Business Context and Reporting Period
The filing is a Form 10-Q for the quarterly and six-month periods ended November 30, 2020. The filing identifies the registrant as Reviv3 Procare Company, not Axil Brands, Inc.; this company-name discrepancy should be verified. Reviv3 manufactures, markets, sells, and distributes professional hair and skin care products in the United States, Canada, Europe, and Asia. Manufacturing is outsourced to co-packers and other manufacturing partners.
Key Financial Metrics
| Metric | Three Months Ended Nov. 30, 2020 | Six Months Ended Nov. 30, 2020 | Comparable Change |
|---|---|---|---|
| Sales | $644,061 | $912,515 | 96% and 101% increase, respectively |
| Gross profit | $396,233 | $528,428 | Up from $158,838 and $239,367 |
| Gross margin | 62% | 58% | Up from 48% and 53% |
| Operating income (loss) | $54,558 | $(13,482) | Improved from $(29,885) and $(130,417) |
| Net income (loss) | $53,103 | $(16,166) | Improved from $(30,374) and $(130,983) |
| Operating cash flow | Not separately provided | $161,059 | Up from $1,913 |
Marketing and selling expense increased to $228,828 for the quarter and $299,804 for the six months, primarily reflecting direct-to-consumer marketing and advertising. Six-month operating expenses were $541,910, or approximately 59% of sales, compared with 81% in the prior-year period.
At November 30, 2020, cash was $579,498, current assets were $995,331, and total assets were $1.22 million. Current liabilities were $462,717, total liabilities were $715,128, and stockholders’ equity was $504,437. Accounts receivable were $78,981 and inventory was $323,304.
Debt and lease obligations included $162,900 of PPP and EIDL loans, $10,450 of equipment financing, and $169,675 of operating lease liabilities. The company reported no external liquidity arrangements or material off-balance-sheet arrangements.
Material Changes Versus the Prior Comparable Period
- Sales increased by 96% for the quarter and 101% for the six-month period, driven by higher distributor sales and direct-to-consumer sales.
- Gross margin improved to 62% for the quarter and 58% year to date, which management attributed primarily to the expanding direct-to-consumer channel.
- The company generated quarterly net income of $53,103, compared with a prior-year quarterly loss of $30,374, but remained loss-making for the six-month period.
- Operating cash flow increased substantially to $161,059, primarily because of changes in accounts payable and accrued expenses, accounts receivable, inventory, and customer deposits.
- Cash increased by $170,467 during the six months to $579,498, supported by operating cash flow and $26,466 of advances from a related party.
- The company issued 200,000 common shares to a consultant for services, valued at $16,000.
- Accounts payable and accrued expenses increased materially from $128,851 at May 31, 2020 to $325,877 at November 30, 2020. The filing separately states that a $204,182 legal claim was recorded as accounts payable.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
No quantitative revenue or earnings guidance was provided. Management expects to expand product lines, grow the customer base, and invest in direct-to-consumer sales. Management stated that available cash and anticipated operating cash flow should fund operations for at least one year from the financial statement issuance date, but also stated that additional capital may be required and cannot be assured on acceptable terms or at all.
The financial statements contain a going-concern disclosure. The accumulated deficit was $4,827,075, and management stated that these conditions raise substantial doubt about the company’s ability to continue as a going concern for 12 months from the report issuance date. Management’s strategy depends on generating sufficient revenue and raising capital.
COVID-19 disrupted Chinese facilities, many of which reopened after July 2020. Further effects could include supply-chain interruptions, difficulty obtaining raw materials, labor disruptions, weaker customer demand, and reduced access to financing. The specific financial impact was not determinable at the reporting date.
Jacksonfill, LLC sued the company for alleged nonpayment related to defective products. The company intends to defend the claim and recorded $204,182 as accounts payable. The filing also discloses customer, product, and supplier concentration risks: two customers represented approximately 50% of quarterly sales and 51% of six-month sales, while two customers represented approximately 65% of accounts receivable at November 30, 2020.
Management reported that disclosure controls and procedures were not effective because of material weaknesses involving insufficient qualified accounting personnel, lack of independent directors, and inadequate segregation of duties. The company expects to rely on third-party accounting and consulting services while pursuing remediation.
Subsequent to quarter-end, the company settled a consultant payable for $2,000, compared with the $18,313 accrued amount, recording a subsequent gain of $16,313.
Important Facts for Investors to Verify
- Confirm whether the requested issuer is Axil Brands, Inc. or the registrant identified throughout the filing, Reviv3 Procare Company.
- Assess the going-concern uncertainty, accumulated deficit, recurring funding needs, and feasibility of obtaining additional capital.
- Review the quality and sustainability of the $161,059 operating cash flow, including the significant increase in accounts payable and accrued expenses.
- Evaluate the $204,182 Jacksonfill litigation claim and the company’s accounting for the related payable.
- Monitor customer, product, supplier, geographic, and accounts-receivable concentration risks.
- Review the material weaknesses in internal controls and the likelihood and timing of remediation.
- Verify the status and potential forgiveness of the PPP and EIDL loans, including repayment obligations and accrued interest.
- Assess COVID-19 effects on Chinese manufacturing, international sales, supply chains, and customer demand.