The following discussion of our financial condition and results of operations
should be read in conjunction with, and is qualified in its entirety by, the
unaudited consolidated financial statements and notes thereto included in Item 1
in this Quarterly Report on Form 10-Q.
Our Management's Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking. Forward-looking
statements are, by their very nature, uncertain and risky. Forward-looking
statements are often identified by words like: "believe", "expect", "estimate",
"anticipate", "intend", "project" and similar expressions, or words that, by
their nature, refer to future events. You should not place undue certainty on
these forward-looking statements, which apply only as of the date of this
Quarterly Report on Form 10-Q. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical results or our predictions. Our actual results could
differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to these differences include those
discussed below and elsewhere in this Quarterly Report on Form 10-Q. See
"Forward-Looking Statements" in this Form 10-Q for additional information.
Although the forward-looking statements in this Quarterly Report reflect the
good faith judgment of our management, such statements can only be based on
facts and factors currently known by them. Consequently, and because
forward-looking statements are inherently subject to risks and uncertainties,
the actual results and outcomes may differ materially from the results and
outcomes discussed in the forward-looking statements. You are urged to carefully
review and consider the various disclosures made by us in herein and in our
other reports as we attempt to advise interested parties of the risks and
factors that may affect our business, financial condition, and results of
operations and prospects.
Overview
Reviv3 Procare Company is engaged in the manufacturing, marketing, sale and
distribution of professional quality hair and skin care products under various
trademarks and brands. We have adopted and used the trademarks of our products
for distribution throughout the United States, Canada, Europe, and Asia pursuant
to the terms of twelve exclusive distribution agreements with various parties
throughout our targeted market. Our manufacturing operations are outsourced and
fulfilled by our co-packers and manufacturing partners. Currently, we produce
fifty-one products with eighty separate stock-keeping units ("SKUs"), including
hearing protection and ear bud products as a result of our asset acquisition in
June 2022, described below, and look to expand our product lines over the next
twelve months.
On May 1, 2022, Reviv3 Procare Company entered into an Asset Purchase Agreement
with Axil & Associated Brands Corp. ("Axil"), a Delaware corporation, and a
leader in hearing protection and enhancement products, for the acquisition of
both the hearing protection business of Axil consisting of ear plugs and ear
muffs, and Axil's ear bud business. These businesses constituted substantially
all of the business operations of Axil. The acquisition did not include Axil's
hearing aid line of business, which Axil will continue to operate following the
completion of the acquisition. The acquisition was completed subsequently on
June 16, 2022. On September 8, 2022, the Company and Axil entered into an
amendment to the asset purchase agreement in which eliminated the provision in
the Asset Purchase Agreement requiring the Company to effectuate a reverse stock
split of its common stock and preferred stock pursuant to the asset purchase
agreement within a certain period of time.
AXIL creates high-tech hearing and audio innovations to provide cutting-edge
solutions for people with varied applications across many industries. AXIL
designs, innovates, engineers, manufactures, markets and services specialized
systems in hearing enhancement, hearing protection, wireless audio, and
communication. AXIL distributes its products through direct-to-consumer
eCommerce channels and local, regional, and national retail chains. AXIL serves
the sporting goods market, law enforcement, tactical, fitness, outdoor,
industrial, sporting, and stadium events. AXIL focuses primarily on US markets,
followed by Canada, Europe, Australia, New Zealand, and Africa.
As a result of the acquisition of Axil's assets, the Company has two reportable
segments: hair care and skin care, and hearing enhancement and protection.
Reviv3 Procare Company was incorporated in the State of Delaware on May 21, 2015
as a reorganization of Reviv3 Procare, LLC, which was organized on July 31,
2013. The Company is not, and has not been at any time, a shell company. The
Company has moved its corporate headquarters to 901 Fremont Avenue, Units 158
and 168, Alhambra, California 91803. Its phone number remains the same.
Emerging Growth Company
We qualify as an "emerging growth company" under the JOBS Act. As a result, we
are permitted to, and intend to, rely on exemptions from certain disclosure
requirements. For so long as we are an emerging growth company, we will not be
required to:
? have an auditor report on our internal control over financial reporting
pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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? comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a
supplement to the auditor's report providing additional information about the
audit and the financial statements (i.e., an auditor discussion and analysis);
? submit certain executive compensation matters to shareholder advisory votes,
such as "say-on-pay" and "say-on-frequency;" and
? disclose certain executive compensation related items such as comparisons of
the CEO's compensation to median employee compensation.
In addition, Section 107 of the JOBS Act also provides that an emerging growth
company can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards. In other words, an emerging growth company can delay the adoption of
certain accounting standards until those standards would otherwise apply to
private companies. We have irrevocably elected to "opt out" of this provision
and, as a result, we will comply with new or revised accounting standards when
they are required to be adopted by public companies that are not emerging growth
companies.
We will remain an "emerging growth company" for up to five years, or until the
earliest of (i) the last day of the first fiscal year in which our total annual
gross revenues exceed $1.07 billion, (ii) the date that we become a "large
accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of
1934, which would occur if the market value of our ordinary shares that is held
by non-affiliates exceeds $700 million as of the last business day of our most
recently completed second fiscal quarter or (iii) the date on which we have
issued more than $1 billion in non-convertible debt during the preceding three
year period.
Results of Operations
For the Six months Ended November 30, 2022 Compared to the Six months Ended
November 30, 2021
Sales for the six months ended November 30, 2022 and 2021 were $10,969,357 and
$1,333,088, respectively. Sales for the six months ended November 30, 2022
increased by $9,636,269 or 723% over the same comparable period in 2021,
primarily due to the acquisition of the hearing protection and hearing
enhancement business, pursuant to the asset purchase agreement.
Cost of sales consisted primarily of cost of product, freight-in costs,
distribution and merchant fees. Cost of sales for the six months ended November
30, 2022 and 2021 was $2,647,669 and $476,696, respectively. Cost of sales as a
percentage of sales for the six months ended November 30, 2022 and 2021 was 24%
and 36%, respectively. Cost of sales as a percentage of sales decreased in 2022
for the respective period as compared to the same comparable period in 2021,
which was primarily due to the acquisition of the new business with higher
profit margins.
Gross profit for the six months ended November 30, 2022 and 2021 was $8,321,688
and $856,392, respectively. Gross profit as a percentage of sales for the six
months ended November 30, 2022, was 76% as compared to 64% for the same
comparable period in 2021. The increase in gross profit for the six months ended
November 30, 2022 was primarily attributable to the acquisition of the new
business with higher profit margins.
Operating expenses consisted of marketing and selling expenses, professional and
consulting fees, compensation to employees and other general and administrative
expenses. Operating expenses for the six months ended November 30, 2022 and 2021
were $7,137,292 and $876,103, respectively. Operating expenses for the six
months ended November 30, 2022, increased in amount by $6,261,189 or 715% over
the comparable period in 2021. This increase was primarily due to the costs
related to the new business which was acquired during the six months ended
November 30, 2022. Operating expenses as a percentage of sales for the six
months ended November 30, 2022 and 2021 were 65% and 66%, respectively.
Other income (expense) consisted of gain on debt forgiveness, interest income,
interest expense and other finance charges. Interest income for the six months
ended November 30, 2022 and 2021 was $6,541 and $18, respectively. Interest
expense and finance changes for the six months ended November 30, 2022 and 2021
were $3,213 and $3,145, respectively, primarily due to interest expense related
to business credit card financing charges. The Company recognized $50,500 and
$35,000 as gain on debt forgiveness during the six months ended November 30,
2022 and 2021, respectively.
Provision for income taxes amounted to $335,797 and $0 for the six months ended
November 30, 2022 and 2021, respectively. The Company recorded a provision
during the current period for the net income earned. The Company had net loss in
the comparable period in the previous year, hence no provision for taxes was
recorded.
As a result of the above, we reported a net income of $902,427 and $12,162 for
the six months ended November 30, 2022 and 2021, respectively.
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For the Three months Ended November 30, 2022 Compared to the Three months Ended
November 30, 2021
Sales for the three months ended November 30, 2022 and 2021 were $6,731,999 and
$493,816, respectively. Sales for the three months ended November 30, 2022
increased by $6,238,183 or 1,264% over the same comparable period in 2021,
primarily due to the acquisition of the hearing protection and hearing
enhancement business, pursuant to the asset purchase agreement.
Cost of sales consisted primarily of cost of product, freight-in costs,
distribution and merchant fees. Cost of sales for the three months ended
November 30, 2022 and 2021 was $1,692,965 and $112,800, respectively. Cost of
sales as a percentage of sales for the three months ended November 30, 2022 and
2021 was 25% and 23%, respectively. Cost of sales as a percentage of sales, for
the three months ended November 30, 2022 was comparable to the same period in
2021.
Gross profit for the three months ended November 30, 2022 and 2021 was
$5,039,034 and $381,016, respectively. Gross profit as a percentage of sales for
the three months ended November 30, 2022, was 75% as compared to 77% for the
same comparable period in 2021. Gross profit as a percentage of sales for the
three months ended November 30, 2022 was comparable to the same period in 2021.
Operating expenses consisted of marketing and selling expenses, professional and
consulting fees, compensation to employees and other general and administrative
expenses. Operating expenses for the three months ended November 30, 2022 and
2021 were $4,054,039 and $386,253, respectively. Operating expenses for the
three months ended November 30, 2022, increased in amount by $3,667,786 or 950%
over the comparable period in 2021. This increase was primarily due to the costs
related to the new business which was acquired during the six months ended
November 30, 2022. Operating expenses as a percentage of sales for the three
months ended November 30, 2022 and 2021 were 60% and 78%, respectively. The
decrease in operating expenses as a percentage of sales for the three months
ended November 30, 2022, was primarily due to better cost controls.
Other income (expense) consisted of gain on debt forgiveness, interest income,
interest expense and other finance charges. Interest income for the three months
ended November 30, 2022 and 2021 was $4,704 and $7, respectively. Interest
expense and finance changes for the three months ended November 30, 2022 and
2021 were $1,755 and $1,569, respectively, primarily due to interest expense
related to business credit card financing charges. The Company recognized
$35,000 gain on debt forgiveness during the three months ended November 30,
2021. There was no such gain recognized for the same comparable period in the
current year.
Provision for income taxes amounted to $261,044 and $0 for the three months
ended November 30, 2022 and 2021, respectively. The Company recorded a provision
during the current period for the net income earned. The Company had net loss in
the comparable period in the previous year, hence no provision for taxes was
recorded.
As a result of the above, we reported a net income of $726,900 and $28,201 for
the three months ended November 30, 2022 and 2021, respectively.
Liquidity and Capital Resources
We are an emerging growth company and currently engaged in our product sales and
development. We have an accumulated deficit and have incurred operating losses
in the past. We currently expect to earn net income during the current fiscal
year 2023. We believe our current cash balances coupled with anticipated cash
flow from operating activities will be sufficient to meet our working capital
requirements. We intend to continue to control our cash expenses as a percentage
of expected revenue on an annual basis and thus may use our cash balances in the
short-term to invest in revenue growth. As a result of the acquisition of Axil's
assets, we have generated and expect we will continue to generate sufficient
cash for our operational needs, including any required debt payments, for at
least one year from the date of issuance of the accompanying consolidated
financial statements. Management is focused on growing the Company's existing
products offering, as well as its customer base, to increase its revenues. The
Company cannot give assurance that it can increase its cash balances or limit
its cash consumption and thus maintain sufficient cash balances for its planned
operations or future acquisitions. Future business demands, including those
resulting from the purchase of Axil's assets in June 2022, will likely lead to
cash utilization at levels greater than recently experienced. We have recently
raised capital through the sale of our common stock and may need or choose to
raise additional capital in the future. However, the Company cannot provide any
assurance that it will be able to raise additional capital on acceptable terms,
or at all. Subject to the foregoing, management believes that the Company has
sufficient capital and liquidity to fund its operations for at least one year
from the date of issuance of the accompanying unaudited consolidated financial
statements.
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Cash Flows
Operating Activities
Net cash flows provided by operating activities for the six months ended
November 30, 2022 was $2,196,195, attributable to a net income of $902,427,
depreciation and amortization of $43,015, provision for bad debts of $105,975,
stock based compensation expense of $124,145, gain on settlement of debt of
$50,500, utilization of security deposit to pay rent of $8,385, amortization of
prepaid expenses of $3,159 and net change in operating assets and liabilities of
$1,059,589 primarily due to an increase in inventory, increase in prepaid
expenses, increase in security deposit and increase in accounts receivable
offset by an increase in accounts payable, increase in other current liabilities
and increase in contract liabilities. Net cash flows used in operating
activities for the six months ended November 30, 2021 was $28,060, attributable
to a net income of $12,162, depreciation of $4,475, bad debt expense of $2,316,
gain on debt forgiveness of $35,000 and net change in operating assets and
liabilities of $12,013 primarily due to decrease in accounts receivable and
inventory, offset by a decrease in accounts payable and accrued expenses,
customer deposits and an increase in prepaid expenses.
Investing Activities
Net cash flows provided by investing activities for the six months ended
November 30, 2022 and 2021 was $1,012,014 and $0 respectively, attributable to
the cash received from acquisition of business during the six-month period ended
November 30, 2022, partially offset by the purchase of property and equipment
during the same period.
Financing Activities
Net cash flows provided by financing activities for the six months ended
November 30, 2022 and 2021, amounted to $436,230 and $11,973, respectively. For
the six months ended November 30, 2022, we raised capital of $328,050 pursuant
to a private placement of shares of common stock, we received $111,392 in
related party loans, we repaid $1,462 towards the EIDL loan and we repaid $1,750
towards equipment financing. For the six months ended November 30, 2021, we
received $35,000 in COVID-19 related grants, we repaid advances from a related
party of $21,377 and repaid $1,650 towards equipment financing.
As a result of the activities described above, we recorded a net increase in
cash of $3,644,439 for the six months ended November 30, 2022 and a decrease in
cash of $16,087 for the six months ended November 30, 2021.
As of November 30, 2022, we had the following secured loans outstanding, both of
which were administered pursuant to the CARES Act: an Economic Injury Disaster
Loan ("EIDL") in the principal amount of $150,000 of which $149,051 remains
outstanding and a loan received pursuant to the PPP in the amount of $6,300. The
Company has paid two installments on the EIDL loan, but no installment of the
PPP loan has been paid, and as of November 30, 2022 and currently, both loans
are in default.
We are dependent on our product sales to fund our operations and may require
additional capital in the future, such as pursuant to the sale of additional
common stock or of debt securities or entering into credit agreements or other
borrowing arrangements with institutions or private individuals, to maintain
operations, which may not be available on favorable terms, or at all, and could
require us to sell certain assets or discontinue or curtail our operations. If
the current equity and credit markets deteriorate, it may make any necessary
debt or equity financing more difficult, more costly and more dilutive. In
addition, pursuant to a voting agreement, effective June 16, 2022 as amended
effective November 7, 2022, with Axil and Intrepid Global Advisors, we are
subject to certain limitations on our ability to sell our capital stock until
June 2024. Our officers and directors have made no written commitments with
respect to providing a source of liquidity in the form of cash advances, loans,
and/or financial guarantees. There can be no assurance that we will be able to
raise capital for our operations on favorable terms, or at all. We have not
located any sources for additional funds and may not be able to do so in the
future. We expect that we will seek additional financing in the future but may
not be able to obtain additional capital when needed or at all, particularly if
certain unfavorable economic and market conditions, such as inflation and the
impacts of COVID-19 pandemic and supply chain disruptions, persist or worsen and
intensify risks of a potential recession or other economic downturn. Failure to
secure any necessary financing in a timely manner and on favorable terms could
have a material adverse effect on our growth strategy, financial performance and
stock price and could require us to delay or abandon our business plans. If we
are unsuccessful at generating sufficient funds, for whatever reason, to fund
our operations, we may be forced to cease operations and may be required to seek
protection from creditors under applicable bankruptcy laws.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results or operations, liquidity,
capital expenditures or capital resources that is material to investors.
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Critical Accounting Policies
The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us to make a number of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Such estimates and
assumptions affect the reported amounts of expenses during the reporting period.
On an ongoing basis, we evaluate estimates and assumptions based upon historical
experience and various other factors and circumstances. We believe our estimates
and assumptions are reasonable in the circumstances; however, actual results may
differ from these estimates under different future conditions.
We believe that the estimates and assumptions that are most important to the
portrayal of our financial condition and results of operations, in that they
require the most difficult, subjective or complex judgments, form the basis for
the accounting policies deemed to be most critical to us. These critical
accounting policies relate to revenue recognition, impairment of intangible
assets and long-lived assets, inventory, stock compensation, and evaluation of
contingencies. We believe estimates and assumptions related to these critical
accounting policies are appropriate under the circumstances; however, should
future events or occurrences result in unanticipated consequences, there could
be a material impact on our future financial condition or results of operations.
Significant Accounting Policies
See the footnotes to our unaudited consolidated financial statements for the six
months ended November 30, 2022 and 2021, included with this quarterly report.
Impact of COVID-19
For over two years, the effects of a new coronavirus ("COVID-19") and related
actions to attempt to control its spread have impacted our business. The impact
of COVID-19 on our operating results for the six months ended November 30, 2022
was limited, in all material respects, on our sales in Europe and in China where
the Chinese government mandated numerous measures, including closures of
businesses, limitations on movements of individuals and goods, and the
imposition of other restrictive measures, in its efforts to mitigate the spread
of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated COVID-19 as a global
pandemic. Governments around the world have mandated, and in some areas continue
to introduce, orders to slow the transmission of the virus, including but not
limited to shelter-in-place orders, quarantines, significant restrictions on
travel, as well as work restrictions that prohibit many employees from going to
work. Uncertainty with respect to the economic effects of the pandemic has
introduced significant volatility in the financial markets.
To the extent that COVID-19 continues or worsens, including challenges arising
from the emergence of new variants of COVID-19, governments may extend ongoing
restrictions, reimplement previous restrictions or impose additional
restrictions. The result of COVID-19 and those restrictions have resulted, and
could continue to result, in a number of adverse impacts to our business,
including but not limited to additional disruption to the economy and consumers'
willingness and ability to spend, temporary or permanent closures by businesses
that consume our products, such as salons and spas, additional work
restrictions, and supply chains being interrupted, slowed, or rendered
inoperable. As a result, it may be challenging to obtain and process raw
materials and for supply chains to support our business needs, and individuals
could become ill, quarantined, or otherwise unable to work and/or travel due to
health reasons or governmental restrictions. Also, governments may impose other
laws, regulations or taxes which could adversely impact our business, financial
condition or results of operations. Further, if our customers' businesses or
incomes are similarly affected, they might delay or reduce purchases from us.
The potential effects of COVID-19 also could impact us in a number of other ways
including, but not limited to, reductions to our profitability, laws and
regulations affecting our business, the availability of future borrowings, the
cost of borrowings, and credit risks of our customers and counterparties.
Given the evolving health, economic, social, and governmental environments, the
potential impact that COVID-19 could have on our business remains uncertain and
could be significant.
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AXIL BRANDS, INC. 
