SEC Filing Summary
Registrant and period: The provided filing is Reviv3 Procare Company’s Form 10-K for the fiscal year ended May 31, 2023, filed August 21, 2023. The request metadata identifies Axil Brands, Inc. and “2022 Q4,” but the filing identifies the registrant as Reviv3 Procare Company and covers fiscal 2023, not a quarterly period.
Business Context
- Reviv3 operates two segments: hearing enhancement and protection, and hair care and skin care.
- On June 16, 2022, the Company acquired substantially all of AXIL & Associated Brands Corp.’s hearing protection and ear-bud business. AXIL generated 93.2% of fiscal 2023 revenue; hair and skin care generated 6.8%.
- Approximately 97% of AXIL sales were direct-to-consumer, primarily through Shopify and Amazon. The Company had 15 employees at May 31, 2023.
Key Financial Metrics
| Metric | Fiscal 2023 | Fiscal 2022 | Change |
|---|---|---|---|
| Net sales | $23.521 million | $2.336 million | 907% increase |
| Gross profit | $17.711 million | $1.508 million | 1,075% increase |
| Gross margin | 75.3% | 64.5% | Up 10.8 percentage points |
| Operating expenses | $15.727 million | $1.719 million | 814.8% increase |
| Income from operations | $1.984 million | $(0.211) million | Improved by $2.196 million |
| Net income (loss) | $1.825 million | $(0.183) million | Improved by $2.007 million |
| Net cash from operating activities | $2.918 million | $(0.126) million | Improved by $3.044 million |
| Cash at period end | $4.833 million | $0.374 million | Increase of $4.459 million |
- Marketing and selling expenses were $11.675 million, including approximately $10.9 million of increased AXIL advertising spending.
- Cash provided by investing activities was $1.001 million, primarily reflecting $1.066 million of cash acquired in the AXIL acquisition, offset by $65,650 of capital expenditures.
- Cash provided by financing activities was $540,051, including $447,850 from common-stock issuance and $132,620 of related-party advances.
- Total assets were $10.169 million, including $2.152 million of goodwill and $382,674 of identifiable intangible assets. Total liabilities were $3.497 million and stockholders’ equity was $6.672 million.
- Debt included a $150,000 EIDL, $21,335 of insurance financing, and other notes and equipment obligations. The balance sheet classified $172,588 of notes payable as current.
- Contract liabilities totaled $1.433 million, primarily for warranty services and customer return rights, with recognition expected over one to three years.
Material Changes Versus the Prior Period
- The AXIL acquisition transformed the Company from primarily a hair and skin care business into a predominantly hearing and audio products company.
- Revenue growth and improved gross margin were driven by AXIL sales, higher-margin direct-to-consumer channels, procurement efficiencies, and reduced product costs.
- Operating expenses increased substantially because of AXIL advertising, marketing, compensation, consulting, and general operating costs.
- Common shares outstanding increased from 41.9 million to 117.1 million. The Company also issued 250 million non-voting Series A preferred shares convertible into common stock on a one-for-one basis after applicable restrictions.
- Management reported an accumulated deficit of $3.467 million at May 31, 2023, despite current-year profitability.
Outlook, Risks, and Unusual Items
- Management expects net income and positive operating cash flow for fiscal 2024 and believes existing cash and anticipated operating cash flow will fund operations for at least one year from the financial statement issuance date.
- No quantitative revenue or earnings guidance was provided. Management plans to expand products, distribution, retail sales, direct-to-consumer marketing, and the sales team, subject to available capital.
- Management cautioned that additional financing may be required if revenue growth or cash generation is insufficient. Financing may be unavailable or dilutive, and a failure to obtain capital could require curtailment of operations or creditor protection.
- Material risks include consumer demand and market acceptance, advertising efficiency, competition, supply-chain and raw-material constraints, inflation, labor shortages, cybersecurity, product liability, intellectual-property protection, regulatory compliance, and acquisition integration.
- The Company’s disclosure controls and internal control over financial reporting were determined to be ineffective as of May 31, 2023. Remediation includes third-party accounting-system support, additional accounting personnel, improved review procedures, segregation of duties, and formal written policies.
- Three hair and skin care customers represented 61%, 12%, and 21% of that segment’s revenue. AXIL purchases were concentrated with two vendors representing approximately 92% of purchases.
- Approximately $4.583 million of cash exceeded FDIC insurance limits at May 31, 2023.
- A Jacksonfill, LLC lawsuit alleges breach of contract relating to allegedly defective products. The Company is defending the matter and recorded the $204,182 claim as accounts payable; management did not expect a material adverse effect, although litigation outcomes remain uncertain.
- Related-party payments included consulting, packaging, affiliate marketing, inventory-management, commission, and travel services. The CEO’s related entity, Intrepid Global Advisors, was owed $124,378 at May 31, 2023.
- The independent auditor issued an unqualified opinion on the financial statements but did not express an opinion on internal control effectiveness. Business combinations was identified as a critical audit matter.
Investor Verification Priorities
- Verify the requested issuer and period: the supplied document is Reviv3 Procare’s fiscal 2023 10-K, not an Axil Brands 2022 fourth-quarter filing.
- Assess the sustainability of AXIL’s revenue, gross margin, and direct-to-consumer customer acquisition after the acquisition anniversary.
- Review the $1.433 million contract-liability balance, warranty obligations, return estimates, and related revenue-recognition assumptions.
- Evaluate liquidity after required debt payments, advertising spending, inventory investment, and potential need for additional capital.
- Monitor remediation of ineffective disclosure and financial-reporting controls.
- Assess dilution from the 250 million convertible preferred shares, outstanding options, and the Company’s 450 million authorized common shares.
- Review customer, supplier, cash-insurance, related-party, and litigation concentrations, including the Jacksonfill claim.