Business Context and Reporting Period
The filing is a Form 10-Q for Reviv3 Procare Company, not Axil Brands, Inc. The report covers the three and nine months ended February 28, 2022, with comparable periods ended February 28, 2021. The company 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 manufacturing partners.
The filing identifies the registrant as Reviv3 Procare Company, with 41,945,881 common shares outstanding as of April 11, 2022. The provided request metadata describes the company as Axil Brands and the period as 2021 Q3; those details do not match the filing text.
Key Financial Metrics
| Metric | Three Months Ended February 28, 2022 | Three Months Ended February 28, 2021 | Nine Months Ended February 28, 2022 | Nine Months Ended February 28, 2021 |
|---|---|---|---|---|
| Sales | $476,384 | $364,966 | $1,809,472 | $1,277,480 |
| Gross profit | $341,775 | $271,475 | $1,198,167 | $799,902 |
| Gross margin | 72% | 74% | 66% | 63% |
| Operating expenses | $439,276 | $392,503 | $1,315,379 | $934,411 |
| Loss from operations | $(97,501) | $(121,028) | $(117,212) | $(134,509) |
| Net loss | $(99,314) | $(106,460) | $(87,152) | $(122,626) |
Operating expenses represented 92% of quarterly sales and 73% of nine-month sales. Basic and diluted net loss per share was reported as $(0.00) for all periods presented.
- Cash was $445,945 at February 28, 2022, compared with $496,937 at May 31, 2021.
- Total current assets were $869,233 and total assets were $1,022,197 at February 28, 2022.
- Total liabilities were $763,701, including $760,676 of current liabilities. Stockholders’ equity was $258,496.
- Net cash used in operating activities was $90,873 for the nine months ended February 28, 2022, compared with $74,212 of cash provided in the prior-year period.
- Financing activities provided $39,881, including $35,000 of loan proceeds and $7,356 of related-party advances, partially offset by $2,475 of equipment-financing repayments.
- There was no investing cash flow in the current nine-month period; the prior-year period included $15,408 of property and equipment purchases.
- Debt consisted of $156,300 of loan payable and $6,325 of equipment payable. The EIDL and Second Draw PPP loans were described as being in default because required installments had not been paid.
- The company had $61,659 payable to its chief executive officer at February 28, 2022; the advances are due on demand and bear no interest.
Material Changes Versus the Prior Comparable Period
- Nine-month sales increased $531,992, or 42%, primarily from growth in direct-to-consumer sales. Quarterly sales increased $111,418, or 31%, due to direct-to-consumer and distribution sales.
- Nine-month gross margin improved to 66% from 63%, attributed to the higher-margin direct-to-consumer channel. Quarterly gross margin declined to 72% from 74%, primarily because of higher freight costs and supply-chain constraints.
- Nine-month operating expenses increased $380,968, or 41%, principally from marketing and advertising and higher shipping costs. Quarterly operating expenses increased 12%.
- The nine-month net loss narrowed to $87,152 from $122,626, aided in part by $35,000 of debt-forgiveness gains and $25,000 of California COVID-19 relief grants. The prior-year period included $16,313 of debt-forgiveness gains and $66,400 of stock-based compensation expense.
- Cash declined $50,992 during the current nine-month period, compared with an $83,035 increase in the prior-year period.
- Current inventory declined to $317,012 from $450,978, while prepaid expenses and other current assets increased to $37,463 from $2,430.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects losses to continue during fiscal 2022 and states that the company may need to raise additional capital. Management believes available liquidity will 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 or at all.
- The financial statement footnotes state that the accumulated deficit of $5,195,816, the nine-month net loss, and negative operating cash flow raise substantial doubt about the company’s ability to continue as a going concern. Management plans to seek additional funds through a private or public offering.
- COVID-19 may disrupt supplies, manufacturing, shipping, labor availability, customer demand, and international operations. Management states that the specific financial impact is not readily determinable.
- A Jacksonfill, LLC lawsuit alleges nonpayment for products and breach of agreement. The company disputes the allegations and intends to defend the matter; the claimed amount of $204,182 is recorded in accounts payable.
- Customer and supplier concentration is significant. Two customers represented approximately 31% of nine-month sales, and four customers represented approximately 91% of accounts receivable at February 28, 2022. Four vendors represented approximately 97% of nine-month purchases.
- The company held approximately $178,491 of cash above FDIC-insured limits at February 28, 2022.
- 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. Management cautions that financial statement errors or restatements could result.
- On March 21, 2022, the board adopted a stock option plan covering 5,000,000 common shares.
Most Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Reviv3 Procare Company, whereas the request identifies Axil Brands, Inc.
- Assess going-concern risk, including negative operating cash flow, accumulated deficit, loan defaults, and the company’s stated need for additional capital.
- Verify the status, repayment terms, and potential forgiveness of the EIDL and PPP-related borrowings.
- Review the Jacksonfill litigation and the treatment of the $204,182 claim recorded in accounts payable.
- Evaluate customer, supplier, and accounts-receivable concentration and the potential impact of COVID-19 and supply-chain disruptions.
- Monitor remediation of the reported material weaknesses in internal control over financial reporting.
- Consider the potential dilution from the 5,000,000-share stock option plan and any future equity financing.