SEC Form 10-Q Summary
Filing identity: The supplied filing identifies the registrant as Reviv3 Procare Company, not Axil Brands, Inc. Investors should verify that this is the intended filing. The report covers the three and nine months ended February 28, 2021, with comparisons to February 29, 2020. The financial statements are unaudited. The company manufactures, markets, sells, and distributes professional hair and skin care products in the United States, Canada, Europe, and Asia, using outsourced manufacturing partners.
Financial Results and Position
| Metric | Three months ended February 28, 2021 | Three months ended February 29, 2020 | Nine months ended February 28, 2021 | Nine months ended February 29, 2020 |
|---|---|---|---|---|
| Sales | $364,966 | $157,880 | $1,277,480 | $612,114 |
| Gross profit | $271,475 | $112,144 | $799,902 | $351,511 |
| Gross margin | 74% | 71% | 63% | 57% |
| Operating loss | $(121,028) | $(41,111) | $(134,509) | $(171,528) |
| Net loss | $(106,460) | $(41,599) | $(122,626) | $(172,582) |
| Net loss per share | $(0.00) | $(0.00) | $(0.00) | $(0.00) |
Marketing and selling expense was $201,247 for the quarter and $501,051 for the nine-month period, compared with $37,497 and $140,260, respectively, in the prior comparable periods. Professional and consulting expense was $108,132 for the quarter and $197,611 year to date. Operating expenses exceeded sales in the quarter, resulting in an operating expense ratio of 108%.
At February 28, 2021, cash was $492,066, total current assets were $988,953, and total current liabilities were $487,249. Accounts receivable was $91,944 and inventory was $301,523. Total assets were $1,192,187 and stockholders’ equity was $473,577. The accumulated deficit was $4,933,535.
Total loans payable were $169,200, consisting of PPP borrowings of $12,900, a second-draw PPP loan of $6,300, and an EIDL loan of $150,000. Equipment financing payable was $9,625. Lease liabilities totaled $151,021, including $80,219 current and $70,802 non-current according to the lease note. The balance sheet reports current and non-current lease liabilities of $81,307 and $69,714, respectively; this presentation should be reconciled.
For the nine months, operating activities provided $74,212 of cash, investing activities used $15,408, and financing activities provided $24,231. Cash increased by $83,035, from $409,031 at May 31, 2020 to $492,066 at February 28, 2021. The MD&A states a cash increase of $83,305, which differs from the cash flow statement and should be verified.
Material Changes Versus Prior Comparable Period
- Quarterly sales increased 131% and nine-month sales increased 109%, primarily due to higher distributor sales and growth in direct-to-consumer sales.
- Gross margin improved to 74% from 71% for the quarter and to 63% from 57% for the nine-month period, which management attributed primarily to the direct-to-consumer channel.
- Despite revenue and gross-margin growth, the quarterly net loss widened to $106,460 from $41,599 because marketing, selling, professional, and other operating expenses increased substantially.
- The nine-month net loss narrowed to $122,626 from $172,582, aided partly by a $16,313 gain from settling a consultant-related obligation.
- Accounts payable and accrued expenses increased to $348,632 from $128,851 at May 31, 2020. The increase includes a $204,182 claim related to the Jacksonfill litigation.
- Common shares outstanding increased to 41,725,881 from 41,285,881, primarily from shares issued or issuable for consulting and legal services.
- Prepaid expenses increased to $103,420 from $13,708, while accounts receivable declined to $91,944 from $182,201.
Guidance, Outlook, Risks, and Unusual Items
The filing provides no formal revenue, earnings, margin, or cash-flow guidance. Management expects to expand product lines, distributors, and direct-to-consumer sales, but also states that losses may continue and that additional capital may be required.
The company’s financial statements state that the accumulated deficit and operating losses raise substantial doubt about its ability to continue as a going concern for 12 months from the issuance date. Management believes available liquidity and anticipated operating cash flow can fund operations for at least one year, but acknowledges that cash may be insufficient and that financing may not be available on acceptable terms or at all.
- COVID-19 may disrupt Chinese facilities, supplies, manufacturing, shipping, labor availability, customer demand, and international operations. The specific financial impact was not determinable at the filing date.
- The company is dependent on product sales and has no committed external liquidity arrangements. Failure to obtain financing or generate sufficient revenue could require cessation of operations or protection from creditors.
- Revenue and receivables are concentrated. Three customers represented approximately 91% of accounts receivable at February 28, 2021; two customers represented approximately 41% of nine-month sales.
- Three vendors represented approximately 84% of nine-month purchases, creating supplier concentration risk.
- Jacksonfill, LLC filed a $204,182 breach-of-contract claim concerning allegedly defective products and unpaid amounts. The company intends to defend the claim and recorded the amount as accounts payable.
- Disclosure controls and internal control over financial reporting were not effective because of material weaknesses involving accounting personnel, lack of independent directors, and inadequate segregation of duties. Management warned that financial statements could contain errors or require restatement.
- The company applied for forgiveness of the original $12,900 PPP loan after quarter-end, and the filing states that the loan was repaid by SBA proceeds, reducing the company’s repayment obligation to zero.
- On March 11, 2021, the company issued 60,000 restricted shares to legal counsel for services.
Facts Investors Should Verify
- Confirm whether Reviv3 Procare Company is the correct registrant for the requested Axil Brands, Inc. filing.
- Reconcile the cash increase discrepancy between the cash flow statement ($83,035) and MD&A ($83,305).
- Reconcile the differing current and non-current lease liability amounts in the balance sheet and lease note.
- Assess the going-concern disclosure, available liquidity, expected cash burn, and the company’s ability to raise additional capital.
- Evaluate customer, receivable, supplier, and international concentration risks, including exposure to COVID-19-related disruptions.
- Monitor the Jacksonfill litigation and the treatment of the $204,182 recorded payable.
- Review remediation of the material weaknesses in internal controls and the risk of financial reporting errors or restatement.
- Verify the status and forgiveness of the remaining PPP-2 and EIDL obligations and the company’s future debt-service requirements.