result of the above, we reported a net income of $1,018,075 and $726,900 for the three months ended November 30, 2023 and 2022, respectively, an increase of $291,175 or 40.1%.

Current wording

As a result of the above, we reported a net income of $781,091 and $162,048 for the three months ended February 29, 2024 and three months ended February 28, 2023, respectively, an increase of $619,043 or 382.0%.

Previous wording

We are currently engaged in our product sales and development. Although we earned a net income in the six months ended November 30, 2023, we have incurred operating losses in the past. We currently expect to earn net income during the current fiscal year ending May 31, 2024. We believe our current cash balances, coupled with anticipated cash flow from operating activities, will be sufficient to meet our working capital requirements for at least one year from the date of issuance of the accompanying unaudited consolidated financial statements. We intend to continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in the short-term to invest in revenue growth. As a result of the acquisition of AXIL ’s assets, we have generated and expect we will continue to generate sufficient cash for our operational needs, including any required debt payments, for at least one year from the date of issuance of the accompanying unaudited consolidated financial statements. Management is focused on growing the Company’s existing product lines, introducing new products, as well as expanding its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands, including those resulting from the purchase of AXIL’s assets in June 2022, may lead to cash utilization at levels greater than recently experienced. The Company cannot provide any assurance that it will be able to raise additional capital or obtain necessary financing on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying unaudited consolidated financial statements.

Current wording

We are currently engaged in product sales and development. Although we earned a net income in the nine months ended February 29, 2024, we have incurred operating losses in the past. We currently expect to earn net income during the current fiscal year ending May 31, 2024. We believe our current cash balances, coupled with anticipated cash flow from operating activities, will be sufficient to meet our working capital requirements for at least one year from the date of issuance of the accompanying unaudited consolidated financial statements. We intend to continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in the short-term to invest in revenue growth. As a result of the acquisition of AXIL & Associated Brands’ assets, we have generated and expect we will continue to generate sufficient cash for our operational needs, including any required debt payments, for at least one year from the date of issuance of the accompanying unaudited consolidated financial statements. Management is focused on growing the Company’s existing product lines, introducing new products, as well as expanding its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands, including those resulting from the purchase of AXIL & Associated Brands’ assets in June 2022, may lead to cash utilization at levels greater than recently experienced. The Company cannot provide any assurance that it will be able to raise additional capital or obtain necessary financing on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying unaudited consolidated financial statements.

Previous wording

Net cash provided by operating activities for the six months ended November 30, 2023 was $1,252,113, attributable to a net income of $1,172,527, items of adjustments to depreciation and amortization, bad debts, gain on settlement and stock based compensation that total $143,382. There were favorable changes in accounts payable and accrued expenses of $1,092,735, and contract and current liabilities of $751,853. The net decrease in cash was increased by a net decrease in operating assets and liabilities of $1,908,384 primarily due to increase in accounts receivable, prepaid expenses and other current assets and inventory.

Current wording

Net cash provided by operating activities for the nine months ended February 29, 2024 was $339,323, attributable to a net income of $1,953,618, items of adjustments to depreciation and amortization, bad debts, gain on settlement, benefit for deferred income taxes and stock based compensation that total $87,894. There were favorable changes in accounts payable and accrued expenses of $1,061,420 and prepaid expenses and other current assets of $145,032 offset primarily by an increase of inventory of $2,131,429.

Previous wording

Net cash flows provided by operating activities for the six months ended November 30, 2022 was $2,196,195, attributable to net income of $902,427, depreciation and amortization of $43,015, provision for bad debts of $105,975, stock based compensation expense of $124,145, gain on settlement of debt of $50,500, utilization of security deposit to pay rent of $8,385, amortization of prepaid expenses of $3,159 and net change in operating assets and liabilities of $1,059,589 primarily due to an increase in inventory, increase in prepaid expenses, increase in security deposit and increase in accounts receivable offset by an increase in accounts payable, increase in other current liabilities and increase in contract liabilities.

Current wording

Net cash flows provided by operating activities for the nine months ended February 28, 2023 was $2,319,976, attributable to net income of $1,064,475, depreciation and amortization of $66,944, provision for bad debts of $13,782, stock based compensation expense of $155,067, gain on settlement of debt of $50,500, and net change in operating assets and liabilities of $1,070,209 primarily due to an increase in accounts receivables, increase in prepaid expenses, increase in security deposit offset by a decrease of inventory, an increase in accounts payable, increase in other current liabilities and increase in contract liabilities.

Previous wording

Net cash flows used in investing activities for the six months ended November 30, 2023 was $70,845 due to the purchase of property and equipment for the AXIL business. For the six months ended November 30, 2022, net cash flows provided were $1,012,014, attributable to the cash received from acquisition of the AXIL business and partially offset by the purchase of property and equipment during the same period.

Current wording

Net cash flows used in investing activities for the nine months ended February 29, 2024 was $80,192 due to the purchase of property and equipment for the Company’s business. For the nine months ended February 28, 2023, net cash flows provided were $1,000,764, attributable to the cash received from acquisition of the AXIL & Associated Brands business and partially offset by the purchase of property and equipment of $65,650 during the same period.

Previous wording

Net cash flows used in financing activities for the six months ended November 30, 2023 was $51,519, and were for repayment of equipment financing and note payable, and a decrease in the amount due from a related party. Net cash flows provided by financing activities for the six months ended November 30, 2022, amounted to $436,230 as the Company raised capital of $328,050 pursuant to a private placement of shares of common stock, receipt of $111,392 in related party loans, and repayment of loans that totaled $3,212.

Current wording

Net cash flows used in financing activities for the nine months ended February 29, 2024 was $204,246, and were for repayment of equipment financing and note payable, and a prepayment made to a related party. Net cash flows provided by financing activities for the nine months ended February 28, 2023, amounted to $485,861, primarily resulting from the Company’s capital raise of $447,850 pursuant to a private placement of shares of common stock, including receipt of $63,008 in related party loans, and repayment of loans that totaled $24,997.

Previous wording

During the six months ended November 30, 2023, the Company has various financed items and has debt outstanding in order to run the business operations. In 2019, the Company purchased a forklift under an installment purchase plan. The loan amount is $16,500 payable in 60 monthly installment payments of $322 comprising of principal payment of $275 and interest payment of $42. At November 30, 2023 and 2022, the balance outstanding on the loan was $550 and $3,850, respectively, of which the $550 balance is payable within the next year.

Current wording

During the nine months ended February 29, 2024, the Company has various financed items and has debt outstanding in order to run the Company’s business operations.

Previous wording

As of November 30, 2023, we had a secured Economic Injury Disaster Loan outstanding, administered pursuant to the CARES Act in the principal amount of $147,931, with a maturity date of May 18, 2050. The Company continues to pay interest on the loan.

Current wording

As of February 29, 2024, we had a secured Economic Injury Disaster Loan outstanding, administered pursuant to the CARES Act in the principal amount of $147,150, with a maturity date of May 18, 2050. The Company continues to pay interest on the loan.

Previous wording

We are dependent on our product sales to fund our operations and may require additional capital in the future, such as pursuant to the sale of additional common stock or of debt securities or entering into credit agreements or other borrowing arrangements with institutions or private individuals, to maintain operations, which may not be available on favorable terms, or at all, and could require us to sell certain assets or discontinue or curtail our operations. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. In addition, pursuant to a voting agreement, effective June 16, 2022, with AXIL and Intrepid Global Advisors, we are subject to certain limitations on our ability to sell our capital stock until June 2024. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans, and/or financial guarantees. We do not have any plans to seek additional financing at this time and anticipate that our existing cash equivalents and cash provided by operations will be sufficient to meet our working capital requirements. However, if the need arises for additional cash, there can be no assurance that we will be able to raise the capital we need for our operations on favorable terms, or at all. We may not be able to obtain additional capital or generate sufficient revenues to fund our operations. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon our business plans. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.

Current wording

We are dependent on our product sales to fund our operations and may require additional capital in the future, such as pursuant to the sale of additional common stock or of debt securities or entering into credit agreements or other borrowing arrangements with institutions or private individuals, to maintain operations, which may not be available on favorable terms, or at all, and could require us to sell certain assets or discontinue or curtail our operations. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. In addition, pursuant to a voting agreement, effective June 16, 2022, with AXIL & Associated Brands and Intrepid Global Advisors, Inc., we are subject to certain limitations on our ability to sell our capital stock until June 2024. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans, and/or financial guarantees. We do not have any plans to seek additional financing at this time and anticipate that our existing cash equivalents and cash provided by operations will be sufficient to meet our working capital requirements. However, if the need arises for additional cash, there can be no assurance that we will be able to raise the capital we need for our operations on favorable terms, or at all. We may not be able to obtain additional capital or generate sufficient revenues to fund our operations. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon our business plans. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.

Previous wording

See the footnotes to our unaudited consolidated financial statements for the three and six months ended November 30, 2023 and 2022, included with this Quarterly Report on Form 10-Q for additional discussion of our critical accounting policies and use of estimates.

Current wording

See the footnotes to our unaudited consolidated financial statements for the three and nine months ended February 29, 2024, included with this Quarterly Report on Form 10-Q for additional discussion of our critical accounting policies and use of estimates.