Business Context and Reporting Period
The filing is a Form 10-Q for the three months ended August 31, 2021. The filing identifies the registrant as Reviv3 Procare Company, not Axil Brands, Inc.; this company-name discrepancy should be verified. 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. It reported 41,945,881 common shares outstanding as of October 4, 2021.
Financial Highlights
| Metric | Three months ended August 31, 2021 | Three months ended August 31, 2020 |
|---|---|---|
| Sales | $839,272 | $268,454 |
| Gross profit | $475,376 | $132,195 |
| Gross margin | 57% | 49% |
| Operating expenses | $489,850 | $200,235 |
| Loss from operations | $(14,474) | $(68,040) |
| Net loss | $(16,039) | $(69,269) |
| Net loss per share | $(0.00) | $(0.00) |
| Net cash provided by operating activities | $8,317 | $18,156 |
| Net increase in cash | $25,763 | $13,912 |
| Cash at period end | $522,700 | $422,943 |
At August 31, 2021, total assets were $1.08 million, total liabilities were $746,173, and stockholders’ equity was $329,609. Current assets were $876,387 compared with current liabilities of $566,642. The company had an accumulated deficit of $5.12 million.
Total loan payable was $166,300, including $15,379 classified as current, and total lease liabilities were $112,000. Equipment payable totaled $7,975. The company also owed $62,574 to a related party, payable on demand and bearing no interest.
Material Changes Versus the Prior Comparable Period
- Sales increased by $570,818, or 213%, primarily from direct-to-consumer and distribution sales.
- Gross profit increased by $343,181, while gross margin improved from 49% to 57%, attributed primarily to the higher-margin direct-to-consumer channel.
- Operating expenses increased by $289,615, or 145%, principally due to increased marketing and advertising expenses. Marketing and selling expenses rose to $351,622 from $70,976.
- The operating loss narrowed to $14,474 from $68,040, and the net loss narrowed to $16,039 from $69,269.
- Operating cash flow declined to $8,317 from $18,156, despite the lower net loss, reflecting changes in receivables, payables and customer deposits.
- Financing activities provided $17,446, including $10,000 of additional EIDL proceeds and $8,271 of related-party advances. No investing cash outflows occurred in the quarter.
- Current inventory declined to $257,340 from $450,978, while cash increased to $522,700 from $496,937.
- No common shares were issued during the quarter; 200,000 shares had been issued for services in the comparable 2020 period.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued losses during fiscal 2021 and states that it may need to raise additional capital. It says current cash and anticipated operating cash flow should fund operations for at least one year from the financial statement issuance date, but provides no assurance that additional financing will be available on acceptable terms.
- The financial statements state that substantial doubt exists regarding the company’s ability to continue as a going concern for 12 months from the issuance date. Management’s plans include increasing revenue, implementing its business plan and raising funds through a private or public offering.
- COVID-19 may disrupt supplies, manufacturing, labor availability, shipping, customer demand and access to financing. The filing states that the specific financial impact was not readily determinable and that no related adjustment was recorded.
- A lawsuit by Jacksonfill, LLC alleges breach of contract relating to nonpayment for products. The company disputes the allegations and intends to defend the matter. The claimed amount of $204,182 has been recorded in accounts payable.
- Customer concentration is significant: two customers represented approximately 48% of quarterly sales, and five customers represented approximately 86% of accounts receivable at August 31, 2021. One vendor represented approximately 87% of purchases during the quarter.
- Approximately $253,694 of cash was held above FDIC insurance limits at August 31, 2021.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses involving insufficient qualified accounting personnel, lack of independent directors and inadequate segregation of duties. Management expects to rely materially on outside accounting and consulting services and cautions that financial statement errors or restatements could occur.
- The company received $10,000 of additional EIDL proceeds during the quarter. Outstanding EIDL and PPP-related balances, including the Second Draw PPP loan, require future repayments; the filing text does not clearly state whether the Second Draw PPP loan will be forgiven.
Most Important Facts to Verify
- Confirm whether this filing belongs to Axil Brands, Inc. or to Reviv3 Procare Company, as the filing’s registrant name differs from the request metadata.
- Assess the going-concern disclosure, accumulated deficit, expected operating losses and stated need for additional capital.
- Evaluate whether the large sales increase and 57% gross margin are sustainable, particularly given the company’s dependence on direct-to-consumer sales.
- Review customer, vendor and cash concentration risks, including the $204,182 legal claim recorded as accounts payable.
- Confirm repayment, forgiveness and maturity terms for the $166,300 of loan payable and the related-party balance.
- Review remediation of the disclosed material weaknesses in internal control and the risk of future reporting errors or restatements.