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 and with our audited consolidated
financial statements and related notes included in our Annual Report on Form
10-K for the year ended May 31, 2022 filed with the Securities and Exchange
Commission (the "SEC") on August 25, 2022.
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: "may," "will," "expect,"
"intend," "estimate," "anticipate," "believe," "could," "would," "project,"
"continue," "potential," 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, the risks identified by us
under the heading "Risk Factors" in Item 1A of our Annual Report on Form 10-K
for the year ended May 31, 2022 filed with SEC on August 25, 2022, and
statements made in subsequent filings. See "Forward-Looking Statements" in this
Quarterly Report on Form 10-Q for additional information.
Although the forward-looking statements in this Quarterly Report on Form 10-Q
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 (the "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. As of February 28, 2023, 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
dated May 1, 2022 and amended on June 15, 2022 and September 8, 2022 (the "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 our common stock, par value $0.0001 per
share ("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.
Emerging Growth Company
We qualify as an "emerging growth company" under the Jumpstart Our Business
Startups Act (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 chief executive officer'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 $1.235 billion, (ii) the date that we become a "large
accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended, 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.
Impact of COVID-19
For over three 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 nine months ended February 28, 2023
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.
Results of Operations
For the Nine months Ended February 28, 2023 Compared to the Nine months Ended
February 28, 2022
Sales for the nine months ended February 28, 2023 and 2022 were $16,625,818 and
$1,809,472, respectively. Sales for the nine months ended February 28, 2023
increased by $14,816,346 or 819% over the same comparable period in 2022,
primarily due to the acquisition of the hearing protection and hearing
enhancement business, pursuant to the Asset Purchase Agreement. $15,419,633 or
93% of our total sales were from the hearing protection and hearing enhancement
business, during the nine months ended February 28, 2023.
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Cost of sales consisted primarily of cost of product, freight-in costs,
distribution and merchant fees. Cost of sales for the nine months ended February
28, 2023 and 2022 was $4,085,645 and $611,305, respectively. Cost of sales as a
percentage of sales for the nine months ended February 28, 2023 and 2022 was 25%
and 34%, respectively. Cost of sales as a percentage of sales decreased in 2023
for the respective period as compared to the same comparable period in 2022,
which was primarily due to the acquisition of the new business with higher
profit margins.
Gross profit for the nine months ended February 28, 2023 and 2022 was
$12,540,173 and $1,198,167, respectively. Gross profit as a percentage of sales
for the nine months ended February 28, 2023, was 75% as compared to 66% for the
same comparable period in 2022. The increase in gross profit for the nine months
ended February 28, 2023 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 nine months ended February 28, 2023 and
2022 were $11,139,189 and $1,315,379, respectively. Operating expenses for the
nine months ended February 28, 2023, increased in amount by $9,823,810 or 747%
over the comparable period in 2022. This increase was primarily due to the costs
related to the new business which was acquired during the nine months ended
February 28, 2023. Operating expenses as a percentage of sales for the nine
months ended February 28, 2023 and 2022 were 67% and 73%, respectively.
Other income (expense) consisted of gain on debt forgiveness, interest income,
interest expense and other finance charges. Interest income for the nine months
ended February 28, 2023 and 2022 was $13,262 and $28, respectively. Interest
expense and finance changes for the nine months ended February 28, 2023 and 2022
were $4,927 and $4,968, 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 nine months ended February 28,
2023 and 2022, respectively.
Provision for income taxes amounted to $395,344 and $0 for the nine months ended
February 28, 2023 and 2022, 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 $1,064,475 and a net loss
of $87,152, for the nine months ended February 28, 2023 and 2022, respectively,
an increase of $1,151,627.
For the Three months Ended February 28, 2023 Compared to the Three months Ended
February 28, 2022
Sales for the three months ended February 28, 2023 and 2022 were $5,656,461 and
$476,384, respectively. Sales for the three months ended February 28, 2023
increased by $5,180,077 or 1,087% over the same comparable period in 2022,
primarily due to the acquisition of the hearing protection and hearing
enhancement business, pursuant to the Asset Purchase Agreement. $5,354,246 or
95% of our total sales were from the hearing protection and hearing enhancement
business, during the three months ended February 28, 2023.
Cost of sales consisted primarily of cost of product, freight-in costs,
distribution and merchant fees. Cost of sales for the three months ended
February 28, 2023 and 2022 was $1,437,976 and $134,609, respectively. Cost of
sales as a percentage of sales for the three months ended February 28, 2023 and
2022 was 25% and 28%, respectively. Cost of sales as a percentage of sales, for
the three months ended February 28, 2023 was comparable to the same period in
2022.
Gross profit for the three months ended February 28, 2023 and 2022 was
$4,218,485 and $341,775, respectively. Gross profit as a percentage of sales for
the three months ended February 28, 2023, was 75% as compared to 72% for the
same comparable period in 2022. Gross profit as a percentage of sales for the
three months ended February 28, 2023 was comparable to the same period in 2022.
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 February 28, 2023 and
2022 were $4,001,897 and $439,276, respectively. Operating expenses for the
three months ended February 28, 2023, increased in amount by $3,562,621 or 811%
over the comparable period in 2022. This increase was primarily due to the costs
related to the new business which was acquired during the nine months ended
February 28, 2023. Operating expenses as a percentage of sales for the three
months ended February 28, 2023 and 2022 were 71% and 92%, respectively. The
decrease in operating expenses as a percentage of sales for the three months
ended February 28, 2023, was primarily due to better cost controls.
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Other income (expense) consisted of gain on debt forgiveness, interest income,
interest expense and other finance charges. Interest income for the three months
ended February 28, 2023 and 2022 was $6,721 and $10, respectively. Interest
expense and finance changes for the three months ended February 28, 2023 and
2022 were $1,714 and $1,823, respectively, primarily due to interest expense
related to business credit card financing charges.
Provision for income taxes amounted to $59,547 and $0 for the three months ended
February 28, 2023 and 2022, respectively. The Company recorded a provision
during the current period for the net income earned. The Company had a net loss
in the comparable period in the previous year. As a result, no provision for
taxes was recorded.
As a result of the above, we reported a net income of $162,048 and a net loss of
$99,314 for the three months ended February 28, 2023 and 2022, respectively, an
increase of $261,362.
Liquidity and Capital Resources
We are an emerging growth company and are 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 for at least one year from the date of issuance of the
accompanying consolidated financial statements. 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.
Cash Flows
Operating Activities
Net cash flows provided by operating activities for the nine months ended
February 28, 2023 was $2,319,976, attributable to a net income of $1,064,475,
depreciation and amortization of $66,944, provision for bad debts of $13,782,
stock based compensation expense of $155,067, gain on settlement of debt of
$50,500, and net change in operating assets and liabilities of $1,070,209
primarily due to an increase in accounts receivables, increase in prepaid
expenses, increase in security deposit offset by a decrease on inventory, an
increase in accounts payable, increase in other current liabilities and increase
in contract liabilities. Net cash flows used in operating activities for the
nine months ended February 28, 2022 was $90,873, attributable to a net loss of
$87,152, depreciation of $6,603, provisions for bad debt of $3,012, gain on debt
forgiveness of $35,000 and net change in operating assets and liabilities of
$21,665, 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 nine months ended
February 28, 2023 and 2022 was $1,000,764 and $0 respectively, attributable to
the cash received from acquisition of business during the nine-month period
ended February 28, 2023, partially offset by the purchase of property and
equipment during the same period.
Financing Activities
Net cash flows provided by financing activities for the nine months ended
February 28, 2023 and 2022, amounted to $485,861 and $39,881, respectively. For
the nine months ended February 28, 2023, we raised capital of $447,850 pursuant
to private placements of shares of Common Stock, we received $63,008 in related
party loans, we repaid $22,797 towards the EIDL loan and insurance financing and
we repaid $2,200 towards equipment financing. For the nine months ended February
28, 2022, we received $35,000 in COVID-19 related grants, we received advances
from a related party of $7,356 and repaid $2,475 towards equipment financing.
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As a result of the activities described above, we recorded a net increase in
cash of $3,806,601 for the nine months ended February 28, 2023 and a decrease in
cash of $50,992 for the nine months ended February 28, 2022.
As of February 28, 2023, 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 $148,609 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 February 28, 2023 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
As of February 28, 2023, 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.
Critical Accounting Policies and Use of Estimates
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.
See the footnotes to our unaudited consolidated financial statements for the
nine months ended February 28, 2023 and 2022, included with this Quarterly
Report on Form 10-Q for additional discussion of our critical accounting
policies and use of estimates.
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