Business Context and Reporting Period
The filing is a Form 10-Q for the three months ended August 31, 2018, filed October 11, 2018. The registrant is identified in the filing as Reviv3 Procare Company, not Axil Brands, Inc. 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 financial statements are unaudited. The company is a smaller reporting company and emerging growth company, and has elected extended transition periods for certain accounting standards.
Key Financial Metrics
| Metric | Three Months Ended August 31, 2018 | Three Months Ended August 31, 2017 |
|---|---|---|
| Sales | $141,180 | $111,245 |
| Gross profit | $77,404 | $66,740 |
| Gross margin | 54.8% | 60.0% |
| Operating expenses | $170,457 | $192,435 |
| Loss from operations | $(93,053) | $(125,695) |
| Net loss | $(93,304) | $(126,729) |
| Net loss margin | Approximately (66.1%) | Approximately (114.0%) |
| Net cash used in operating activities | $(86,634) | $(198,125) |
- Cash was $141,236 at August 31, 2018, compared with $227,870 at May 31, 2018.
- Total current assets were $560,616 and current liabilities were $162,861, producing a current ratio of approximately 3.4.
- Inventory was $357,601, including $276,014 of raw materials and $81,587 of finished goods.
- Total liabilities were $162,861. The filing does not identify material interest-bearing debt; liabilities primarily comprised accounts payable, accrued expenses, and customer deposits.
- Stockholders’ equity was $420,041, with an accumulated deficit of $4,581,471.
- There was no investing cash flow and no financing cash flow during the quarter.
Material Changes Versus the Prior Comparable Period
- Sales increased $29,935, or 26.9%, to $141,180.
- Cost of sales increased 43.3% to $63,776, causing gross margin to decline from 60.0% to 54.8%.
- Gross profit increased 15.9% to $77,404.
- Operating expenses declined 11.4% to $170,457. Professional and consulting expenses decreased to $49,486 from $118,710, partially offset by higher general and administrative expenses of $104,099 versus $55,512.
- Operating loss improved by $32,642, and net loss improved by $33,425.
- Operating cash use improved by $111,491, primarily reflecting lower working-capital consumption and the absence of the prior-period $27,396 stock-based compensation adjustment.
- Cash declined $86,634 during the quarter. Inventory increased $36,064 from May 31, 2018, while customer deposits increased $46,196 to $62,396.
- Sales concentration increased: three customers represented approximately 59% of quarterly sales, compared with two customers representing approximately 47% in the prior-year quarter.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing provides no formal revenue, earnings, or operating guidance. Management expects losses to continue during fiscal 2018 and states that additional financing may be required to maintain operations.
- Management and the auditors identify substantial doubt about the company’s ability to continue as a going concern for the 12 months following issuance of the report. The company expects to seek capital through a private or public offering, but provides no assurance that financing will be available.
- Management states that failure to raise sufficient funds or generate adequate revenue could require alternative financing, cessation of operations, or protection from creditors under applicable bankruptcy laws.
- Subsequent to quarter-end, the company entered into a subscription agreement for 250,000 common shares at $0.40 per share, expected to provide $100,000 of proceeds.
- The company has a California operating lease requiring total future minimum payments of $100,945, including $86,311 due within one year.
- A consultant agreement beginning September 1, 2018 provides for a one-year term, a $1,000 monthly fee, 10% of gross revenues directly generated by the consultant, and 12,500 common shares quarterly.
- Revenue is concentrated geographically and by customers, products, and suppliers. Approximately 33% of quarterly sales were outside the United States, and four vendors represented approximately 87% of purchases.
- The company adopted ASC 606 effective June 1, 2018; management states that the adoption had no material impact.
- No material litigation, defaults upon senior securities, or unregistered equity sales during the quarter were reported. Management concluded that disclosure controls and procedures were effective as of August 31, 2018.
Most Important Facts for Investors to Verify
- Confirm the registrant identity and ticker relationship because the filing names Reviv3 Procare Company, while the request identifies Axil Brands, Inc.
- Assess the going-concern warning, available cash of $141,236, quarterly operating cash burn of $86,634, and the company’s ability to obtain additional financing.
- Verify completion and terms of the post-quarter-end $100,000 stock subscription and any resulting dilution.
- Evaluate whether the 26.9% sales growth can be sustained while gross margin remains below the prior-year level.
- Review customer, supplier, geographic, and inventory concentrations, including $357,601 of inventory and increased raw-material holdings.
- Assess the financial impact of the lease and consultant agreement, including the contingent revenue-based compensation and quarterly share issuances.