Business Context and Reporting Period
The filing is a Form 10-Q for Reviv3 Procare Company, not Axil Brands, Inc.; investors should verify the issuer identity. The report covers the three and six months ended November 30, 2017, with unaudited financial statements. 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 company reported 40,505,047 common shares outstanding as of January 12, 2018 and identified itself as a smaller reporting company and emerging growth company.
Key Financial Metrics
| Metric | Three months ended November 30, 2017 | Six months ended November 30, 2017 |
|---|---|---|
| Sales | $135,909 | $247,154 |
| Gross profit | $68,291 | $135,031 |
| Gross margin | 50% | 55% |
| Operating loss | $(100,283) | $(225,978) |
| Net loss | $(101,298) | $(228,027) |
| Net loss per share | $(0.00) | $(0.01) |
- Operating expenses were $168,574 for the quarter and $361,009 for the six months, including professional and consulting expenses of $88,545 and $207,255, respectively.
- Cash used in operating activities was $352,135 for the six months, compared with $153,867 in the prior-year period.
- Cash used in investing activities was $468, primarily for equipment purchases.
- Cash provided by financing activities was $283,610, consisting primarily of $283,400 from common-stock issuances.
- Cash declined from $416,873 at May 31, 2017 to $347,880 at November 30, 2017.
- Total assets were $776,295, including $364,265 of inventory. Total liabilities were $148,438, with no separately reported long-term debt.
- Current liabilities included $103,214 of accounts payable and accrued expenses and $45,014 of customer deposits.
- Accumulated deficit was $4,373,655 at November 30, 2017.
Material Changes Versus the Prior Comparable Period
- Quarterly sales decreased 3% from $140,341 to $135,909; six-month sales decreased 19% from $306,478 to $247,154. Management attributed the six-month decline primarily to cyclical ordering patterns and lower purchases by two wholesale distributors.
- Quarterly gross profit declined 16% from $81,182 to $68,291, and gross margin fell from 58% to 50%, primarily because cost of sales increased 14% despite lower sales.
- Six-month gross profit declined 24% from $177,628 to $135,031, while gross margin fell from 58% to 55%, primarily due to increased shipping costs.
- Quarterly operating expenses decreased 12%, and six-month operating expenses decreased 10%, primarily because of lower stock-based consulting expense, compensation, and freight-out costs. These reductions were partly offset by higher professional, accounting, rent, and travel costs.
- Despite lower operating expenses, the six-month net loss increased from $223,469 to $228,027, and operating cash usage more than doubled, largely reflecting a $234,471 increase in inventory.
- Inventory increased from $129,794 at May 31, 2017 to $364,265 at November 30, 2017, including $249,491 of raw materials and $102,414 held at third-party locations.
- Common shares outstanding increased from 39,679,047 at May 31, 2017 to 40,505,047 at November 30, 2017. The company raised $283,400 through share sales and issued 80,000 shares valued at $20,000 for consulting services.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects losses to continue during fiscal 2018 and states that the company may require additional common-stock sales or other financing to maintain operations.
- The financial statements include a going-concern qualification. Substantial doubt exists regarding the company’s ability to continue for at least 12 months because of recurring losses, $352,135 of six-month operating cash burn, and the $4,373,655 accumulated deficit.
- Management intends to seek additional funding through a private or public offering, but states that no assurance exists that capital can be raised or that sufficient revenue can be generated. Failure to obtain funding could require the company to cease operations or seek bankruptcy protection.
- Cash of approximately $347,880 exceeded FDIC-insured limits by approximately $97,000 at November 30, 2017.
- Customer concentration increased: four customers represented approximately 67% of six-month sales, and four customers represented approximately 89% of accounts receivable at November 30, 2017. International customers represented approximately 47% of six-month sales.
- Three vendors represented approximately 85% of purchases during the six months, creating supplier-concentration risk.
- The company entered a 36-month Hong Kong distribution agreement. Compensation is 16.5% of applicable gross revenue or $3,300 per month, whichever is greater. Inventory of $11,496 was held on consignment under the arrangement at quarter-end.
- The company has an operating lease through October 2019 with future minimum payments of $163,905, including $41,976 due within one year.
- On September 29, 2017, the company sold 375,000 shares for approximately $150,000 to an affiliated company managed by the CEO’s brother.
- The company reported no material litigation, no defaults upon senior securities, and no material off-balance-sheet arrangements. Management concluded that disclosure controls were effective and identified no material changes in internal control over financial reporting.
Most Important Facts to Verify
- Verify whether this filing belongs to Axil Brands, Inc. or to Reviv3 Procare Company, as the filing text identifies Reviv3 Procare Company throughout.
- Assess the going-concern risk, including the company’s ability to raise capital and fund ongoing operating losses.
- Reconcile the sharp inventory increase with sales trends, inventory turnover, and potential obsolescence or markdown exposure.
- Review customer, international-market, and supplier concentrations and their potential effect on revenue continuity.
- Examine the terms and dilution implications of the 2017 equity issuances, including the related-party sale.
- Confirm the company’s actual debt and financing obligations, including business credit-card interest expense and any commitments not separately presented as long-term debt.