SEC Form 10-Q Summary
Filing entity: Reviv3 Procare Company, although the request identifies Axil Brands, Inc. The filing covers the three and six months ended November 30, 2022, with comparative periods ended November 30, 2021. The financial statements are unaudited.
Business Context and Reporting Period
Reviv3 manufactures, markets and distributes hair and skin care products and, following its June 16, 2022 acquisition of substantially all of Axil’s hearing protection and ear bud businesses, hearing enhancement and protection products. The acquired business excludes Axil’s hearing aid line. The company reports two segments: hair care and skin care, and hearing enhancement and protection.
Key Financial Metrics
| Metric | Three months ended Nov. 30, 2022 | Three months ended Nov. 30, 2021 | Six months ended Nov. 30, 2022 | Six months ended Nov. 30, 2021 |
|---|---|---|---|---|
| Sales | $6.732 million | $0.494 million | $10.969 million | $1.333 million |
| Gross profit | $5.039 million | $0.381 million | $8.322 million | $0.856 million |
| Gross margin | 75% | 77% | 76% | 64% |
| Operating income | $0.985 million | $(0.005) million | $1.184 million | $(0.020) million |
| Net income | $0.727 million | $0.028 million | $0.902 million | $0.012 million |
| Operating cash flow | Not separately provided | Not separately provided | $2.196 million | $(0.028) million |
At November 30, 2022, cash was $4.018 million, total current assets were $7.303 million, and total current liabilities were $3.936 million. Total assets were $10.057 million and total liabilities were $4.510 million. Inventory was $2.114 million, accounts receivable were $0.791 million, and contract liabilities totaled $1.391 million.
Notes payable totaled $0.209 million, all classified as current. The balance included $0.149 million of EIDL debt, $6,300 of PPP debt and $53,337 of insurance financing. The EIDL, PPP and insurance financing were reported as being in default because required payments had not been made.
Basic earnings per share was $0.01 for both the quarter and six-month period. Diluted earnings per share was reported as $0.00 for both periods, reflecting substantial potentially dilutive preferred stock and options.
Material Changes Versus the Prior Comparable Period
- Six-month sales increased 723% to $10.969 million, while quarterly sales increased 1,264% to $6.732 million, primarily because of the Axil acquisition.
- Hearing enhancement and protection products contributed $10.065 million, or approximately 92% of six-month sales. Hair and skin care sales declined to $0.904 million from $1.333 million.
- Six-month gross margin increased to 76% from 64%, attributed to the higher-margin acquired business. Quarterly gross margin declined modestly to 75% from 77%.
- Six-month operating expenses increased 715% to $7.137 million, primarily from costs associated with the acquired business. Marketing and selling expense was $5.077 million.
- Cash increased by $3.644 million during the six months, principally from $2.196 million of operating cash flow, $1.066 million of cash acquired in the acquisition and $0.328 million of equity proceeds.
- The company issued 250 million shares of Series A preferred stock and 73.184 million common shares as acquisition consideration. The preferred shares are convertible one-for-one into common stock after a two-year restriction period, subject to ownership limitations.
Guidance, Outlook, Risks and Unusual Items
Management expects to earn net income during fiscal 2023 and believes cash balances and anticipated operating cash flow will fund operations for at least one year from the financial statement issuance date. Management also states that future requirements, including those related to the Axil acquisition, may increase cash utilization and that additional financing may be required.
- The company has an accumulated deficit and a history of operating losses.
- Management cannot assure that additional capital will be available on acceptable terms, or at all. Failure to obtain financing or generate sufficient cash could require reductions in operations or creditor protection.
- COVID-19, Chinese vendor disruptions, supply-chain constraints, inflation, labor shortages, recessionary conditions, reduced discretionary spending and the Russia-Ukraine conflict could adversely affect operations and liquidity.
- Cash exceeding FDIC insurance limits was approximately $3.417 million at November 30, 2022.
- One vendor represented approximately 73% of six-month inventory purchases, and three customers represented approximately 71% of accounts receivable.
- The company recorded $1.391 million of contract liabilities, primarily for warranty services and estimated product returns, expected to be recognized over one to three years.
- The Axil purchase price was $4.007 million, including $2.152 million of preliminary goodwill. Acquisition valuations remain provisional.
- A Florida lawsuit alleges nonpayment for defective products. The company recorded the claimed $204,182 as accounts payable and intends to defend the matter.
- The company disclosed substantial related-party payments to Axil’s major shareholder and family members, including consulting, compensation, commissions and contractor fees.
- In December 2022, subsequent to quarter-end, the company sold 302,175 common shares for $94,500.
Investor Verification Items
- Confirm that the filing entity is Reviv3 Procare Company rather than Axil Brands, Inc., and reconcile the requested company identification.
- Verify the final purchase accounting for the Axil assets, including goodwill, intangible assets and assumed contract liabilities.
- Assess the dilution and governance implications of 250 million convertible preferred shares, 116.6 million common shares outstanding and 5.6 million options.
- Verify the status, payment requirements and potential acceleration consequences of the EIDL, PPP and insurance-financing defaults.
- Evaluate whether operating cash flow remains positive after working-capital requirements, inventory investment and contract-liability movements.
- Review the concentration of suppliers, customers, receivables and uninsured cash balances.
- Monitor the Jacksonfill litigation, related-party transactions and the company’s ability to obtain additional financing.