Business Context and Reporting Period
The filing is a Form 10-Q for Reviv3 Procare Company, not Axil Brands, Inc.; the requested company name and registrant name do not match. The report covers the quarter and nine months ended February 29, 2020, with comparisons to February 28, 2019. Reviv3 manufactures, markets, sells, and distributes professional hair and skin care products in the United States, Canada, Europe, and Asia. Manufacturing is outsourced, and the company reported seven products across 16 SKUs.
Financial Performance and Position
| Metric | Three Months Ended Feb. 29, 2020 | Three Months Ended Feb. 28, 2019 | Nine Months Ended Feb. 29, 2020 | Nine Months Ended Feb. 28, 2019 |
|---|---|---|---|---|
| Sales | $157,880 | $281,062 | $612,114 | $662,401 |
| Gross profit | $112,144 | $122,216 | $351,511 | $280,163 |
| Gross margin | 71% | 43% | 57% | 42% |
| Operating expenses | $153,255 | $125,727 | $523,039 | $434,791 |
| Operating loss | $(41,111) | $(3,511) | $(171,528) | $(154,628) |
| Net loss | $(41,599) | $(3,568) | $(172,582) | $(154,911) |
- Cash was $142,690 at February 29, 2020, down from $346,179 at May 31, 2019.
- Net cash used in operating activities was $191,974 for the nine-month period, compared with $120,214 in the prior-year period.
- Net cash used in investing activities was $9,230, primarily for property and equipment.
- Net cash used in financing activities was $2,285; the prior-year period included $304,000 of common-stock proceeds.
- Inventory increased to $344,477 from $264,578, while accounts receivable declined to $59,927 from $79,588.
- Total liabilities increased to $313,014 from $64,094, principally because of recognition of $219,962 in operating lease liabilities. Equipment financing payable totaled $12,925.
- The company had stockholders’ equity of $504,788 and an accumulated deficit of $4,810,724 at February 29, 2020.
Material Changes Versus the Prior Comparable Period
- Quarterly sales decreased 44% and nine-month sales decreased 8%. Management attributed the decline primarily to delays obtaining components from China following the Chinese New Year and continued diversification from domestic distribution toward direct-to-consumer channels.
- Gross margin improved substantially, to 71% from 43% for the quarter and to 57% from 42% for the nine-month period, which management attributed to streamlined product assembly and the shift toward direct-to-consumer sales.
- Operating expenses increased 22% for the quarter and 20% for the nine-month period. Marketing and selling expense increased to $140,260 for the nine-month period from $63,911, reflecting brand and direct-to-consumer promotional activity.
- The quarterly net loss widened to $41,599 from $3,568; the nine-month net loss widened to $172,582 from $154,911.
- The company adopted lease accounting and recorded a $235,748 initial right-of-use asset and lease liability related to a three-year office and warehouse lease signed December 1, 2019.
- No common stock was issued during the nine months ended February 29, 2020. The prior-year period included $304,000 of common-stock financing.
Guidance, Outlook, Risks, and Unusual Items
- The filing provides no quantitative revenue or earnings guidance. Management expects to expand product lines but states that losses may continue and additional financing may be required.
- Management and the financial statement notes state that recurring losses, operating cash use, and the accumulated deficit raise substantial doubt about the company’s ability to continue as a going concern for 12 months after issuance.
- The company states that cash may be insufficient for daily operations, has no external liquidity arrangements, and may need to sell additional common stock or obtain other financing. Failure to raise funds could require cessation of operations or bankruptcy protection.
- COVID-19 disrupted component availability from China and affected sales in Europe and China during the quarter. The filing warns of further supply-chain disruption, reduced consumer and customer spending, business closures, workforce constraints, and financing and credit risks.
- Revenue and receivables are concentrated. Four customers represented approximately 68% of quarterly sales, three customers represented approximately 48% of nine-month sales, and five customers represented approximately 85% of accounts receivable.
- One vendor supplied approximately 77% of purchases during the nine-month period.
- Disclosure controls were reported as ineffective due to material weaknesses involving insufficient qualified accounting personnel, lack of independent directors, and inadequate segregation of duties. Management cautioned that misstatements or a restatement remain possible.
- The company reported no material litigation and no material off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Confirm the correct issuer: the supplied filing identifies Reviv3 Procare Company, whereas the request identifies Axil Brands, Inc.
- Assess near-term liquidity using the $142,690 cash balance, $191,974 nine-month operating cash burn, lease obligations, and lack of committed external financing.
- Evaluate whether the improved gross margin is sustainable despite declining sales and materially higher marketing costs.
- Monitor COVID-19 effects on Chinese component availability, international sales, customer demand, and outsourced manufacturing.
- Review customer, product, geographic, and supplier concentration risks.
- Track remediation of the reported material weaknesses in internal control and the potential for financial reporting errors or restatement.