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 February 29, 2024

☐ 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.)

901 Fremont Avenue, Unit 158, Alhambra, CA		91803
(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 April 9, 2024, there were 5,878,939 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; 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 increases, 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, the effects of 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 ability to repay our outstanding loans, if any; 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; 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 and the Israel-Hamas conflict; 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; integrating acquisitions and achieving the expected savings and synergies, including our recent acquisition of hearing protection and ear bud businesses; 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; business divestitures; labor relations; the potential impact of environmental, social and governance matters; implementation of environmental remediation matters; our ability to remediate the material weaknesses in our internal control over financial reporting; our ability to maintain stock exchange listing; and the risk that the increase in the stock price following the recent reverse stock split will not be maintained or that the reverse stock split will not otherwise have its intended effect.

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

FEBRUARY 29, 2024

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Financial Statements:

Consolidated Balance Sheets - As of February 29, 2024 (Unaudited) and May 31, 2023	F-1

Consolidated Statements of Operations - For the three and nine months ended February 29, 2024 and February 28, 2023 (Unaudited)	F-2

Consolidated Statements of Changes in Stockholders’ Equity - For the three and nine months ended February 29, 2024 and February 28, 2023 (Unaudited)	F-3

Consolidated Statements of Cash Flows – For the nine months ended February 29, 2024 and February 28, 2023 (Unaudited)	F-4

Condensed Notes to Unaudited Consolidated Financial Statements	F-5

-1-

AXIL BRANDS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS


	February 29, 2024			May 31, 2023
	(Unaudited)

ASSETS
CURRENT ASSETS:
Cash	$	4,887,567		$	4,832,682
Accounts receivable, net		719,504			417,016
Inventory, net		3,443,293			1,311,864
Due from related party		18,536			—
Prepaid expenses and other current assets		656,328			801,360
Deferred tax asset		234,161			—

Total Current Assets		9,959,389			7,362,922

OTHER ASSETS:
Property and equipment, net		212,146			157,463
Intangible assets, net		324,549			382,674
Right of use asset		53,224			101,845
Other assets		12,195			12,195
Goodwill		2,152,215			2,152,215

Total Other Assets		2,754,329			2,806,392

TOTAL ASSETS	$	12,713,718		$	10,169,314

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable	$	1,890,844		$	908,606
Customer deposits		37,140			183,688
Equipment payable, current		—			2,200
Contract liabilities, current		880,450			827,106
Notes payable, current		3,310			172,588
Due to related party		—			158,072
Lease Liability, current		54,322			65,824
Income Tax Liability		68,019			230,913
Other current liabilities		307,794			305,664

Total Current Liabilities		3,241,879			2,854,661

LONG TERM LIABILITIES:
Notes payable, long term		143,840			—
Lease liability, long term		—			36,752
Contract liabilities, long term		541,108			605,942

Total Long Term Liabilities		684,948			642,694

Total Liabilities		3,926,827			3,497,355

Commitments and contingencies (see Note 11)		—			—

STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 par value; 300,000,000 shares authorized; 250,000,000 shares issued and outstanding as of February 29, 2024 and May 31, 2023, respectively		25,000			25,000
Common stock, $0.0001 par value: 450,000,000 shares authorized; 5,878,939 and 5,863,939 shares issued, and outstanding as of February 29, 2024 and May 31, 2023, respectively		588			586
Additional paid-in capital		10,274,677			10,113,365
Accumulated deficit		(1,513,374	)		(3,466,992	)

Total Stockholders' Equity		8,786,891			6,671,959

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	12,713,718		$	10,169,314

See accompanying condensed notes to these unaudited consolidated financial statements.

F-1

AXIL BRANDS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	For the Three Months Ended						For the Nine Months Ended
	February 29,			February 28,			February 29,			February 28,
	2024			2023			2024			2023

Sales, net	$	6,469,343		$	5,656,461		$	20,997,289		$	16,625,818

Cost of sales		1,845,017			1,437,976			5,467,458			4,085,645
					25	%		26	%		25	%
Gross profit		4,624,326			4,218,485			15,529,831			12,540,173
					75	%		74.0	%		75	%
OPERATING EXPENSES:
Sales and marketing		3,398,949			3,173,383			10,278,570			8,250,257
Compensation and related taxes		228,869			360,802			713,504			1,214,213
Professional and consulting		552,922			216,687			1,471,025			832,958
General and administrative		547,465			251,025			1,732,942			841,761

Total Operating Expenses		4,728,205			4,001,897			14,196,041			11,139,189
					71	%		68	%		67	%
(LOSS) INCOME FROM OPERATIONS		(103,879	)		216,588			1,333,790			1,400,984

OTHER INCOME (EXPENSE):
Gain on debt settlement		—			—			79,182			50,500
Other income		6,114			—			19,138			—
Interest income		52,915			6,721			129,233			13,262
Interest expense and other finance charges		(1,495	)		(1,714	)		(4,779	)		(4,927	)

Other Income, Net		57,534			5,007			222,774			58,835

(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES		(46,345	)		221,595			1,556,564			1,459,819

(Benefit) Provision for income taxes		(827,436	)		59,547			(397,054	)		395,344

NET INCOME	$	781,091		$	162,048		$	1,953,618		$	1,064,475

NET INCOME PER COMMON SHARE:
Basic	$	0.13		$	0.03		$	0.33		$	0.19
Diluted	$	0.04		$	0.01		$	0.11		$	0.06

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		5,863,939			5,849,501			5,863,939			5,574,312
Diluted		18,576,914			18,629,501			18,569,140			17,497,737

See accompanying condensed notes to these unaudited consolidated financial statements.

F-2

AXIL BRANDS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


For the nine months ended February 29, 2024
					Common Stock				Additional					Total
	Preferred Stock				Issued/Issuable				Paid-in		Accumulated			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		—		—		—		—		153,320		—			153,320

Restricted stock awards		—		—		15,000		2		7,992		—			7,994

Net income		—		—		—		—		—		1,953,618			1,953,618

Balance, February 29, 2024		250,000,000	$	25,000		5,878,939	$	588	$	10,274,677	$	(1,513,374	)	$	8,786,891


For the three months ended February 29, 2024
					Common Stock				Additional					Total
	Preferred Stock				Issued/Issuable				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance, November 30, 2023		250,000,000	$	25,000		5,863,939	$	586	$	10,215,580	$	(2,294,465	)	$	7,946,701

Stock options expense		—		—		—		—		51,105		—			51,105

Restricted stock awards		—		—		15,000		2		7,992		—			7,994

Net income		—		—		—		—		—		781,091			781,091

Balance, February 29, 2024		250,000,000	$	25,000		5,878,939	$	588	$	10,274,677	$	(1,513,374	)	$	8,786,891


For the nine months ended February 28, 2023
					Common Stock				Additional					Total
	Preferred Stock				Issued/Issuable				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance, May 31, 2022		—	$	—		2,107,385	$	211	$	5,476,068	$	(5,291,567	)	$	184,712

Shares issued for acquisition of business		250,000,000		25,000		3,659,195		366		3,982,115		—			4,007,481

Stock options expense		—		—		—		—		155,067		—			155,067

Shares to be issued for cash		—		—		97,359		9		447,840		—			447,849

Net income		—		—		—		—		—		1,064,475			1,064,475

Balance, February 28, 2023		250,000,000	$	25,000		5,863,939	$	586	$	10,061,090	$	(4,227,092	)	$	5,859,584


For the three months ended February 28, 2023
					Common Stock				Additional					Total
	Preferred Stock				Issued/Issuable				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance, November 30, 2022		250,000,000	$	25,000		5,837,899	$	583	$	9,910,371	$	(4,389,140	)	$	5,546,814

Stock options expense		—		—		—		—		30,922		—			30,922

Shares to be issued for cash		—		—		26,040		3		119,797		—			119,800

Net income		—		—		—		—		—		162,048			162,048

Balance, February 28, 2023		250,000,000	$	25,000		5,863,939	$	586	$	10,061,090	$	(4,227,092	)	$	5,859,584

See accompanying condensed notes to these unaudited consolidated financial statements.

F-3

AXIL BRANDS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


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

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,953,618		$	1,064,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		83,634			66,944
Bad debts		143,395			13,782
Stock based compensation		161,314			155,067
Gain on settlement		(79,182	)		(50,500	)
Provision (benefit) for deferred income taxes		(397,054	)		—
Change in operating assets and liabilities:
Accounts receivable		(445,883	)		(134,622	)
Inventory		(2,131,429	)		297,213
Prepaid expenses and other current assets		145,032			(296,787	)
Deposits		—			(3,810	)
Accounts payable and accrued expenses		1,061,420			87,879
Other current liabilities		(144,052	)		860,973
Contract liabilities		(11,490	)		259,362

NET CASH PROVIDED BY OPERATING ACTIVITIES		339,323			2,319,976

CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired on business acquisition		—			1,066,414
Purchases of property and equipment		(80,192	)		(65,650	)

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(80,192	)		1,000,764

CASH FLOWS FROM FINANCING ACTIVITIES
Cash raised for common stock to be issued		—			447,850
Repayment of equipment financing		(2,200	)		(2,200	)
Repayment of note payable		(25,438	)		(22,797	)
Advances (repayments) to/from a related party		(176,608	)		63,008

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(204,246	)		485,861

NET INCREASE IN CASH		54,885			3,806,601

CASH - Beginning of period		4,832,682			373,731

CASH - End of period	$	4,887,567		$	4,180,332

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	4,681		$	3,173
Income taxes	$	—		$	—

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for asset purchase agreement	$	—		$	4,007,480
Right of use assets recognized as lease liability	$	—		$	131,970
Tangible assets (excluding cash) acquired in business combination	$	—		$	1,740,729
Intangible assets acquired in business combination	$	—		$	456,945
Goodwill acquired in business combination	$	—		$	2,152,215
Liabilities assumed in business combination	$	—		$	1,408,823

See accompanying condensed notes to these unaudited consolidated financial statements.

F-4

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

Note 1 – Organization

As part of the Company’s ongoing rebranding efforts, the Company changed its name from Reviv3 Procare Company (“Reviv3”) 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 has moved its corporate headquarters to 901 Fremont Avenue, Unit 158, Alhambra, California 91803. In March 2022, the Company incorporated a subsidiary “Reviv3 Acquisition Corporation” and in June 2022, completed the asset acquisition of the Axil & Associated Brand Corp. (“Axil & Associated Brands”) business. The Company is now engaged in the manufacturing, marketing, sale and distribution of high-tech hearing and audio innovations that provide cutting edge solutions for consumers, with varied applications across many industries; as well as professional quality hair and skin care products. These product 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, or OTC, markets to the NYSE American 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 by us 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 February 29, 2024, and February 28, 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, 2023. The results of operations for the three and nine months ended February 29, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending 2024. 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 filed a Certificate of Amendment to the Company’s Amended and Restated Articles of Incorporation with the Delaware Secretary of State to implement a reverse stock split (the “Reverse Stock Split”) of the Company’s issued shares of common stock at a ratio of 1-for-20 approved by the Company’s Board of Directors (the “Board”). The Reverse Stock Split does 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 financial statements and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise specified.

Reclassifications

Certain amounts presented for the three and nine months ended February 28, 2023, reflect reclassifications made to conform to the presentation in our current reporting period. These reclassifications had no effect on the previously reported net income. Approximately $12,000 was reclassified from Professional and consulting expenses to Compensation and related taxes for the three months ended February 28, 2023, and approximately $76,000 was reclassified from Professional and consulting expenses to Compensation and related taxes for the nine months ended February 28, 2023. The reclassification had no effect on previously presented total operating expenses.

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 nine months ended February 29, 2024, we had an accumulated deficit of $1,513,374 as of February 29, 2024 and have incurred operating losses and cash used in operations in the past. We currently expect to earn net income and positive cash flows from operations during the current fiscal year ending May 31, 2024. We believe our current cash balances, coupled with anticipated cash flow from operating activities, will be sufficient to meet our working capital requirements for at least one year from the date of issuance of the accompanying unaudited consolidated financial statements. We intend to continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in the short-term to invest in revenue growth. As a result of the acquisition of the Axil & Associated Brands’ business, 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 products, introducing new products, as well as expanding its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus, maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands, including those resulting from the purchase of the Axil & Associated Brands’ assets in June 2022, may lead to cash utilization at levels greater than recently experienced. The Company cannot provide any assurance that it will be able to raise additional capital or obtain necessary financing on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying unaudited consolidated financial statements.

F-5

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 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, fair value of securities issued for business combinations, fair value of assets acquired and liabilities assumed in business combinations and the fair value of non-cash Common Stock issuances.

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 14)

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.

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.

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.

F-6

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

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

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 statement 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.

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.

F-7

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

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

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 February 29, 2024, and May 31, 2023, contract liabilities amounted to $1,421,558 and $1,433,048, respectively. As of February 29, 2024 and May 31, 2023, 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 $1,293,627 and $1,320,401, respectively, and contract liabilities associated with unfulfilled performance obligations for customers’ right of return was $127,931 and $112,647, respectively. Our contract liabilities amounts are expected to be recognized over a period of between one year to three years. Approximately $880,450 will be recognized in year one, $455,170 will be recognized in year two, and $85,938 will be recognized in year three.

Revenue recognized, during the three months ended February 29, 2024, that was included in the contract liability balance upon the acquisition of Axil & Associated Brands was $72,955. Revenue recognized, during the nine months ended February 29, 2024, that was included in contract liability balance upon the acquisition of Axil & Associated Brands was $259,201.

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 expense were $313,318 and $283,237 for the three months ended February 29, 2024 and February 28, 2023, respectively. Shipping costs included in the marketing and selling expense were $807,333 and $790,759 for the nine months ended February 29, 2024 and February 28, 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.

F-8

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

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

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.

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.

F-9

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

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

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.

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.

F-10

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

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

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 nine months ended February 29, 2024 and February 28, 2023.

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 both the three months ended and nine months ended February 29, 2024 and February 28, 2023, certain stock options 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 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 Nine Months Ended
	February 29,		February 28,		February 29,		February 28,
	2024		2023		2024		2023

Net income	$	781,091	$	162,048	$	1,953,618	$	1,064,475

Weighted average basic shares		5,863,939		5,849,501		5,863,939		5,574,312
Dilutive securities:
Convertible preferred stock		12,500,000		12,500,000		12,500,000		11,767,399
Stock options		212,975		280,000		205,201		156,026
Weighted average dilutive shares		18,576,914		18,629,501		18,569,140		17,497,737

Earnings per share:
Basic	$	0.13	$	0.03	$	0.33	$	0.19
Diluted	$	0.04	$	0.01	$	0.11	$	0.06

F-11

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 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’s renewed lease for its corporate headquarters commencing December 1, 2022, under lease agreements classified as an operating lease. Please see Note 11 – “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 15 – “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 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity,” 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. For the Company, the provisions of ASU 2020-06 are effective for its fiscal year beginning on June 1, 2024. Early adoption is permitted, subject to certain limitations. The Company is evaluating the potential impact of adoption on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the 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-12

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

Note 3 – Accounts Receivable, net

Accounts receivable, consisted of the following:

Schedule of accounts receivable
	February 29, 2024			May 31, 2023
Customers Receivable	$	913,024		$	345,264
Merchant Processor Receivable		40,786			167,232
Less: Allowance for Doubtful Debts		(234,306	)		(95,480	)
Accounts receivable, net	$	719,504		$	417,016

The Company recorded bad debt expense of $79,068 and $119,757 during the three months ended February 29, 2024 and February 28, 2023, respectively. The Company recorded bad debt expense of $143,395 and $13,782 during the nine months ended February 29, 2024 and February 28, 2023, respectively.

Note 4 – Inventory, net

Inventory consisted of the following:

Schedule of inventory
	February 29, 2024		May 31, 2023
Finished Goods	$	3,257,573	$	1,198,218
Raw Materials		185,720		113,646
Inventory, net	$	3,443,293	$	1,311,864

At February 29, 2024 and May 31, 2023, inventory held at third party locations amounted to $77,803 and $0, respectively. At February 29, 2024 and May 31, 2023, inventory in-transit amounted to $369,243 and $135,482, respectively.

During the nine months ended February 29, 2024, the Company did not record any allowance on slow moving inventory that would be included in cost of sales. As of February 29, 2024, there was no 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	February 29, 2024			May 31, 2023
Furniture and Fixtures	5 years	$	25,644		$	14,598
Computer Equipment	3 years		30,968			33,146
Plant Equipment	5-10 years		216,738			165,778
Automobile	5 years		15,000			15,000
Tractor Trailer	15 years		9,347			-
Less: Accumulated Depreciation			(85,551	)		(71,059	)
Total Property and Equipment, net		$	212,146		$	157,463

Depreciation expense amounted to $8,237 and $4,554 for the three months ended February 29, 2024 and February 28, 2023, respectively. Depreciation expense amounted to $25,508 and $12,046 for the nine months ended February 29, 2024 and February 28, 2023, respectively.

F-13

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

Note 6 – Intangible Assets

The Company acquired intangible assets through the Business Combination. (See Note 13). These intangible assets consisted of the following:

Schedule of intangible assets
	Estimated Life	February 29, 2024			May 31, 2023
Licensing rights	3 years	$	11,945		$	11,945
Customer Relationships	3 years		70,000			70,000
Trade Names	10 years		275,000			275,000
Website	5 years		100,000			100,000
Less: Accumulated Amortization			(132,396	)		(74,271	)
Total Intangible Assets, net		$	324,549		$	382,674

Goodwill arising through the business combination was $2,152,215 at February 29, 2024 (see Note 13).

Amortization expense amounted to $19,375 and $19,376 for the three months ended February 29, 2024 and February 28, 2023, respectively. Amortization expense amounted to $58,126 and $54,898 for the nine months ended February 29, 2024 and February 28, 2023, respectively.

Note 7 – Other Current Liabilities

Other current liabilities comprised of the following:

Schedule of other current liabilities
	February 29, 2024		May 31, 2023
Credit Cards	$	17,470	$	833
Accrued Interest		—		10,343
Royalty Payment Accrual		10,551		8,792
Sales Tax Payable		277,992		240,559
Other Accrued Expenses		1,781		17,464
Affiliate Accrual		—		27,673
Total Other Current Liabilities	$	307,794	$	305,664

F-14

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

Note 8 – Equipment Payable

During the fiscal year ended May 31, 2019, the Company purchased a forklift under an installment purchase plan. The loan amount is $16,500 payable in 60 monthly installment payments of $317 comprising of principal payment of $275 and interest payment of $42. At February 29, 2024 and May 31, 2023, the balance outstanding on the loan was $0 and $2,200, respectively. The Company recorded interest expense of $334 and $334, associated with the equipment financing during the nine months ended February 29, 2024 and February 28, 2023, on the loan in the accompanying unaudited consolidated financial statements.

Note 9 – 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 interest receivable of $437 and accrued interest of $10,343, as of February 29, 2024 and May 31, 2023, respectively.

Schedule of notes payable
Notes Payable as of	February 29, 2024			May 31, 2023
Insurance Financing	$	—		$	21,335
Financing Charges		—			1,253
Economic Injury Disaster Loan Program (EIDL)		147,150			150,000
Total		147,150			172,588
Less: Current portion		(3,310	)		(172,588	)
Non-current portion	$	143,840		$	—

F-15

AXIL BRANDS, INC. AND SUBSIDIARY

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2024

Note 10 – Stockholders’ Equity

Shares Authorized

As of February 29, 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. Any fractional shares remaining after the Reverse Stock Split were rounded up to the nearest whole share.

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 until 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 one-to-twenty ratio, pursuant to the Asset Purchase Agreement (See Note 13 and “Common Stock” section below). 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.

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. Each share of Series A Preferred Stock is 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 twenty fully paid and nonassessable shares of common 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 was proportionately adjusted in connection with the Reverse Stock Split but did not adjust the number of shares issued and outstanding. Please see Note 17 – Subsequent Events included herein for additional information about the Series A Preferred Stock.

As of February 29, 2024 and May 31, 2023,

SEC Form 10-Q filed by AXIL Brands Inc.