10-Q: AXIL Brands Reports Strong Q2 Growth, Expands Retail Reach

AXIL Brands, Inc. announced significant increases in net sales and income for the quarter and six months ended November 30, 2025, driven by new national retail partnerships.

Summary

• Net sales increased by 5.2% to $8,134,859 for the three months ended November 30, 2025, and by 10.4% to $14,991,077 for the six months ended November 30, 2025, compared to the prior year periods.
• Net income rose by 11.2% to $704,883 for the three months and by 98.4% to $1,039,177 for the six months ended November 30, 2025.
• Income from operations saw a substantial increase of 34.2% to $903,071 for the three months and 147.1% to $1,314,809 for the six months.
• Adjusted EBITDA grew by 13.9% to $1,155,353 for the three months and by 54.2% to $1,829,708 for the six months.
• Gross profit margin decreased to 68.1% for the three months and 67.8% for the six months, down from 71.1% in both prior year periods, primarily due to lower margins on a material order from a national retailer and increased sales to distributors.
• Operating expenses as a percentage of net revenues improved, decreasing to 57.0% for the three months and 59.1% for the six months, reflecting lower sales and marketing costs and higher operating efficiency.
• Net cash provided by operating activities significantly decreased to $195,607 for the six months, down from $1,904,174 in the prior year, mainly due to a substantial inventory purchase for a national retailer.
• The company secured strategic supply agreements with leading national retail chains and a new nationwide retail distribution partnership with a major U.S. retailer for its hearing protection products.
• A partnership with a major national salon chain in Canada was announced to offer the Reviv3 Procare line.
• One customer accounted for 18% of consolidated net sales for the three months and 23% for the six months ended November 30, 2025.
• The largest manufacturing vendor accounted for 81% of all purchases for the three months ended November 30, 2025.

Sentiment

Score: 8

Explanation: The company demonstrated strong growth in net sales, net income, and Adjusted EBITDA, driven by strategic expansion into national retail and salon channels. Operating efficiencies improved, and management is actively addressing supply chain risks. While gross margins were tighter due to new distribution agreements and operating cash flow was impacted by inventory build-up, the overall trajectory and strategic moves are positive.

Positives

• Net sales increased by 5.2% for the three months and 10.4% for the six months ended November 30, 2025, demonstrating strong top-line growth.
• Net income grew significantly by 11.2% for the three months and 98.4% for the six months, indicating improved profitability.
• Income from operations surged by 34.2% for the three months and 147.1% for the six months, reflecting enhanced operational efficiency.
• Adjusted EBITDA increased by 13.9% for the three months and 54.2% for the six months, with Adjusted EBITDA as a percentage of sales improving to 14.2% and 12.2% respectively.
• Operating expenses as a percentage of net revenues decreased, indicating better cost management and efficiency.
• Secured strategic supply agreements with leading national retail chains, expected to drive meaningful revenue growth and enhance brand visibility.
• Announced a new nationwide retail distribution partnership with a major U.S. retailer for hearing protection products, with broad in-store availability expected in Q3 fiscal 2026.
• Established a partnership with a major national salon chain in Canada for the Reviv3 Procare line, expanding professional reach.
• Expanded the leadership team by hiring a senior contractor to lead growth initiatives in the hair and skin care division.
• Gained media recognition in leading military publications, strengthening credibility among professional and tactical users.
• Making progress on supply chain transition strategy, including relocating senior manufacturing leadership to the U.S. and advancing domestic production capabilities, to mitigate geopolitical risks and tariffs.

Negatives

• Gross profit margin decreased to 68.1% for the three months and 67.8% for the six months ended November 30, 2025, compared to 71.1% in the prior year periods, primarily due to tighter margins on a material order from a national membership-based retail chain and increased sales to distributors in the hair and skin care segment.
• Net cash provided by operating activities decreased significantly from $1,904,174 in the six months ended November 30, 2024, to $195,607 in the current six-month period, primarily due to a substantial inventory purchase associated with a material order from a national retailer.
• The prior year's operating expenses benefited from a non-recurring forgiveness of accounts payable of approximately $220,000, which did not recur in the current period, impacting year-over-year comparisons.
• Concentration risk exists with one customer representing 18% to 23% of consolidated net sales for the periods reported.
• High supplier concentration, with the largest manufacturing vendor accounting for 81% of all purchases for the three months ended November 30, 2025.

Risks

• Unstable market and general economic conditions, including inflationary pressures, interest rate changes, decreased consumer spending, supply chain disruptions, labor shortages, and potential economic recession.
• Geopolitical events and uncertainty, such as the Ukraine-Russia conflict and conflict in the Middle East, impacting operations and supply chains.
• Ability to successfully generate sufficient revenue and obtain additional capital if needed, especially given market conditions.
• Fluctuations in currency exchange rates, different regulatory environments, trade barriers, sanctions, and social/political instability in international markets.
• Changes in the regulatory environment, including environmental, health, and safety regulations.
• Ability to protect and defend intellectual property.
• Continuity and security of information technology infrastructure and potential impact of cybersecurity breaches.
• Competition in the hearing enhancement/protection and hair/skin care industries.
• Ability to retain management and employees, and potential impact of labor shortages.
• Availability and cost of raw materials, which can be exacerbated by geopolitical conflicts.
• Additional tax expenses or exposures.
• Product liability claims.
• Potential adverse outcomes of legal or regulatory proceedings.
• Ability to engage in acquisitions, investments, partnerships, strategic alliances, or dispositions.
• Global or regional catastrophic events, including natural disasters and climate change impacts.
• Effectiveness of marketing strategy, demand for products, and ability to anticipate consumer trends and expand into new markets/product lines/offline sales.
• Ability to maintain effective internal control over financial reporting.
• Risks related to common stock, including the ability to maintain stock exchange listing.

Future Outlook

AXIL Brands expects its expanded national retail presence to drive meaningful revenue growth and significantly enhance brand visibility. The company does not anticipate a material ongoing effect from tariff-related cost pressures into fiscal year 2026 based on current tariff levels. Management projects continued generation of net income and positive cash flow for the fiscal year ending May 31, 2026, and believes it has sufficient liquidity to meet working capital needs for at least one year. The newly incorporated subsidiary, Sharper Vision Marketing Inc., is expected to support third-party clients by leveraging the company's direct-to-consumer expertise.

Management Comments

• Our overall business strategy centers on building strong market awareness of our products across multiple sales channels.
• By expanding the number of points of sale both online and offline we aim to capture more sales and customers for every dollar spent on advertising.
• We aim to optimize customer acquisition by converting the market awareness generated through paid campaigns into purchases across a broader range of retail and distribution locations.
• We expect this expanded national retail presence to drive meaningful revenue growth and significantly enhance brand visibility among a much wider customer base.
• We believe this visibility strengthens our credibility among professional and tactical users.
• We do not expect a material ongoing effect into fiscal 2026 based on current tariff levels.
• We expect to continue generating net income and positive cash flow in the fiscal year ending May 31, 2026.
• Based on our current cash balances and anticipated operating cash flows, we believe we have sufficient liquidity to meet working capital needs for at least one year from the issuance date of the accompanying consolidated financial statements.
• Management remains focused on expanding product lines and our customer base to drive revenue.

Industry Context

AXIL Brands is strategically shifting its focus from primarily direct-to-consumer sales to expanding into national retail and professional salon distribution channels. This move aligns with a broader industry trend where brands seek to diversify their sales channels to achieve wider market penetration and increased brand visibility beyond online platforms. The company's efforts to transition its supply chain and explore domestic production capabilities reflect a proactive response to global geopolitical risks and tariff uncertainties, a common challenge for companies with international manufacturing operations. The media recognition in military publications also indicates a targeted approach to specialized, high-value segments within the hearing protection market, leveraging specific product advantages.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks or industry standards.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in various lawsuits and legal proceedings that arise in the ordinary course of business.
• Management believes the ultimate liability in connection with these matters is not expected to have a material adverse effect on results of operations, financial position, or cash flows.
• Legal proceedings are inherently uncertain, and there is no assurance that expenses, liabilities, or damages will be covered by insurance or not exceed recognized amounts, potentially being material to results for a particular period.

Related Party Transactions

• The Company's Chairman and CEO, Jeff Toghraie, is the managing director of Intrepid Global Advisors (Intrepid), which provided advances for working capital and consulting services.
• Consulting fees paid to Intrepid were $50,000 for the three months and $116,100 for the six months ended November 30, 2025.
• As of November 30, 2025, the Company had a payable to Intrepid of $147,550 for advances.
• Advances from Intrepid totaled $3,219,072 and repayments to Intrepid totaled $3,071,300 during the six months ended November 30, 2025. These advances are short-term and non-interest bearing.
• The Company's Board Member, CFO, and COO, Jeff Brown, has a controlling interest in BZ Capital Strategies, which received consulting fees.
• Consulting fees paid to BZ Capital Strategies were $50,000 for the three months and $90,000 for the six months ended November 30, 2025.

Stakeholder Impact

• **Shareholders**: Experienced increased net income and EPS, but also potential future dilution from stock options and preferred stock conversions. The reduction in authorized shares could be seen as a positive for managing future dilution.
• **Employees**: Compensation and related taxes increased, and stock options/restricted stock awards are part of their compensation, indicating continued investment in human capital.
• **Customers**: Benefit from expanded product accessibility through new national retail and salon distribution partnerships, potentially leading to increased brand awareness and availability.
• **Suppliers**: The high concentration with one primary manufacturing vendor (81% of purchases) creates a dependency and potential risk for the company's supply chain.
• **Creditors**: The company is in compliance with its Economic Injury Disaster Loan (EIDL) terms, and related party advances provide working capital support.

Next Steps

• Fulfillment of multiple purchase orders from strategic supply agreements with national retail chains anticipated in the first half of calendar 2026.
• Broad in-store availability of a next-generation hearing-protection offering beginning in the third quarter of fiscal 2026.
• Assessing the impact of The One Big Beautiful Bill Act of 2025 (OBBBA) on consolidated financial statements.
• Management remains focused on expanding product lines and the customer base to drive revenue.
• May reinvest near-term cash to support revenue growth.
• Continue to make progress on supply chain transition strategy, including advancing early-stage domestic production capabilities.

Key Dates

Recommendation

AXIL Brands demonstrates strong financial growth with significant increases in net sales, net income, and Adjusted EBITDA, driven by strategic expansion into national retail and salon channels. Operating efficiencies have improved, and management is proactively addressing supply chain risks. However, the decrease in gross profit margin due to lower-margin retail sales and the substantial reduction in operating cash flow due to inventory build-up for these new channels warrant a 'Hold' rather than a 'Buy' at this juncture. The high concentration of sales to one customer and purchases from one vendor also present risks that require careful monitoring. A seasoned investor would likely wait for clearer evidence of sustained profitability from the new distribution channels and improved operating cash flow before upgrading their recommendation.

Keywords

Hearing Protection, Hearing Enhancement, Hair Care, Skin Care, Retail Distribution, SEC Filing, Quarterly Report, Financial Performance, Adjusted EBITDA, Supply Chain, Corporate Governance, AXIL Brands