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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 001-41958

AXIL Brands, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware |  | 47-4125218
(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
9150 Wilshire Boulevard, Suite 245, Beverly Hills, California |  | 90212
(Address of Principal Executive Offices) |  | (Zip Code)

(888) 638-8883

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading symbol(s) |  | Name of each exchange on which registered
Common Stock, $0.0001 par value per share |  | AXIL |  | The NYSE American LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☐
Non-accelerated filer | ☒ | Smaller reporting company | ☒
|  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of January 3, 2025, there were 6,466,852 shares of the registrant’s common stock, $0.0001 par value, outstanding.

AXIL BRANDS, INC. AND SUBSIDIARY

INDEX

|  | Page
Cautionary Note Regarding Forward Looking Statements | ii
PART I - FINANCIAL INFORMATION |
Item 1. | Financial Statements (Unaudited) | 1
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 7
Item 4. | Controls and Procedures | 7
PART II - OTHER INFORMATION |
Item 1. | Legal Proceedings | 8
Item 1A. | Risk Factors | 8
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 8
Item 3. | Defaults Upon Senior Securities | 8
Item 4. | Mine Safety Disclosures | 8
Item 5. | Other Information | 8
Item 6. | Exhibits | 9
Signatures | 10

| -i- |

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, and in particular Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements represent our expectations, beliefs, intentions or strategies concerning future events, including, but not limited to, any statements regarding our assumptions about financial performance; the continuation of historical trends; the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations, including expected growth; and the economy in general or the future of the beauty and hair care industry and the hearing protection and ear bud business, all of which are subject to various risks and uncertainties.

There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements, many of which are outside of our control. They include: the impact of unstable market and general economic conditions on our business, financial condition and stock price, including inflationary cost pressures, interest rate changes, decreased discretionary consumer spending, supply chain disruptions and constraints, labor shortages, ongoing economic disruption, the possibility of an economic recession and other macroeconomic factors, geopolitical events and uncertainty, including the effects of the Ukraine-Russia conflict and the Israel-Hamas conflict, and other downturns in the business cycle or the economy; our financial performance and liquidity, including our ability to successfully generate sufficient revenue to support our operations; our expectations regarding our financing arrangements and our ability to obtain additional capital if and as needed, including potential difficulties of obtaining financing due to market conditions resulting from geopolitical conditions and other economic factors; risks related to our operations and international markets, such as fluctuations in currency exchange rates, different regulatory environments, trade barriers and sanctions, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations, including those related to climate change; our ability to protect and defend our intellectual property; continuity and security of information technology infrastructure and the potential impact of cybersecurity breaches or disruptions to our management information systems; widespread outages, interruptions or other failures of operational, communication, and other systems; competition; our ability to retain our management and employees and the potential impact of ongoing labor shortages; demands on management resources; availability and cost of the raw materials we use to manufacture our products, including the impacts of inflationary cost pressures and ongoing supply chain disruptions and constraints, which have been, and may continue to be, exacerbated by the Russia-Ukraine conflict, the Israel-Hamas conflict and other geopolitical conflicts; additional tax expenses or exposures; product liability claims; the potential outcome of any legal or regulatory proceedings, including ongoing litigation, the disposition of which may have an adverse effect upon our business, financial condition, or results of operations; our ability to engage in acquisitions, investments, partnerships, strategic alliances or dispositions when desired; global or regional catastrophic events, including the effects of natural disasters, which may be worsened by the impact of climate change; effectiveness of our marketing strategy, demand for and market acceptance of our products, as well as our ability to successfully anticipate consumer trends and to realize anticipated benefits from our efforts to expand into new geographic markets and product lines; labor relations; the potential impact of environmental, social and governance matters; implementation of environmental remediation matters; our ability to maintain effective internal control over financial reporting; and risks related to our common stock, including our ability to maintain our stock exchange listing.

When used in this Quarterly Report on Form 10-Q and other reports, statements, and information we have filed with the Securities and Exchange Commission (the “SEC”), in our press releases, presentations to securities analysts or investors, in oral statements made by or with the approval of an executive officer, the words or phrases “believes,” “may,” “can,” “will,” “expect,” “should,” “could,” “would,” “continue,” “anticipate,” “intend,” “likely,” “estimate,” “project,” “plan,” “design,” “potential,” “focus” or similar expressions and variations thereof are intended to identify such forward-looking statements. However, any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We caution that these statements by their nature involve risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict.

We do not assume the obligation to update any forward-looking statement, except as required by applicable law. You should carefully evaluate such statements in light of factors described in this Quarterly Report on Form 10-Q. In this Quarterly Report on Form 10-Q, AXIL Brands, Inc. (“AXIL Brands, Inc.,” “AXIL Brands,” the “Company,” “we,” “us,” and “our”) has identified material factors that could cause actual results to differ from expected or historic results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete list of all potential risks or uncertainties.

| -ii- |

AXIL BRANDS, INC. AND SUBSIDIARY

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Financial Statements: |
Consolidated Balance Sheets - As of November 30, 2024 (Unaudited) and May 31, 2024 | F-1
Consolidated Statements of Operations - For the three and six months ended November 30, 2024 and 2023 (Unaudited) | F-2
Consolidated Statements of Changes in Stockholders’ Equity - For the three and six months ended November 30, 2024 and 2023 (Unaudited) | F-3
Consolidated Statements of Cash Flows – For the six months ended November 30, 2024 and 2023 (Unaudited) | F-4
Condensed Notes to Unaudited Consolidated Financial Statements | F-5

| -1- |

AXIL BRANDS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

|  | November 30, 2024 |  | May 31, 2024
|  | (Unaudited) |  |  |  |
ASSETS |  |  |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |
Cash |  | $ | 5,213,897 |  |  | $ | 3,253,876 |
Accounts receivable, net |  |  | 1,444,218 |  |  |  | 509,835 |
Inventory, net |  |  | 2,664,489 |  |  |  | 3,394,023 |
Prepaid expenses and other current assets |  |  | 724,778 |  |  |  | 809,126 |
Total Current Assets |  |  | 10,047,382 |  |  |  | 7,966,860 |
OTHER ASSETS: |  |  |  |  |  |  |  |
Property and equipment, net |  |  | 305,433 |  |  |  | 260,948 |
Intangible assets, net |  |  | 324,907 |  |  |  | 309,104 |
Right of use asset |  |  | 737,251 |  |  |  | 36,752 |
Deferred tax asset |  |  | 121,791 |  |  |  | 231,587 |
Other assets |  |  | 20,720 |  |  |  | 16,895 |
Goodwill |  |  | 2,152,215 |  |  |  | 2,152,215 |
Total Other Assets |  |  | 3,662,317 |  |  |  | 3,007,501 |
TOTAL ASSETS |  | $ | 13,709,699 |  |  | $ | 10,974,361 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 1,619,252 |  |  | $ | 967,596 |
Customer deposits |  |  | 496,404 |  |  |  | 154,762 |
Contract liabilities, current |  |  | 956,022 |  |  |  | 905,311 |
Notes payable |  |  | 143,342 |  |  |  | 146,594 |
Due to related party |  |  | 178,520 |  |  |  | 11,798 |
Lease liability, current |  |  | 207,077 |  |  |  | 36,752 |
Income tax liability |  |  | 67,250 |  |  |  | 242,296 |
Other current liabilities |  |  | 331,395 |  |  |  | 332,936 |
Total Current Liabilities |  |  | 3,999,262 |  |  |  | 2,798,045 |
LONG TERM LIABILITIES: |  |  |  |  |  |  |  |
Lease liability |  |  | 531,081 |  |  |  | — |
Contract liabilities |  |  | 357,205 |  |  |  | 480,530 |
Total Long Term Liabilities |  |  | 888,286 |  |  |  | 480,530 |
Total Liabilities |  |  | 4,887,548 |  |  |  | 3,278,575 |
Commitments and contingencies (see Note 10) |  |  | — |  |  |  | — |
STOCKHOLDERS' EQUITY: |  |  |  |  |  |  |  |
Preferred stock, $0.0001 par value; 300,000,000 shares authorized; 31,133,500 and 42,251,750 shares issued and outstanding as of November 30, 2024 and May 31, 2024, respectively |  |  | 3,113 |  |  |  | 4,225 |
Common stock, $0.0001 par value: 450,000,000 shares authorized; 6,466,852 and 5,908,939 shares issued, issuable and outstanding as of November 30, 2024 and May 31, 2024, respectively |  |  | 647 |  |  |  | 591 |
Additional paid-in capital |  |  | 8,428,760 |  |  |  | 7,825,240 |
Retained earnings/(Accumulated deficit) |  |  | 389,631 |  |  |  | (134,270 | )
Total Stockholders' Equity |  |  | 8,822,151 |  |  |  | 7,695,786 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |  | $ | 13,709,699 |  |  | $ | 10,974,361 |

See accompanying notes to these unaudited consolidated financial statements.

| F-1 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2024 AND 2023

(UNAUDITED)

|  | For the Three Months Ended |  | For the Six Months Ended
|  | November 30, |  | November 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Sales, net |  | $ | 7,732,574 |  |  | $ | 8,421,677 |  |  | $ | 13,583,846 |  |  | $ | 14,527,946 |
Cost of sales |  |  | 2,234,527 |  |  |  | 2,163,738 |  |  |  | 3,932,151 |  |  |  | 3,622,441 |
Gross profit |  |  | 5,498,047 |  |  |  | 6,257,939 |  |  |  | 9,651,695 |  |  |  | 10,905,505 |
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 3,377,760 |  |  |  | 3,672,780 |  |  |  | 6,047,231 |  |  |  | 6,879,621 |
Compensation and related taxes |  |  | 276,674 |  |  |  | 204,646 |  |  |  | 467,322 |  |  |  | 484,635 |
Professional and consulting |  |  | 736,169 |  |  |  | 694,258 |  |  |  | 1,684,018 |  |  |  | 1,303,288 |
General and administrative |  |  | 434,573 |  |  |  | 422,343 |  |  |  | 920,955 |  |  |  | 800,292 |
Total Operating Expenses |  |  | 4,825,176 |  |  |  | 4,994,027 |  |  |  | 9,119,526 |  |  |  | 9,467,836 |
INCOME FROM OPERATIONS |  |  | 672,871 |  |  |  | 1,263,912 |  |  |  | 532,169 |  |  |  | 1,437,669 |
OTHER INCOME (EXPENSE): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain on settlement |  |  | — |  |  |  | 79,182 |  |  |  | — |  |  |  | 79,182 |
Other income |  |  | 2,041 |  |  |  | 3,189 |  |  |  | 4,307 |  |  |  | 13,024 |
Interest income |  |  | 27,340 |  |  |  | 37,825 |  |  |  | 55,971 |  |  |  | 76,318 |
Interest expense and other finance charges |  |  | (1,296 | ) |  |  | (1,640 | ) |  |  | (1,296 | ) |  |  | (3,284 | )
Other income (expense), net |  |  | 28,085 |  |  |  | 118,556 |  |  |  | 58,982 |  |  |  | 165,240 |
INCOME BEFORE PROVISION FOR INCOME TAXES |  |  | 700,956 |  |  |  | 1,382,468 |  |  |  | 591,151 |  |  |  | 1,602,909 |
Provision for income taxes |  |  | 67,250 |  |  |  | 364,393 |  |  |  | 67,250 |  |  |  | 430,382 |
NET INCOME |  | $ | 633,706 |  |  | $ | 1,018,075 |  |  | $ | 523,901 |  |  | $ | 1,172,527 |
NET INCOME PER COMMON SHARE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.10 |  |  | $ | 0.17 |  |  | $ | 0.08 |  |  | $ | 0.20 |
Diluted |  | $ | 0.08 |  |  | $ | 0.05 |  |  | $ | 0.06 |  |  | $ | 0.06 |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 6,450,226 |  |  |  | 5,863,939 |  |  |  | 6,303,002 |  |  |  | 5,863,939 |
Diluted |  |  | 8,168,657 |  |  |  | 18,632,689 |  |  |  | 8,194,882 |  |  |  | 18,632,689 |

See accompanying notes to these unaudited consolidated financial statements.

| F-2 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2024 AND 2023

(UNAUDITED)

For the three months ended November 30, 2024

|  | Preferred Stock |  | Common Stock |  | Additional Paid-in |  | Retained Earnings/ (Accumulated |  | Total Stockholders'
|  | Shares |  | Amount |  | Shares |  | Amount |  | Capital |  | Deficit) |  | Equity
Balance, August 31, 2024 |  |  | 31,133,500 |  |  | $ | 3,113 |  |  |  | 6,464,852 |  |  | $ | 647 |  |  | $ | 8,124,160 |  |  | $ | (244,075 | ) |  | $ | 7,883,845 |
Stock options expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 138,423 |  |  |  | — |  |  |  | 138,423 |
Stock-based compensation |  |  | — |  |  |  | — |  |  |  | 2,000 |  |  |  | — |  |  |  | 166,177 |  |  |  | — |  |  |  | 166,177 |
Net income for the three months ended November 30, 2024 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 633,706 |  |  |  | 633,706 |
Balance, November 30, 2024 |  |  | 31,133,500 |  |  | $ | 3,113 |  |  |  | 6,466,852 |  |  | $ | 647 |  |  | $ | 8,428,760 |  |  | $ | 389,631 |  |  | $ | 8,822,151 |

For the three months ended November 30, 2023

|  | Preferred Stock |  | Common Stock |  | Additional Paid-in |  | Accumulated |  | Total Stockholders'
|  | Shares |  | Amount |  | Shares |  | Amount |  | Capital |  | Deficit |  | Equity
Balance, August 31, 2023 |  |  | 250,000,000 |  |  | $ | 25,000 |  |  |  | 5,863,939 |  |  | $ | 586 |  |  | $ | 10,164,472 |  |  | $ | (3,312,540 | ) |  | $ | 6,877,518 |
Stock options expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 51,108 |  |  |  | — |  |  |  | 51,108 |
Net income for the three months ended November 30, 2023 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,018,075 |  |  |  | 1,018,075 |
Balance, November 30, 2023 |  |  | 250,000,000 |  |  | $ | 25,000 |  |  |  | 5,863,939 |  |  | $ | 586 |  |  | $ | 10,215,580 |  |  | $ | (2,294,465 | ) |  | $ | 7,946,701 |

For the six months ended November 30, 2024

|  | Preferred Stock |  | Common Stock Issued/Issuable |  | Additional Paid-in |  | Retained Earnings/ (Accumulated |  | Total Stockholders'
|  | Shares |  | Amount |  | Shares |  | Amount |  | Capital |  | Deficit) |  | Equity
Balance, May 31, 2024 |  |  | 42,251,750 |  |  | $ | 4,225 |  |  |  | 5,908,939 |  |  | $ | 591 |  |  | $ | 7,825,240 |  |  | $ | (134,270 | ) |  | $ | 7,695,786 |
Stock options expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 211,055 |  |  |  | — |  |  |  | 211,055 |
Stock-based compensation |  |  | — |  |  |  | — |  |  |  | 2,000 |  |  |  | — |  |  |  | 391,409 |  |  |  | — |  |  |  | 391,409 |
Preferred shares converted to common |  |  | (11,118,250 | ) |  |  | (1,112 | ) |  |  | 555,913 |  |  |  | 56 |  |  |  | 1,056 |  |  |  | — |  |  |  | — |
Net income for the six months ended November 30, 2024 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 523,901 |  |  |  | 523,901 |
Balance, November 30, 2024 |  |  | 31,133,500 |  |  | $ | 3,113 |  |  |  | 6,466,852 |  |  | $ | 647 |  |  | $ | 8,428,760 |  |  | $ | 389,631 |  |  | $ | 8,822,151 |

For the six months ended November 30, 2023

|  | Preferred Stock |  | Common Stock |  | Additional Paid-in |  | Accumulated |  | Total Stockholders'
|  | Shares |  | Amount |  | Shares |  | Amount |  | Capital |  | Deficit |  | Equity
Balance, May 31, 2023 |  |  | 250,000,000 |  |  | $ | 25,000 |  |  |  | 5,863,939 |  |  | $ | 586 |  |  | $ | 10,113,365 |  |  | $ | (3,466,992 | ) |  | $ | 6,671,959 |
Stock options expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 102,215 |  |  |  | — |  |  |  | 102,215 |
Net income for the six months ended November 30, 2023 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,172,527 |  |  |  | 1,172,527 |
Balance, November 30, 2023 |  |  | 250,000,000 |  |  | $ | 25,000 |  |  |  | 5,863,939 |  |  | $ | 586 |  |  | $ | 10,215,580 |  |  | $ | (2,294,465 | ) |  | $ | 7,946,701 |

See accompanying notes to these unaudited consolidated financial statements.

| F-3 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED NOVEMBER 30, 2024 AND 2023

(UNAUDITED)

|  | November 30,
|  | 2024 |  | 2023
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |  |  |  |  |  |
Net income |  | $ | 523,901 |  |  | $ | 1,172,527 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 47,335 |  |  |  | 56,022 |
Bad debts |  |  | 27,954 |  |  |  | 64,327 |
Stock-based compensation |  |  | 602,464 |  |  |  | 102,215 |
Gain on settlement |  |  | — |  |  |  | (79,182 | )
Gain on forgiveness of account payable |  |  | (218,699 | ) |  |  | — |
Deferred income taxes |  |  | 109,796 |  |  |  | — |
Change in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (962,337 | ) |  |  | (600,626 | )
Inventory |  |  | 729,534 |  |  |  | (1,040,351 | )
Prepaid expenses and other current assets |  |  | 80,524 |  |  |  | (267,407 | )
Accounts payable |  |  | 870,357 |  |  |  | 1,092,735 |
Other current liabilities |  |  | 165,959 |  |  |  | 576,718 |
Contract liabilities |  |  | (72,614 | ) |  |  | 175,135 |
NET CASH PROVIDED BY OPERATING ACTIVITIES |  |  | 1,904,174 |  |  |  | 1,252,113 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |  |  |  |  |  |
Purchase of intangibles |  |  | (41,840 | ) |  |  | — |
Purchase of property and equipment |  |  | (65,783 | ) |  |  | (70,845 | )
NET CASH USED IN INVESTING ACTIVITIES |  |  | (107,623 | ) |  |  | (70,845 | )
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |  |  |  |  |  |
Repayment of equipment financing |  |  | — |  |  |  | (1,650 | )
Repayment of note payable |  |  | (3,252 | ) |  |  | (24,657 | )
Advances (payments) from a related party |  |  | 166,722 |  |  |  | (25,212 | )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |  |  | 163,470 |  |  |  | (51,519 | )
NET INCREASE IN CASH |  |  | 1,960,021 |  |  |  | 1,129,749 |
CASH - Beginning of period |  |  | 3,253,876 |  |  |  | 4,832,682 |
CASH - End of period |  | $ | 5,213,897 |  |  | $ | 5,962,431 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |  |  |  |  |  |  |  |
Cash paid during the period for: |  |  |  |  |  |  |  |
Interest |  | $ | 2,908 |  |  | $ | 3,284 |
Income taxes |  | $ | 132,500 |  |  | $ | — |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Initial recognition of right of use assets recognized as lease liability |  | $ | 767,269 |  |  | $ | — |

See accompanying notes to these unaudited consolidated financial statements.

| F-4 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 1 – Organization

As part of AXIL Brands, Inc.’s (together with its subsidiary, the “Company,” “we,” “us” or “our”) ongoing rebranding efforts, the Company changed its name from Reviv3 Procare Company to AXIL Brands, Inc. effective February 14, 2024. Reviv3 was incorporated in the State of Delaware on May 21, 2015 as a reorganization of Reviv3 Procare, LLC which was organized on July 31, 2013. The Company’s corporate headquarters are located at 9150 Wilshire Boulevard, Suite 245, Beverly Hills, California 90212. Its phone number is (888) 638-8883. In March 2022, the Company incorporated a subsidiary “Reviv3 Acquisition Corporation” (now known as “AXIL Distribution Company”) and in June 2022, completed the acquisition of certain assets of Axil & Associated Brands Corp. (“A&A”). The Company is engaged in the manufacturing, marketing, sale and distribution of high-tech hearing and audio enhancement and protection products that provide cutting edge solutions for consumers, with varied applications across many industries; as well as professional quality hair and skin care products. These products lines are both sold throughout the United States, Canada, Europe and Asia. On February 14, 2024, the Company successfully completed efforts to uplist from the over-the-counter, (OTC), markets to the NYSE American stock exchange (“NYSE American”).

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the management, all adjustments necessary to present fairly our financial position, results of operations, and cash flows as of November 30, 2024 and 2023, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Certain information and note disclosures normally included in our annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended May 31, 2024. The results of operations for the six months ended November 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2025. The unaudited consolidated financial statements include the Company and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated upon consolidation.

Reverse Stock Split

Effective as of January 16, 2024, the Company effected a reverse stock split (the “Reverse Stock Split”) of the Company’s issued shares of common stock at a ratio of 1-for-20 as approved by the Company’s Board of Directors (the “Board”). The Reverse Stock Split did not affect the total number of shares of common stock that the Company is authorized to issue and any fractional shares remaining after the Reverse Stock Split were rounded up to the nearest whole share. The accompanying unaudited consolidated financial statements and notes to the consolidated financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise specified.

| F-5 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

Use of estimates

The preparation of the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates made by management include, but are not limited to, the allowance for doubtful accounts, inventory valuations and classifications, the useful life of property and equipment, the valuation of deferred tax assets, the value of stock-based compensation, contract liability, allowance on sales returns, valuation of lease liabilities and related right of use assets and the fair value of non-cash Common Stock issuances.

Reclassifications

Certain reclassifications have been made to prior periods to conform with the current year reporting. For the three and six months ended November 30, 2023, $202,930 and $385,185, respectively, were reclassified from General and administrative to Professional and consulting on the accompanying unaudited Consolidated Statements of Operations. There was no change to total operating expenses for the three and six months ended November 30, 2023 as a result of this reclassification.

Cash and cash equivalents

The Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation. (See Note 12).

Accounts receivable and allowance for doubtful accounts

On June 1, 2023, the Company adopted ASC 326, "Financial Instruments - Credit Losses". In accordance with ASC 326, an allowance is maintained for estimated forward-looking losses resulting from the possible inability of customers to make required payments (current expected losses). The amount of the allowance is determined principally on the basis of past collection experience and known financial factors regarding specific customers.

| F-6 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

Accounts receivables comprise of receivables from customers and receivables from merchant processors. The Company has a policy of providing an allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist primarily of cash prepayments to vendors for inventory and prepayments for trade shows and marketing events which will be utilized within a year, prepayments on credit cards and the right to recover assets (for the cost of goods sold) associated with the right of returns for products sold. Prepayments to vendors for inventory was $498,832 and $472,904 as of November 30, 2024 and May 31, 2024, respectively.

Inventory

The Company values inventory, consisting of finished goods and raw materials, at the lower of cost and net realizable value. Cost is determined using an average cost method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its net realizable value. The Company evaluates its current level of inventory considering historical sales and other factors and based on this evaluation, classifies inventory markdowns in the statement of operations as a component of cost of goods sold. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations. The Company continuously evaluates the levels of inventory held and any inventory held above the expected level of sales in the next 12 months is classified as non-current inventory.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the statements of operations.

Product warranty

The Company provides a one-year, two-year or three-year limited warranty on its hearing enhancement and hearing protection products. The Company records the costs of repairs and replacements, as they are incurred, to the cost of sales.

Revenue recognition

The Company follows Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” This revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied.

| F-7 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 2 – Basis of Presentation and Summary of Critical Accounting Policies (continued)

The Company sells a variety of electronic hearing and enhancement products and hair and skin care products. The Company recognizes revenue for the agreed upon sales price when a purchase order is received from the customer and subsequently the product is shipped to the customer, which satisfies the performance obligation. Consideration paid to the customer to promote and sell the Company’s products is typically recorded as a reduction in revenues.

The five steps for the revenue recognition are as follows:

Identify the contract with a customer. The Company generally considers completion of a sales order (which requires customer acceptance of the Company’s click-through terms and conditions for website sales and authorization of payment through credit card or another form of payment for sales made over the phone) or purchase orders from non-consumer customers as a customer contract provided that collection is considered probable. For payments that are not made upfront by credit card, the Company assesses customer creditworthiness based on credit checks, payment history, and/or other circumstances. For payments involving third party financier payors, the Company validates customer eligibility and reimbursement amounts prior to shipping the product.

Identify the performance obligations in the contract. Product performance obligations include shipment of products and related accessories, and service performance obligations include extended warranty coverage.

However, as the historical redemption rate under our warranty policy has been low, the option is not accounted for as a separate performance obligation. The Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.

Determine the transaction price and allocation to performance obligations. The transaction price in the Company’s customer contracts consists of both fixed and variable consideration. Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes the 30-days and 60-days right of return that applies to hearing enhancement and protection products and hair and skincare products, respectively. To estimate product returns, the Company analyzes historical return levels, current economic trends, and changes in customer demand. Based on this information, the Company reserves a percentage of product sale revenue and accounts for the estimated impact as a reduction in the transaction price.

Allocate the transaction price to the performance obligations in the contract. For contracts that contain multiple performance obligations, the Company allocates the transaction price to the performance obligations on a relative standalone selling price basis.

Recognize revenue when or as the Company satisfies a performance obligation. Revenue for products is recognized at a point in time, which is generally upon shipment. Revenue for services (extended warranty) is recognized over time on a ratable basis over the warranty period.

As of November 30, 2024, and May 31, 2024, contract liabilities amounted to $1,313,227 and $1,385,841, respectively. As of November 30, 2024, and May 31, 2024, contract liabilities associated with product invoiced but not received by customers at the balance sheet date was $0 and $0, respectively; contract liabilities associated with unfulfilled performance obligations for warranty services offered for a period of one, two and three years was $1,087,639 and $1,251,710, respectively; and contract liabilities associated with unfulfilled performance obligations for customers’ right of return was $221,511 and $130,201, respectively. Our contract liabilities amounts are expected to be recognized over a period of between one year to three years. Approximately $404,820 is expected to be recognized in the remainder of the fiscal year, $523,150 is expected to be recognized in fiscal year 2026, and $104,356 in fiscal year 2027 and $55,313 in fiscal year 2028. Contract liabilities associated with gift cards purchased by customers amounted to $4,077 and $3,930, respectively as of November 30, 2024 and May 31, 2024.

| F-8 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 2 – Basis of Presentation and Summary of Critical Accounting Policies (continued)

Cost of Sales

The primary components of cost of sales include the cost of the product and shipping fees related to product procurement.

Shipping and Handling Costs

The Company accounts for shipping and handling fees in accordance with ASC 606. While amounts charged to customers for shipping products are included in revenues, the related costs of shipping products to customers are classified in marketing and selling expenses as incurred. Shipping costs included in marketing and selling expenses were $265,138 and $308,081 for the three months ended November 30, 2024 and 2023, respectively. Shipping costs included in marketing and selling expense were $515,052 and $561,533 for the six months ended November 30, 2024 and 2023, respectively.

Sales, Marketing and Advertising

Sales, marketing and advertising costs are expensed as incurred.

Customer Deposits

Customer deposits consisted of prepayments from customers to the Company. The Company will recognize the prepayments as revenue upon delivery of products in compliance with its revenue recognition policy.

Fair value measurements and fair value of financial instruments

The Company adopted ASC 820, “Fair Value Measurements and Disclosures,” for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Level 1: | Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
Level 2: | Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: | Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The estimated fair value of certain financial instruments, including prepaid expenses, deposits, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

| F-9 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

Business Combinations

For all business combinations (whether partial, full or step acquisitions), the Company records 100% of all assets acquired and liabilities assumed of the acquired business, at their fair values.

Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: (1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or (2) if the contingent consideration is classified as a liability, the changes in fair value and accretion costs are recognized in earnings. The increases or decreases in the fair value of contingent consideration can result from changes in anticipated revenue levels and changes in assumed discount periods and rates.

Goodwill

Goodwill is comprised of the purchase price of business combinations in excess of the fair value assigned at acquisition to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment for its reporting units on an annual basis, or when events occur, or circumstances indicate the fair value of a reporting unit is below its carrying value.

The Company performs its annual goodwill impairment assessment on May 31st of each year or as impairment indicators dictate.

When evaluating the potential impairment of goodwill, management first assesses a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company’s reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the quantitative impairment testing methodology primarily using the income approach (discounted cash flow method).

Under the quantitative method we compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, then the amount of impairment to be recognized is the amount by which the carrying amount exceeds the fair value.

When required, we arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by specifically identified assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.

| F-10 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 2 – Basis of Presentation and Summary of Critical Accounting Policies (continued)

Income Taxes

The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service (“IRS”) and state taxing authorities, generally for three years after they are filed.

Impairment of long-lived assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment loss during the three and six months ended November 30, 2024 and 2023.

| F-11 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 2 – Basis of Presentation and Summary of Critical Accounting Policies (continued)

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation,” which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

For non-employee stock option based awards, the Company follows Accounting Standards Update (“ASU”) 2018-7, which substantially aligns share based compensation for employees and non-employees.

Net income per share of Common Stock

Basic net income per share is computed by dividing the net income by the weighted average number of common shares during the period. Diluted net income per share is computed using the weighted average number of common shares and potentially dilutive securities outstanding during the period. For the three and six months ended November 30, 2024 and 2023, certain stock options, preferred shares and restricted stock awards were excluded from the computation of diluted common shares outstanding as they would have an anti-dilutive impact on the Company’s net income.

The dilutive common stock equivalent shares consist of preferred stock, stock options, and restricted stock awards were computed under the treasury stock method, using the average market price during the period.

The following table sets forth the computations of basic and diluted net income per common share:

Schedule of net loss per share |  |  |  |  |  |  |  |
|  | For the Three Months Ended |  | For the Six Months Ended
|  | November 30, |  | November 30, |  | November 30, |  | November 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Net income |  | $ | 633,706 |  |  | $ | 1,018,075 |  |  | $ | 523,901 |  |  | $ | 1,172,527 |
Weighted average basic shares |  |  | 6,450,226 |  |  |  | 5,863,939 |  |  |  | 6,303,002 |  |  |  | 5,863,939 |
Dilutive securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Convertible preferred stock |  |  | 1,556,675 |  |  |  | 12,500,000 |  |  |  | 1,702,912 |  |  |  | 12,500,000 |
Stock options |  |  | 156,033 |  |  |  | 268,750 |  |  |  | 176,394 |  |  |  | 268,750 |
Restricted stock awards |  |  | 5,723 |  |  |  | — |  |  |  | 12,574 |  |  |  | — |
Weighted average dilutive shares |  |  | 8,168,657 |  |  |  | 18,632,689 |  |  |  | 8,194,882 |  |  |  | 18,632,689 |
Earnings per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.10 |  |  | $ | 0.17 |  |  | $ | 0.08 |  |  | $ | 0.20 |
Diluted |  | $ | 0.08 |  |  | $ | 0.05 |  |  | $ | 0.06 |  |  | $ | 0.06 |

| F-12 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 2 – Basis of Presentation and Summary of Critical Accounting Policies (continued)

Lease Accounting

In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance (ASC 840). Under the new guidance, codified as ASC 842, the lease liability must be measured initially based on the present value of future lease payments, subject to certain conditions. The right-of-use asset must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense is generally flat (straight-line) throughout the life of the lease. For finance leases, periodic expense declines over the life of the lease. The new standard, as amended, provides an option for entities to use the cumulative-effect transition method. As permitted, the Company adopted ASC 842 effective June 1, 2019. The adoption of ASC 842 did not have a material impact on the Company’s consolidated financial statements.

The Company renewed its lease for its previous corporate headquarters commencing December 1, 2022, under lease agreements classified as an operating lease, which expires on December 1, 2024. The Company also signed a lease agreement in September 2024 for a warehouse and new corporate headquarters commencing October 1, 2024 and November 1, 2024, respectively. Please see Note 10 – “Commitments and Contingencies” under “Leases” below for more information about the Company’s leases.

Segment Reporting

The Company follows ASC 280, “Segment Reporting.” The Company’s management reviews the Company’s consolidated financial results when making decisions about allocating resources and assessing the performance of the Company as a whole and has determined that the Company’s reportable segments are: (a) the sale of hearing protection and hearing enhancement products, and (b) the sale of hair care and skin care products. See Note 13 – “Business Segment and Geographic Area Information” for more information about the Company’s reportable segments.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain convertible instruments. Among other things, under ASU 2020-06, the embedded conversion features no longer must be separated from the host contract for convertible instruments with conversion features not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. ASU 2020-06 also eliminates the use of the treasury stock method when calculating the impact of convertible instruments on diluted Earnings per Share. The Company adopted the ASU effective June 1, 2024. The adoption of the guidance did not have a material impact on the accompanying consolidated financial statements.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This guidance requires additional annual and interim disclosures for reportable segments. This new standard does not affect the recognition, measurement or financial statement presentation. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company will adopt the ASU and will make the applicable disclosures, as required, on its Annual Report Form 10-K for the year ended May 31, 2025.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

| F-13 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 3 – Accounts Receivable, net

Accounts receivable, net consisted of the following:

Schedule of accounts receivable |  |  |  |  |  |  |  |
|  | November 30, 2024 |  | May 31, 2024
Customers receivable |  | $ | 794,275 |  |  | $ | 524,730 |
Merchant processor receivable |  |  | 746,123 |  |  |  | 78,417 |
Less: Allowance for credit losses |  |  | (96,180 | ) |  |  | (93,312 | )
Accounts receivables, net |  | $ | 1,444,218 |  |  | $ | 509,835 |

The Company recorded bad debt expense of $9,169 and $11,461 during the three months ended November 30, 2024 and 2023, respectively. The Company recorded bad debt expense of $27,954 and $64,327 during the six months ended November 30, 2024 and 2023, respectively.

Note 4 – Inventory, net

Inventory consisted of the following:

Schedule of inventory |  |  |  |  |  |  |  |
|  | November 30, 2024 |  | May 31, 2024
Finished Goods |  | $ | 2,543,218 |  |  | $ | 3,190,344 |
Raw Materials |  |  | 121,271 |  |  |  | 203,679 |
Inventory |  | $ | 2,664,489 |  |  | $ | 3,394,023 |

At November 30, 2024 and May 31, 2024, inventory held at third party locations amounted to $88,869 and $58,242, respectively. At November 30, 2024 and May 31, 2024, inventory in-transit amounted to $13,500 and $15,738, respectively. At November 30, 2024 and May 31, 2024, the Company had provided $46,895 as obsolescence reserve on some slow-moving inventory.

Note 5 – Property and Equipment

Property and equipment, stated at cost, consisted of the following:

Schedule of property and equipment |  |  |  |  |  |  |  |  |  |
|  | Estimated Life |  | November 30, 2024 |  | May 31, 2024
Promotional display racks |  | 2 years |  | $ | 30,709 |  |  | $ | 30,709 |
Furniture and Fixtures |  | 5 years |  |  | 37,475 |  |  |  | 5,759 |
Computer Equipment |  | 3 years |  |  | 10,496 |  |  |  | 22,130 |
Plant Equipment |  | 5-10 years |  |  | 309,868 |  |  |  | 264,168 |
Office equipment |  | 5-10 years |  |  | 8,838 |  |  |  | 8,838 |
Automobile |  | 5 years |  |  | 24,347 |  |  |  | 24,347 |
Less: Accumulated Depreciation |  |  |  |  | (116,300 | ) |  |  | (95,003 | )
Total Property, plant and equipment, net |  |  |  | $ | 305,433 |  |  | $ | 260,948 |

Depreciation expense amounted to $11,405 and $8,410 for the three months ended November 30, 2024 and 2023, respectively. Depreciation expense amounted to $21,298 and $17,272 for the six months ended November 30, 2024 and 2023, respectively.

| F-14 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 6 – Intangible Assets

The intangible assets consisted of the following:

Schedule of intangible assets |  |  |  |  |  |  |  |  |  |
|  | Estimated Life |  | November 30, 2024 |  | May 31, 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 |  |  | 41,840 |  |  |  | — |
Less: Accumulated Amortization |  |  |  |  | (184,013 | ) |  |  | (169,920 | )
Intangible assets, net |  |  |  | $ | 324,907 |  |  | $ | 309,104 |

Goodwill arising through the business combination in June 2022 was $2,152,215 at November 30, 2024.

Amortization expense amounted to $23,035 and $19,375 for the three months ended November 30, 2024 and 2023, respectively. Amortization expense amounted to $26,037 and $35,522 for the six months ended November 30, 2024 and 2023, respectively.

Note 7 – Other Current Liabilities

Other current liabilities comprised of the following:

Schedule of other current liabilities |  |  |  |  |  |  |  |
|  | November 30, 2024 |  | May 31, 2024
Credit Cards |  | $ | 3,631 |  |  | $ | 5,734 |
Royalty Payment Accrual |  |  | — |  |  |  | 3,376 |
Sales Tax Payable |  |  | 315,377 |  |  |  | 231,283 |
Accrued expenses |  |  | 12,387 |  |  |  | 92,543 |
Total other current liabilities |  | $ | 331,395 |  |  | $ | 332,936 |

Note 8 – Notes Payable

During the year ended May 31, 2020, a commercial bank granted to the Company a loan (the “Loan”) in the amount of $150,000, which is administered under the authority and regulations of the U.S. Small Business Administration pursuant to the Economic Injury Disaster Loan Program (the “EIDL”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Loan, which is evidenced by a note dated May 18, 2020, bears interest at an annual rate of 3.75% and is payable in installments of principal and interest of $731 per month, beginning May 18, 2021 until May 13, 2050. The Company has to maintain a hazard insurance policy including fire, lightning, and extended coverage on all items used to secure this loan to at least 80% of the insurable value. Proceeds from loans granted under the CARES Act are intended to be used for payroll, costs to continue employee group health care benefits, rent, utilities, and certain other qualified costs (collectively, “qualifying expenses”). The Company used the loan proceeds for qualifying expenses. During the year ended May 31, 2022, the Company received additional $10,000 of borrowings under the program. The Company received a loan forgiveness for $10,000 during the year ended May 31, 2022. The Company recorded, on the accompanying unaudited consolidated financial statements, and paid interest of $1,296, and $562, during the three months ended November 30, 2024 and 2023, respectively.

| F-15 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 8 – Notes Payable (continued)

As of November 30, 2024 and May 31, 2024, the outstanding balance of the loan amounted to $143,342 and $146,594, respectively.

The amounts of loan payments due in the next 12 months ended November 30, are as follows:

Schedule of notes payments due in the next twelve months |  |
|  | Total
2025 |  | $ | 143,342 |
Total |  | $ | 143,342 |

Note 9 – Stockholders’ Equity

Shares Authorized

As of November 30, 2024, the authorized capital of the Company consists of 450,000,000 shares of common stock, par value $0.0001 per share and 300,000,000 shares of preferred stock, par value $0.0001 per share.

Effective as of January 16, 2024, the Company effected a reverse stock split (the “Reverse Stock Split”) of the Company’s issued shares of common stock at a ratio of 1-for-20, as approved by the Company’s Board of Directors (the “Board”). The Reverse Stock Split did not change the par value of the common stock, modify any voting rights or other terms of the common stock. The total number of shares of common stock that the Company is authorized to issue remained unchanged and any fractional shares remaining after the Reverse Stock Split were rounded up to the nearest whole share. The accompanying unaudited consolidated financial statements and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise specified.

Preferred Stock

The preferred stock may be issued from time to time in one or more series. The Board is expressly authorized to provide for the issuance of all or any of the shares of the preferred stock in one or more series, and to fix the number of shares and to determine or alter, for each such series, such voting powers, full or limited, or no voting powers and such designations, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution adopted by the Board providing the issuance of such shares. The Board is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issue of shares of that series. In case the number of shares of any such series shall be so decreased, the decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

During the fiscal year ended May 31, 2023, the Company issued 250,000,000 shares of non-voting Series A Preferred Stock, which, following the Reverse Stock Split of the Company’s common stock, are convertible into shares of the Company’s common stock on a twenty-to-one ratio. These 250,000,000 shares of non-voting Series A Preferred Stock were valued at the fair market value of $3,100,000 at issuance.

| F-16 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 9 – Stockholders’ Equity (continued)

The holders of shares of Series A Preferred Stock have no rights to dividends with respect to such shares. No dividends or other distributions shall be declared or paid on the common stock unless and until dividends at the same rate shall have been paid or declared and set apart upon the Series A Preferred Stock, based upon the number of shares of common stock into which the Series A Preferred Stock may then be converted. Upon the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive out of the assets of the Company the sum of $0.0001 per share before any payment or distribution shall be made on our shares of common stock. The Series A Preferred Stock shall not be subject to redemption at the option, election or request of the Company or any holder or holders of the Series A Preferred Stock. The shares of Series A Preferred Stock are convertible at the option of the holder thereof, at any time after the second anniversary of the date of the first issuance of the shares of Series A Preferred Stock into one fully paid and nonassessable share of common stock for each 20 shares of Series A Preferred Stock; provided, however, that the holder may not convert that number of shares of Series A Preferred Stock which would cause the holder to become the beneficial owner of more than 5% of the Company’s common stock as determined in accordance with Sections 13(d) and (g) of the Exchange Act and the applicable rules and regulations thereunder.

The conversion provisions of the Company’s Series A Preferred Stock were proportionately adjusted in connection with the Reverse Stock Split, and the number of shares of Series A Preferred Stock issued and outstanding was not affected by the Reverse Stock Split.

On March 5, 2024, the Company entered into repurchase agreements with certain stockholders of the Company to purchase in the aggregate 207,748,250 shares of Series A Preferred Stock of the Company (equivalent, in aggregate, to 10,387,413 shares of the Company’s common stock on an as converted basis) for the aggregate cash consideration of $1,246,490. Such repurchase was approved by the Company’s Board of Directors. Following the repurchase, 42,251,750 shares of Series A Preferred Stock remained outstanding. The Company recorded a credit of $1,329,588 to the retained earnings, in the fiscal year 2024, for the difference between the carrying value of the preferred stock repurchased and the cash paid to the stockholders.

During the six months ended November 30, 2024, certain stockholders of 11,118,250 preferred shares converted their preferred stock into 555,913 shares of common stock.

As of November 30, 2024 and May 31, 2024, 31,133,500 and 42,251,750 shares of Series A Preferred Stock, respectively, were issued and outstanding.

Common Stock

As of November 30, 2024, 6,466,852 shares of common stock were issued and outstanding.

The Reverse Stock Split as more fully discussed in Note 2, did not change the par value of the common stock, modify any voting rights or other terms of the common stock, or change the number of authorized shares of the Company. Any fractional shares remaining after the Reverse Stock Split were rounded up to the nearest whole share.

| F-17 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 9 – Stockholders’ Equity (continued)

Stock Options

Effective February 14, 2024, the Board amended the Company’s original 2022 Equity Incentive Plan (as amended the “Plan”), which was originally approved on March 21, 2022. The effective date of the amended Plan is October 31, 2023. Under the Plan, equity-based awards may be made to employees, officers, directors, non-employee directors and consultants of the Company and its Affiliates (as defined in the Plan) in the form of (i) Incentive Stock Options (to eligible employees only); (ii) Nonqualified Stock Options; (iii) Restricted Stock; (iv) Stock Awards; (v) Performance Shares; or (vi) any combination of the foregoing. The Plan will terminate upon the close of business on the day next preceding March 21, 2032, unless terminated earlier in accordance with the terms of the Plan. The Board serves as the Plan administrator and may amend or terminate the Plan without stockholder approval, subject to certain exceptions.

On October 8, 2024, the Board of Directors approved the amendment and restatement of the Plan in order to increase the number of shares authorized for issuance under the Plan by 800,000 shares, any or all of which may be issued pursuant to grants of “incentive stock options” (within the meaning of Section 422 of the Internal Revenue Code). The amendment and restatement of the Plan became effective December 18, 2024, following shareholder approval.

The total number of shares initially authorized for issuance under the Plan was 500,000 shares. The Plan has since been amended to increase the number of shares authorized for issuance under the Plan to 2,050,000 shares of common stock. The Plan provides for an annual increase on April 1 of each calendar year, beginning in 2022 and ending in 2031, subject to Board approval prior to such date. Such potential increase may be equal to the lesser of (i) 4% of the total number of shares of the Company’s common stock outstanding on May 31 of the immediately preceding fiscal year and (ii) such smaller number of shares as determined by the Board. The number of shares authorized for issuance under the Plan will not change unless the Board affirmatively approves an increase in the number of shares authorized for issuance prior to April 1 of the applicable year. Shares surrendered or withheld to pay the exercise price of a stock option or to satisfy tax withholding requirements will not be added back to the number of shares available under the Plan. To the extent that any shares of common stock awarded or subject to issuance or purchase pursuant to awards under the Plan are not delivered or purchased, or are reacquired by the Company, for any reason, including a forfeiture of restricted stock or failure to earn performance shares, or the termination, expiration or cancellation of a stock option, or any other termination of an award without payment being made in the form of shares of common stock will be added to the number of shares available for awards under the Plan. The number of shares available for issuance under the Plan will be adjusted for any increase or decrease in the number of outstanding shares of common stock resulting from payment of a stock dividend on common stock, a stock split or subdivision or combination of shares of common stock, or a reorganization or reclassification of common stock, or any other change in the structure of shares of common stock, as determined by the Board. Shares available for awards under the Plan will consist of authorized and unissued shares.

Two types of options may be granted under the Plan: (1) Incentive Stock Options, which may only be issued to eligible employees of the Company and are required to have exercise price of the option not less than the fair market value of the common stock on the grant date, or, in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, 110% of the fair market value of the common stock on the grant date; and (2) Non-qualified Stock Options, which may be issued to participants under the Plan and which may have an exercise price less than the fair market value of the common stock on the grant date, but not less than par value of the stock.

The Board may grant or sell restricted stock to participants (i.e., shares that are subject to a subject to restrictions or limitations as to the participant’s ability to sell, transfer, pledge or assign such shares) under the Plan. Except for these restrictions and any others imposed by the Board, upon the grant of restricted stock, the recipient generally will have rights of a stockholder with respect to the restricted stock. During the applicable restriction period, the recipient may not sell, exchange, transfer, pledge or otherwise dispose of the restricted stock. The Board may also grant awards of common stock to participants under the Plan, as well as awards of performance shares, which are awards for which the payout is subject to achievement of such performance objectives established by the Board. Performance shares may be settled in cash.

Each equity-based award granted under the Plan will be evidenced by an award agreement that specifies the terms of the award and such additional limitations, terms and conditions as the Board may determine, consistent with the provisions of the Plan.

| F-18 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 9 – Stockholders’ Equity (continued)

Subject to the Plan’s terms, the Board has full power and authority to determine whether, to what extent and under what circumstances any outstanding award will be terminated, canceled, forfeited or suspended. Awards to that are subject to any restriction or have not been earned or exercised in full by the recipient will be terminated and canceled if such recipient is terminated for cause, as determined by the Board in its sole discretion.

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term and expected dividend yield rate over the expected option term. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award.

The Company utilizes the simplified method to estimate the expected life for stock options granted to employees. The simplified method was used as the Company does not have sufficient historical data regarding stock option exercises. The expected volatility is based on historical volatility. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected life of the related option at the time of the grant. Dividend yield is based on historical trends. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.

On November 13, 2024, the Company issued stock options to one consultant to purchase, in aggregate, up to 5,000 shares of its common stock, at an exercise price of $4.00 per share valued at $20,000 and expiring on October 31, 2034. The options vest quarterly over a year beginning on February 28, 2025.

On October 14, 2024, the Company issued to two Company officers stock options to purchase, in the aggregate, up to 600,000 shares of its common stock, at an exercise price of $4.01 per share valued at $2,406,000 and expiring in ten years from the date of grant. The options vest over forty-eight equal monthly installments starting on the grant date.

During the three months ended August 31, 2024, the Company issued stock options, to two consultants, to purchase, in the aggregate, up to 24,000 shares of its common stock, at an exercise price equal to the Company’s closing price on the NYSE American on the date of grant. The options are valued at approximately $195,960 and expire in ten years from the date of grant.

| F-19 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 9 – Stockholders’ Equity (continued)

The following table presents the weighted-average assumptions used to estimate the fair value of the stock options granted during the six months ended November 30, 2024:

Schedule of stock option assumptions |  |
|  | November 30, 2024
Risk free interest rate |  | 3.95%
Expected life |  | 7 years
Expected volatility |  | 464%
Expected dividend |  | -

The following table summarizes the activities for the Company’s stock options for the six months ended November 30, 2024:

Schedule of stock options activities |  |  |  |  |  |  |  |  |  |  |  |
|  | Number of Options |  | Weighted Average Exercise Price |  | Weighted Average Remaining Term
Outstanding as of May 31, 2024 |  |  | 268,750 |  |  | $ | 1.84 |  |  |  | 7.9 |
Granted |  |  | 629,000 |  |  |  | 4.17 |  |  |  |  |
Exercised/Forfeited |  |  | — |  |  |  | — |  |  |  |  |
Less: Unvested at November 30, 2024 |  |  | (650,500 | ) |  |  | 4.11 |  |  |  | 6.7 |
Vested at November 30, 2024 |  |  | 247,250 |  |  | $ | 2.13 |  |  |  | 7.6 |

During the six months ended November 30, 2024, the Company expensed $211,055 with respect to options, of which $130,208 was included in General and administrative, and $80,847 in Sales and marketing, respectively, in the accompanying Consolidated Statements of Operations. During the six months ended November 30, 2023, the Company expensed $102,215 with respect to stock options, which was included in General and administrative in the accompanying Consolidated Statements of Operations.

Restricted Stock Awards and Restricted Shares Issued

The Company’s non-employee directors participate in the Company’s non-employee director compensation arrangements. Under the terms of those arrangements and pursuant to the Plan, on February 14, 2024, the Company granted each of its three non-employee directors Board members 5,000 restricted stock awards for an aggregate of 15,000 shares of the Company’s common stock that will vest on the one-year anniversary of the grant, subject to the respective director’s continued service as a member of the Board, with a total grant date fair value of $195,000.

Effective May 28, 2024, a former officer entered into a Separation Agreement and Release (the “Release”), which includes a standard release of claims and confidentiality and non-disparagement provisions. As consideration for signing the Release, the Company entered into a Consulting Agreement, dated May 28, 2024, with the former officer (the “Consulting Agreement”), pursuant to which the former officer agreed to provide transition services to the Company through October 31, 2024, unless the Consulting Agreement is terminated earlier. Pursuant to the Consulting Agreement, as compensation for services as a consultant, the former officer was granted 30,000 shares of restricted common stock valued at $298,800, which vested upon grant.

Effective November 13, 2024, the Company issued 2,000 shares of restricted common stock to a consultant for services relating to expansion of the Company into new markets. The shares were valued at $8,000 based on the Company’s closing price on the NYSE American on the date of grant. The shares vested upon grant and will be expensed over the six month service period of the consultant beginning from the grant date.

The fair value of the stock grants is being recorded over the term of the service related to each grant. During the six months ended November 30, 2024, the Company expensed $97,500 related to restricted stock awards included in General and administrative in the accompanying Consolidated Statements of Operations, and $293,909 related to restricted stock expenses of which $293,054 was included in General and administrative and $855 in Sales and marketing, respectively, in the accompanying Consolidated Statements of Operations. During the six months ended November 30, 2023, the Company expensed $0 related to restricted stock awards and restricted stock expense.

| F-20 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 10 – Commitments and Contingencies

Leases

As discussed in Note 2 above, the Company adopted ASU 2016-02, “Leases” on June 1, 2019, which require lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases.

The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or if the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. For our real estate leases, the Company applies a practical expedient to include these non-lease components in calculating the ROU asset and lease liability. For variable costs that may change during the lifetime of the lease, the Company expenses as incurred. Since the interest rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value.

The Company reviews the impairment of ROU assets consistent with the approach applied for the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.

Lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not result in a remeasurement of lease liabilities.

During the six months ended November 30, 2024, the Company entered into two new lease agreements. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company’s lease agreements do not have an explicit renewal option, and the termination options are available in the event of material breaches. The expiration dates of the leases are on various dates between December 1, 2024 and January 31, 2029.

The Company computed an initial lease liability of $767,269 for the two new lease agreements and an initial ROU asset in the same amount which was recorded on the books at the commencement of the leases. During the three months ended November 30, 2024 and 2023, the Company recorded operating lease costs in the amount of $49,080 and $18,659, respectively. During the six months ended November 30, 2024 and 2023, the Company recorded operating lease costs in the amount of $67,739 and $37,317, respectively. Operating lease and short-term lease expenses are included in General and administrative expenses on the accompanying Consolidated Statements of Operations.

The weighted average remaining term and discount rate for the Company’s operating leases as of November 30, 2024 was 3.8 years and 13.0%, respectively.

| F-21 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 10 – Commitments and Contingencies (continued)

Supplemental balance sheet information related to leases was as follows:

Schedule of supplemental balance sheet information |  |  |  |  |  |  |  |
Assets |  | November 30, 2024 |  | May 31, 2024
Right of use assets |  | $ | 899,239 |  |  | $ | 131,970 |
Accumulated reduction |  |  | (161,988 | ) |  |  | (95,218 | )
Operating lease assets, net |  | $ | 737,251 |  |  | $ | 36,752 |
Liabilities |  |  |  |  |  |  |  |
Lease liability |  | $ | 899,239 |  |  | $ | 131,970 |
Accumulated reduction |  |  | (161,081 | ) |  |  | (95,218 | )
Total lease liability, net |  |  | 738,158 |  |  |  | 36,752 |
Current portion |  |  | (207,077 | ) |  |  | (36,752 | )
Non-current portion |  | $ | 531,081 |  |  | $ | — |

Maturities of operating lease liabilities were as follows as of November 30, 2024:

Schedule of maturities of operating lease liabilities |  |  |  |
Operating Lease (fiscal year-end) |  |
2025 (six months remaining) |  | $ | 94,651 |
2026 |  |  | 258,005 |
2027 |  |  | 269,437 |
2028 |  |  | 218,420 |
2029 |  |  | 128,040 |
Total |  | $ | 968,553 |
Less: Imputed interest |  |  | (230,395 | )
Present value of lease liabilities |  | $ | 738,158 |

Accounts Payable

During the three months ended November 30, 2024, the Company renewed its relationship with an entity, and as a result of the agreement, $218,699 previously due in relation to royalties, was forgiven and included in Sales and marketing in the accompanying Consolidated Statements of Operations.

Contingencies

From time to time, we become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our financial statements. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, we do not record an accrual, consistent with applicable accounting guidance. In the opinion of management, while the outcome of such claims and disputes cannot be predicted with certainty, our ultimate liability in connection with these matters is not expected to have a material adverse effect on our results of operations, financial position or cash flows, and the amounts accrued for any individual matter are not material. However, legal proceedings are inherently uncertain, and there can be no assurance that any expense, liability, or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage. As a result, the outcome of a particular matter or a combination of matters may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

| F-22 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 11 – Related Party Transactions

The Company’s Chairman and Chief Executive Officer (“CEO”), Jeff Toghraie, is the managing director of Intrepid Global Advisors (“Intrepid”). Intrepid has, from time to time, provided advances to the Company for working capital purposes and is paid consulting fees throughout the year. Intrepid was paid approximately $127,000 in consulting fees for the six months ended November 30, 2024. As of November 30, 2024 and May 31, 2024, the Company had amounts payable to Intrepid of $178,520 and $11,798, respectively. These advances were short-term in nature and non-interest bearing. The Company's Board Member, Chief Financial Officer ("CFO"), and Chief Operating Officer ("COO") has a controlling interest in BZ Capital Strategies. BZ Capital Strategies was paid $75,000 in consulting fees for the six months ended November 30, 2024.

Note 12 – Concentrations

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable and cash deposits, investments and cash equivalents instruments. The Company maintains its cash in bank deposits accounts. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At November 30, 2024 and May 31, 2024, the Company held cash of approximately $4,463,897 and $3,003,876, respectively, in excess of federally insured limits. The Company has not experienced any losses in such accounts through November 30, 2024.

Concentration of Revenue, Accounts Receivable, Product Line, and Supplier

The Company predominantly sells the products direct-to-consumer. There was no single customer that accounted for greater than 10% of consolidated net sales for the three and six months ended November 30, 2024 and 2023.

During the three months ended November 30, 2024, approximately 90.2% of our consolidated net sales were to customers located in the U.S. (based on the customer’s shipping address). During the three months ended November 30, 2023, approximately 94.6% of our consolidated net sales were to customers located in the U.S. (based on the customer’s shipping address). All Company assets are located in the U.S.

During the six months ended November 30, 2024, approximately 91.2% of our consolidated net sales were to customers located in the U.S. (based on the customer’s shipping address). During the six months ended November 30, 2023, approximately 93.9% of our consolidated net sales were to customers located in the U.S. (based on the customer’s shipping address).

As of November 30, 2024, accounts receivable from customers that accounted for more than 10% of sales transactions were from one customer amounting to 14.5%. As of May 31, 2024, no single customer accounted for more than 10% of accounts receivable.

Manufacturing is outsourced primarily overseas via a number of third-party vendors. The two largest vendors accounted for 73.2% and 15.9%, respectively, of all purchases for the three months ended November 30, 2024. For the three months ended November 30, 2023, the largest vendor accounted for 82.7% of all purchases. For the six months ended November 30, 2024, the two largest vendors accounted for 61.8% and 26.0%, respectively, of all purchases. For the six months ended November 30, 2023, the largest vendor accounted for 86.7% of all purchases.

| F-23 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 13 – Business Segment and Geographic Area Information

Business Segments

The Company, directly or through its subsidiaries, markets and sells its products and services directly to consumers and through its dealers. In June 2022, the Company acquired a hearing enhancement and hearing protection business. The Company’s determination of its reportable segments is based on how its chief operating decision makers manage the business.

| F-24 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 13 – Business Segment and Geographic Area Information (continued)

The Company’s segment information is as follows:

Schedule of segment information |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Three months ended November 30, |  | Six months ended November 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Sales, net |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hair care and skin care |  | $ | 284,545 |  |  | $ | 230,741 |  |  | $ | 836,054 |  |  | $ | 545,594 |
Hearing enhancement and protection |  |  | 7,448,029 |  |  |  | 8,190,936 |  |  |  | 12,747,792 |  |  |  | 13,982,352 |
Total net sales |  | $ | 7,732,574 |  |  | $ | 8,421,677 |  |  | $ | 13,583,846 |  |  | $ | 14,527,946 |
Operating earnings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Segment gross profit: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hair care and skin care |  | $ | 173,507 |  |  | $ | 172,583 |  |  | $ | 429,996 |  |  | $ | 394,107 |
Hearing enhancement and protection |  |  | 5,324,540 |  |  |  | 6,085,356 |  |  |  | 9,221,699 |  |  |  | 10,511,398 |
Total segment gross profit |  |  | 5,498,047 |  |  |  | 6,257,939 |  |  |  | 9,651,695 |  |  |  | 10,905,505 |
Selling and Marketing |  |  | 3,377,760 |  |  |  | 3,672,780 |  |  |  | 6,047,231 |  |  |  | 6,879,621 |
General and Administrative |  |  | 1,447,416 |  |  |  | 1,321,247 |  |  |  | 3,072,295 |  |  |  | 2,588,215 |
Consolidated operating income |  | $ | 672,871 |  |  | $ | 1,263,912 |  |  | $ | 532,169 |  |  | $ | 1,437,669 |
Total Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hair care and skin care |  | $ | 4,039,069 |  |  | $ | 5,439,289 |  |  | $ | 4,039,069 |  |  | $ | 5,439,289 |
Hearing enhancement and protection |  |  | 9,670,630 |  |  |  | 7,686,720 |  |  |  | 9,670,630 |  |  |  | 7,686,720 |
Consolidated total assets |  | $ | 13,709,699 |  |  | $ | 13,126,009 |  |  | $ | 13,709,699 |  |  | $ | 13,126,009 |
Payments for property and equipment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hair care and skin care |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Hearing enhancement and protection |  |  | 65,783 |  |  |  | 19,885 |  |  |  | 107,623 |  |  |  | 70,845 |
Consolidated total payments for property and equipment |  | $ | 65,783 |  |  | $ | 19,885 |  |  | $ | 107,623 |  |  | $ | 70,845 |
Depreciation and amortization |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hair care and skin care |  | $ | 839 |  |  | $ | 1,417 |  |  | $ | 1,678 |  |  | $ | 2,835 |
Hearing enhancement and protection |  |  | 33,601 |  |  |  | 26,368 |  |  |  | 45,657 |  |  |  | 53,187 |
Consolidated total depreciation and amortization |  | $ | 34,440 |  |  | $ | 27,785 |  |  | $ | 47,335 |  |  | $ | 56,022 |

Geographic Area Information

For geographic area information of sales for the three and six months ended November 30, 2024, see Note 12 – Concentrations.

| F-25 |

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2024

Note 14 – Income Taxes

We calculated our interim tax provision in accordance with ASC 270, “Interim Reporting,” and ASC 740, “Accounting for Income Taxes.” As the end of each interim quarterly period, we estimate our annual effective tax rate and apply that rate to our ordinary quarterly earnings to calculate the tax related to ordinary income. The tax effects of other items that are excluded from ordinary income are discretely calculated and recognized in the period in which they occur.

We recorded an income tax expense of $67,250 for the three months ended November 30, 2024 and an income tax expense of $364,393 for the three months ended November 30, 2023. We recorded an income tax expense of $67,250 for the six months ended November 30, 2024 and an income tax expense of $430,382 for the six months ended November 30, 2023.

The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2020, 2021, 2022 and 2023 Corporate Income Tax Returns are subject to IRS examination.

| F-26 |

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with, and is qualified in its entirety by, the unaudited consolidated financial statements and related notes thereto included in Item 1 in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended May 31, 2024 filed with the SEC on August 15, 2024. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations contains not only statements that are historical facts, but also statements that are forward-looking.

Although the forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in herein and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects. Please see “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q for additional information.

Overview

The Company is engaged in the manufacturing, marketing, sale and distribution of high-tech, innovative hearing and audio enhancement and protection products that provide cutting-edge solutions for people with varied applications across many industries and professional quality hair and skin care products under various trademarks and brands.

The Company has two reportable segments: hair care and skin care, and hearing enhancement and protection.

Through our hearing enhancement and protection segment, we design, innovate, engineer, manufacture, market and service specialized systems in hearing enhancement, hearing protection, wireless audio, and communication. Through our hair care and skin care segment, we manufacture, market, sell, and distribute professional quality hair and skin care products.

The Company’s overall business strategy is to establish market awareness of our products through our direct-to-consumer campaigns. The Company's strategy centers on driving growth by expanding market share within existing channels and developing new ones through both online and traditional platforms. The Company’s primary focus is optimizing its e-commerce strategies, building sales teams to meet the needs of distribution channels, and enhancing value through strategic partnerships. We believe the increase in awareness will allow the Company to increase distribution and gain customers through our distribution partners’ retail establishments, with the goal of helping us achieve growth in market share and diversify our sales channels.

| -2- |

Results of Operations

Our results of operations are summarized below.

|  | Three months ended |  | Six months ended
|  | November 30, |  | November 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Sales, net |  | $ | 7,732,574 |  |  | $ | 8,421,677 |  |  | $ | 13,583,846 |  |  | $ | 14,527,946 |
Cost of sales |  |  | 2,234,527 |  |  |  | 2,163,738 |  |  |  | 3,932,151 |  |  |  | 3,622,441 |
Gross profit |  |  | 5,498,047 |  |  |  | 6,257,939 |  |  |  | 9,651,695 |  |  |  | 10,905,505 |
Total operating expenses |  |  | 4,825,176 |  |  |  | 4,994,027 |  |  |  | 9,119,526 |  |  |  | 9,467,836 |
Income from operations |  |  | 672,871 |  |  |  | 1,263,912 |  |  |  | 532,169 |  |  |  | 1,437,669 |
Net income after tax |  | $ | 633,706 |  |  | $ | 1,018,075 |  |  | $ | 523,901 |  |  | $ | 1,172,527 |

We calculate EBITDA by taking net income calculated in accordance with accounting principles generally accepted in the United States (“GAAP”), and adjusting for income taxes, interest income or expense, and depreciation and amortization. We calculate adjusted EBITDA as EBITDA, further adjusted for stock-based compensation. Adjusted EBITDA is also presented as a percentage of revenue, which is calculated by dividing the non-GAAP Adjusted EBITDA for a period by revenue for the same period. Other companies may calculate EBITDA and adjusted EBITDA differently, limiting the usefulness of these measures for comparative purposes. We believe that these non-GAAP measures of financial results provide useful information regarding certain financial and business trends relating to our financial condition and results of operations, and management considers EBITDA and adjusted EBITDA important indicators in evaluating our business on a consistent basis across various periods for trend analyses. These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in our financial statements and are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. Investors should review the reconciliation of these non-GAAP financial measures to the comparable GAAP financial measure included below. Investors should not rely on any single financial measure to evaluate our business.

|  | For the Three Months Ended |  | For the Six Months Ended
|  | November 30, |  | November 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Net income (GAAP) |  | $ | 633,706 |  |  | $ | 1,018,075 |  |  | $ | 523,901 |  |  | $ | 1,172,527 |
Income taxes |  |  | 67,250 |  |  |  | 364,393 |  |  |  | 67,250 |  |  |  | 430,382 |
Interest (income) expense, net |  |  | (26,044 | ) |  |  | (36,185 | ) |  |  | (54,675 | ) |  |  | (73,034 | )
Depreciation and amortization |  |  | 34,440 |  |  |  | 27,785 |  |  |  | 47,335 |  |  |  | 56,022 |
Total EBITDA (Non-GAAP) |  |  | 709,352 |  |  |  | 1,374,068 |  |  |  | 583,811 |  |  |  | 1,585,897 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock-based compensation |  |  | 304,600 |  |  |  | 51,108 |  |  |  | 602,464 |  |  |  | 102,215 |
Total Adjusted EBITDA (Non-GAAP) |  | $ | 1,013,952 |  |  | $ | 1,425,176 |  |  | $ | 1,186,275 |  |  | $ | 1,688,112 |
Sales, net (GAAP) |  | $ | 7,732,574 |  |  | $ | 8,421,677 |  |  | $ | 13,583,846 |  |  | $ | 14,527,946 |
Adjusted EBITDA as a percentage of Sales, net (Non-GAAP) |  |  | 13.1 | % |  |  | 16.9 | % |  |  | 8.7 | % |  |  | 11.6 | %

| -3- |

For the Three Months Ended November 30, 2024 Compared to the Three Months Ended November 30, 2023

Net sales for the three months ended November 30, 2024 and 2023 were $7,732,574 and $8,421,677, respectively. Net sales for the three months ended November 30, 2024 decreased by $689,103 or 8%, as compared to the three months ended November 30, 2023. This decrease is primarily due to the timing of post-Thanksgiving sales events, as a significant portion of these sales will be recognized in the third quarter this fiscal year, whereas sales from post-Thanksgiving sales events were recognized entirely in the second quarter in the prior fiscal year. Additionally, reduced advertising expenditure adversely affected direct to consumer sales in the three months ended November 30, 2024, as well as an increase of discounts as a percentage of revenue, offset by the strength in our distribution channels for AXIL products, and an increase in distributor sales in our hair and skin care products.

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.

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.

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 $168,851 or 3% from $4,994,027 in the three months ended November 30, 2023 to $4,825,176 in the three months ended November 30, 2024. Operating expense as a percentage of revenue for the three months ended November 30, 2024 was 62.4% compared 59.3% for the comparable period in 2023. Included in operating expenses were non-cash stock-based compensation of $304,600 and $51,111 in the three months ended November 30, 2024 and 2023, respectively. The decrease in operating expenses related primarily to lower advertising costs, and a forgiveness of accounts payable of approximately $220,000, partially offset by an increase of stock-based compensation expense and an increase in salaries and consulting fees. During the three months ended November 30, 2024, we incurred approximately $130,000 in consulting fees to support our expansion into new geographic markets, compared to $0 for the same period in 2023. Of this amount, approximately $50,000 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.

Income from operations for the three months ended November 30, 2024 was $672,871 compared to $1,263,912 for the three months ended November 30, 2023. The decrease in income from operations of $591,041 or 46.8% was primarily related to the timing of post-Thanksgiving sales events, as a significant portion of these sales will be recognized in the third quarter this fiscal year, whereas sales from post-Thanksgiving sales events were recognized entirely in the second quarter in the prior fiscal year. Additionally, there was an increase in our non-cash stock-based compensation and lower gross profit, partially offset by a forgiveness of accounts payable.

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.

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.

Adjusted EBITDA for the three months ended November 30, 2024 and 2023 were $1,013,952 and $1,425,176, respectively. The decrease of $411,224 was primarily related to the timing of post-Thanksgiving sales events, as a significant portion of these sales will be recognized in the third quarter this fiscal year, whereas sales from post-Thanksgiving sales events were recognized entirely in the second quarter in the prior fiscal year. Adjusted EBITDA as a percentage of sales, net for the three months ended November 30, 2024 and 2023, were 13.1% and 16.9%, respectively. The decline was primarily due to the decrease in the gross margin and the increase in costs related to our expansion into new geographic markets and product lines, partially offset by a forgiveness of accounts payable of approximately $220,000.

For the Six Months Ended November 30, 2024 Compared to the Six Months Ended November 30, 2023

Net sales for the six months ended November 30, 2024 and 2023 were $13,583,846 and $14,527,946, respectively. Net sales for the six months ended November 30, 2024 decreased by $944,100 or 6%, as compared to the six months ended November 30, 2023. This decrease is primarily due to the timing of post-Thanksgiving sales events, as a significant portion of these sales will be recognized in the third quarter this fiscal year, whereas sales from post-Thanksgiving sales events were recognized entirely in the second quarter in the prior fiscal year. Additionally, reduced advertising expenditure adversely affected direct to consumer sales in the six months ended November 30, 2024, as well as an increase of discounts as a percentage of revenue, offset by the strength in our distribution channels for AXIL products, and an increase in distributor sales in our hair and skin care products.

| -4- |

For the six months ended November 30, 2024, the overall cost of sales increased by $309,710 or 9%, as compared to the six 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 six months ended November 30, 2024 was 28.9% as compared to 24.9% 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.

Gross profit for the six months ended November 30, 2024 and 2023 was $9,651,695 and $10,905,505, respectively. Gross profit as a percentage of sales for the six months ended November 30, 2024, was 71.1% as compared to 75.1% for the comparable period in 2023. The decrease in the gross profit margin for the six 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.

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.

Income from operations for the six months ended November 30, 2024, was $532,169 compared to income of $1,437,669 for the six months ended November 30, 2023. The decrease in income from operations of $905,500 or 63.0% was primarily timing of post-Thanksgiving sales events, as a significant portion of these sales will be recognized in the third quarter this fiscal year, whereas sales from post-Thanksgiving sales events were recognized entirely in the second quarter in the prior fiscal year. Additionally, there was a decrease related to the increase of our non-cash stock-based compensation and lower gross profit, partially offset by a forgiveness of accounts payable.

For the six months ended November 30, 2024, provision for income tax expense was $67,250. For the six months ended November 30, 2023, provision for income tax expense was $430,382.

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 $523,901 and $1,172,527 for the six months ended November 30, 2024 and 2023, respectively.

Adjusted EBITDA for the six months ended November 30, 2024 and 2023 were $1,186,275 and $1,688,112 respectively. The decrease of $501,837 was primarily related to the timing of post-Thanksgiving sales events, as a significant portion of these sales will be recognized in the third quarter this fiscal year, whereas sales from post-Thanksgiving sales events were recognized entirely in the second quarter in the prior fiscal year. Adjusted EBITDA as a percentage of sales, net for the six months ended November 30, 2024 and 2023, were 8.7% and 11.6%, respectively. The decline was primarily due to the decrease in the gross margin and the increase in costs related to our expansion into new geographic markets and product lines, partially offset by a forgiveness of accounts payable of approximately $220,000.

Liquidity and Capital Resources

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.

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Cash Flows

Operating Activities

Net cash provided by operating activities for the six months ended November 30, 2024, was $1,904,174, compared to $1,252,113 for the same period in 2023. This improvement primarily resulted from our strategic decision to increase inventory levels as of May 31, 2024 to accommodate new product variations and packaging aimed at expanding into new markets. Inventory sold during the six months ended November 30, 2024, contributed positively to cash flows. We also negotiated a forgiveness of accounts payable during the six months ended November 30, 2024, resulting in an improvement of operating cash flows of approximately $220,000 offset by timing of net changes in operating assets and liabilities excluding inventory.

Investing Activities

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.

Financing Activities

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.

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.

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.

Off-Balance Sheet Arrangements

As of November 30, 2024, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require the most difficult, subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These critical accounting policies relate to revenue recognition, impairment of intangible assets and long-lived assets, inventory, stock compensation, and evaluation of contingencies. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial condition or results of operations.

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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this Item 3.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Principal Executive Officer, and Chief Financial Officer (“CFO”) and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation, under the supervision and with the participation of our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of November 30, 2024. Based on this evaluation of disclosure controls and procedures as of November 30, 2024, our CEO and CFO concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Exchange Act that occurred during the fiscal quarter ended November 30, 2024 that has materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.

Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our financial statements. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, we do not record an accrual, consistent with applicable accounting guidance. In the opinion of management, while the outcome of such claims and disputes cannot be predicted with certainty, our ultimate liability in connection with these matters is not expected to have a material adverse effect on our results of operations, financial position or cash flows, and the amounts accrued for any individual matter are not material. However, legal proceedings are inherently uncertain, and there can be no assurance that any expense, liability, or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage. As a result, the outcome of a particular matter or a combination of matters may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not required to provide the information required by this Item 1A.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the quarter ended November 30, 2024, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

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ITEM 6. EXHIBITS

Exhibit |  |  |  | Filed |  | Furnished
Number |  | Exhibit Description |  | herewith |  | herewith
3.1 |  | Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 filed with the SEC on October 6, 2017). |  |  |  |
3.2 |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K filed with the SEC on August 25, 2022). |  |  |  |
3.3 |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation, effective as of January 16, 2024 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 16, 2024). |  |  |  |
3.4 |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation, effective as of February 14, 2024 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 12, 2024). |  |  |  |
3.5 |  | Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed with the SEC on October 6, 2017). |  |  |  |
3.6 |  | Amendment to the Bylaws, effective as of February 14, 2024 (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 12, 2024). |  |  |  |
10.1* |  | Form of Stock Option Agreement (2024) (2022 Equity Incentive Plan) (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 10, 2024). |  |  |  |
10.2* |  | AXIL Brands, Inc. Amended and Restated 2022 Equity Incentive Plan (effective as of December 18, 2024) (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 18, 2024). |  |  |  |
10.3* |  | Form of Restricted Stock Award Agreement (2024) (2022 Equity Incentive Plan) |  | X |  |
31.1 |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  | X |  |
31.2 |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  | X |  |
32.1 |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |  |  | X
32.2 |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |  |  | X
99.1 |  | Office Lease Agreement dated October 15, 2024 between New Lion Enterprises LLC and AXIL Brands, Inc. |  | X |  |
101 |  | The following unaudited condensed consolidated financial statements from the Quarterly Report on Form 10-Q for the quarter ended November 30, 2024 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Changes in Stockholders’ Equity, (iv) Statements of Cash Flows, and (v) the Notes to Financial Statements. |  | X |  |
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |  | X |  |

* Management compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| AXIL BRANDS, INC.
Date: January 8, 2025 |  |
| By: | /s/ Jeff Toghraie
|  | Jeff Toghraie
|  | Chief Executive Officer and Chairman of the Board of Directors
|  | (Principal Executive Officer)
| By: | /s/ Jeff Brown
|  | Jeff Brown
|  | Chief Financial Officer, Chief Operating Officer and Director
|  | (Principal Financial Officer and Principal Accounting Officer)

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