Filing Overview
Registrant: Reviv3 Procare Company, although the request identifies Axil Brands, Inc. The filing is an unaudited Form 10-Q for the quarter and nine months ended February 28, 2023, filed April 12, 2023. Reviv3 is an emerging growth company, smaller reporting company, and non-accelerated filer.
The company sells 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.
Key Financial Metrics
| Metric | Three months ended February 28, 2023 | Three months ended February 28, 2022 | Nine months ended February 28, 2023 | Nine months ended February 28, 2022 |
|---|---|---|---|---|
| Sales | $5.66 million | $0.48 million | $16.63 million | $1.81 million |
| Gross profit | $4.22 million | $0.34 million | $12.54 million | $1.20 million |
| Gross margin | 75% | 72% | 75% | 66% |
| Operating income (loss) | $0.22 million | $(0.10) million | $1.40 million | $(0.12) million |
| Net income (loss) | $0.16 million | $(0.10) million | $1.06 million | $(0.09) million |
| Net margin | 3% | (21%) | 6% | (5%) |
- Nine-month operating expenses were $11.14 million, or 67% of sales, compared with $1.32 million, or 73%, in the prior-year period.
- Nine-month operating cash flow was $2.32 million, compared with $(0.09) million in the prior-year period.
- Nine-month investing cash flow was $1.00 million, principally reflecting $1.07 million of cash acquired in the Axil transaction, partially offset by $65,650 of capital expenditures.
- Nine-month financing cash flow was $0.49 million, including $447,850 raised through common-stock private placements.
- Cash increased to $4.18 million at February 28, 2023, from $0.37 million at May 31, 2022.
- Total assets were $9.29 million, including $2.15 million of goodwill and $0.40 million of net intangible assets. Total liabilities were $3.43 million and stockholders’ equity was $5.86 million.
- Notes payable totaled $186,911, all classified as current. Lease liabilities totaled $117,492, and contract liabilities totaled $1.30 million.
Material Changes Versus the Prior Comparable Period
- Sales increased 1,087% year over year in the quarter and 819% in the nine-month period, primarily because of the Axil acquisition. Hearing enhancement and protection products represented approximately 95% of quarterly sales and 93% of nine-month sales.
- Nine-month gross margin increased to 75% from 66%, which management attributed to the acquired business having higher margins.
- The company shifted from losses to profitability: nine-month net income was $1.06 million versus a $0.09 million net loss, and quarterly net income was $162,048 versus a $99,314 net loss.
- Inventory increased to $1.37 million from $323,388, accounts receivable increased to $454,546 from $105,921, and other current liabilities increased to $1.04 million from $89,538.
- The acquisition was funded primarily with equity: the company issued 73.2 million common shares and 250 million non-voting Series A preferred shares, convertible into common stock on a one-for-one basis after the applicable restrictions.
- Common shares outstanding increased to 117.1 million from 41.9 million at May 31, 2022. The company also had 5.6 million stock options outstanding and 250 million preferred shares outstanding at quarter-end.
Outlook, Risks, Contingencies, and Unusual Items
- Management expects to earn net income for fiscal 2023 and believes cash balances and anticipated operating cash flow will fund operations and debt payments for at least one year from issuance of the financial statements. Management provides no assurance that additional capital will not be required or that financing will be available on acceptable terms.
- The company’s EIDL loan and $6,300 PPP loan were reported to be in default because required installments had not been paid. The EIDL balance was $148,609 at February 28, 2023. The filing classifies all notes payable as current.
- The company remains exposed to COVID-19 effects, supply-chain disruptions, inflation, labor shortages, reduced discretionary spending, recessionary conditions, vendor concentration, cybersecurity risks, competition, product liability, regulatory changes, and difficulty raising capital.
- Cash of approximately $3.78 million exceeded FDIC insurance limits at February 28, 2023.
- One vendor represented approximately 79% of inventory purchases during the nine months ended February 28, 2023, and approximately 91% of inventory purchases were from international vendors.
- Two customers represented approximately 57% of accounts receivable at quarter-end. The filing does not identify those customers.
- The company recorded $1.30 million of contract liabilities, primarily for warranty obligations and estimated product returns, expected to be recognized over one to three years.
- A lawsuit by Jacksonfill, LLC alleges nonpayment for products. The company recorded the $204,182 claim in accounts payable and intends to defend the matter.
- The Axil acquisition included provisional fair-value estimates, including $2.15 million of goodwill. The purchase accounting remains subject to final valuation adjustments within the permitted measurement period.
- The company paid substantial consulting, compensation, commission, and contractor amounts to the Axil major shareholder and related family members during the nine-month period. The filing reports, among other amounts, $159,696 of consulting fees to the major shareholder and $90,541 to the shareholder’s sons.
- Management stated that disclosure controls and procedures were effective as of February 28, 2023, with no material changes in internal control over financial reporting during the quarter.
Investor Verification Items
- Confirm the correct issuer and corporate relationship because the filing is by Reviv3 Procare Company, not Axil Brands, Inc.
- Assess the sustainability of post-acquisition revenue, margins, and cash flow, particularly because the acquired Axil business generated most of the reported sales.
- Review the terms, enforceability, and potential acceleration consequences of the EIDL and PPP loan defaults.
- Evaluate dilution risk from 250 million convertible preferred shares, 5.6 million options, and restrictions or limitations affecting future equity issuance.
- Reconcile the $1.30 million contract-liability balance with future revenue recognition and warranty or return obligations.
- Assess goodwill and intangible-asset impairment risk, including the provisional purchase-price allocation.
- Investigate customer, vendor, international supply-chain, and uninsured cash concentrations.
- Monitor the Jacksonfill litigation and related-party payments for potential cash requirements, governance concerns, or disclosure developments.