Axil Brands Inc

Previous wording

For the three months ended August 31, 2024, the overall cost of sales increased by $238,921 or 16%, as compared to the three months ended August 31, 2023, which was primarily due to the relative increase in sales of the Company’s hair and skin care products. Cost of sales as a percentage of net revenues for the three months ended August 31, 2024 was 29.0% as compared to 23.9% 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.

Current wording

For the three months ended November 30, 2024, the overall cost of sales increased by $70,789 or 3%, as compared to the three months ended November 30, 2023, which was primarily due to the relative increase in sales of the Company’s hair and skin care products. Cost of sales as a percentage of net revenues for the three months ended November 30, 2024 was 28.9% as compared to 25.7% for the comparable period in 2023. The increase in cost of sales, as a percentage of sales, was primarily attributable to an increase in sales to distributors in our hair and skin care products bearing lower margins, and an increase in sales of lower margin products in our hearing enhancement and protection segment.

Previous wording

Gross profit for the three months ended August 31, 2024 and 2023 was $4,153,648 and $4,647,566, respectively. Gross profit as a percentage of sales for the three months ended August 31, 2024, was 71% as compared to 76.1% for the comparable period in 2023. The decrease in the gross profit margin for the three months ended August 31, 2024 was primarily attributable to an increase in sales of lower margin products in our segments, partially offset by a decrease in discounts in our sales of AXIL products.

Current wording

Gross profit for the three months ended November 30, 2024 and 2023 was $5,498,047 and $6,257,939, respectively. Gross profit as a percentage of sales for the three months ended November 30, 2024, was 71.1% as compared to 74.3% for the comparable period in 2023. The decrease in the gross profit margin for the three months ended November 30, 2024 was primarily attributable to an increase in cost of sales as a percentage of revenue, and an increase of discounts as a percentage of revenue.

Previous wording

For the three months ended August 31, 2024 no provision for income taxes was recorded since the Company incurred a net loss. For the three months ended August 31, 2023, provision for income tax expense was $65,989.

Current wording

For the three months ended November 30, 2024 provision for income taxes was $67,250. For the three months ended November 30, 2023, provision for income tax expense was $364,393.

Previous wording

As a result of the above, we reported a net loss of $109,805 and a net income of $154,452 for the three months ended August 31, 2024 and three months ended August 31, 2023, respectively.

Current wording

As a result of the above, and a gain on settlement of debt of approximately $79,000 in the prior year period that did not recur in the current period, we reported a net income of $633,706 and a net income of $1,018,075 for the three months ended November 30, 2024 and 2023, respectively.

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 decreased by $179,459 or 4% from $4,473,809 in the three months ended August 31, 2023 to $4,294,350 in the three months ended August 31, 2024. Operating expenses as a percentage of net revenues for the three months ended August 31, 2024, were 73.4% compared to 73.3% for the three months ended August 31, 2023. The decrease in operating expenses related primarily to a net decrease in advertising and marketing expenses of $537,370 relating to prior expansion of current marketing campaigns and costs attributable to new product awareness, and partially offset by a net increase of $521,074 for professional and consulting expenses which included costs to enhance existing business processes. General and administrative costs decreased by $73,822 primarily due to a decrease in costs associated with our listing on NYSE American in February 2024. This decrease was augmented by the optimization of our workforce resulting in an overall reduction of $89,341 for compensation and related taxes for the three months ended August 31, 2024 as compared to three months ended August 31, 2023.

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 decreased by $348,310 or 4% from $9,467,836 in the six months ended November 30, 2023 to $9,119,526 in the six months ended November 30, 2024. Operating expenses as a percentage of net revenues for the six months ended November 30, 2024, were 67.1% compared to 65.2% for the six months ended November 30, 2023. Included in operating expenses were non-cash stock-based compensation of $602,464 and $102,215 in the six months ended November 30, 2024 and 2023, respectively. The decrease in operating expenses related primarily to a net decrease in advertising expenses, and a forgiveness of account payable amounting to approximately $220,000 partially offset by an increase of stock-based compensation of $500,249 and increased professional and consulting fees. During the six months ended November 30, 2024, we incurred approximately $200,000 in consulting fees to support our expansion into new geographic markets, compared to $0 for the same period in 2023. Of this amount, approximately $80,000 was related to stock-based compensation. We have also incurred additional costs related to new product lines. We believe we have not yet realized the anticipated benefits from our recent efforts to expand into new geographic markets and product lines.

Previous wording

We are currently engaged in product sales and development. Although we incurred a net loss in the three months ended August 31, 2024, we recognized operating income in the past fiscal year. We currently expect to earn net income during the current fiscal year ending May 31, 2025. 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 in June 2022, 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 and 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 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 net income and have cash provided by operations for the six months ended November 30, 2024, we have incurred operating losses in the past. We currently expect to earn net income and positive cash flows from operations during the current fiscal year ending May 31, 2025. 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 in June 2022, 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 and 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 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 flows used in investing activities for the three months ended August 31, 2024 was $41,840 due to the purchase of intangibles for the Company’s business. For the three months ended August 31, 2023, net cash flows used were $50,960, attributable to the cash used in the purchase of property and equipment.

Current wording

Net cash flows used in investing activities for the six months ended November 30, 2024 was $107,623 due to the purchase of intangibles and property and equipment for the Company’s business. For the six months ended November 30, 2023, net cash flows used in investing activities were $70,845, attributable to the cash used in the purchase of property and equipment primarily relating to our expansion into new product lines.

Previous wording

Net cash flows provided by financing activities for the three months ended August 31, 2024 was $39,370, and were from advances made from a related party of $41,707 partially offset by a repayment of the note payable of $2,337. Net cash flows used in financing activities for the three months ended August 31, 2023 were $117,171, and were for repayment of equipment financing and note payable of $18,079, and a decrease in the amount due from a related party of $99,092.

Current wording

Net cash flows provided by financing activities for the six months ended November 30, 2024 was $163,470, and were from advances made from a related party of $166,722 partially offset by a repayment of the note payable of $3,252. Net cash flows used in financing activities for the six months ended November 30, 2023 were $51,519 primarily related to the repayment of note payable of $24,657 and payments to our related party of $25,212.

Previous wording

As of August 31, 2024, we had a secured Economic Injury Disaster Loan outstanding, administered pursuant to the CARES Act in the principal amount of $144,257, with a maturity date of May 18, 2050. The Company continues to pay interest and principal on the loan.

Current wording

As of November 30, 2024, we had a secured Economic Injury Disaster Loan outstanding, administered pursuant to the CARES Act in the principal amount of $143,342, with a maturity date of May 18, 2050. The Company continues to pay interest and principal 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. 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 or preferred 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 to obtain, more costly and more dilutive. 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 months ended August 31, 2024, 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 six months ended November 30, 2024, included with this Quarterly Report on Form 10-Q for additional discussion of our critical accounting policies and use of estimates.