SEC Form 10-Q Summary
Filing identity and period: The supplied filing identifies the registrant as Reviv3 Procare Company, not Axil Brands, Inc. It is an unaudited Form 10-Q for the quarter and six months ended November 30, 2019, filed January 6, 2020. 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.
Financial Performance and Position
| Metric | Three months ended Nov. 30, 2019 | Three months ended Nov. 30, 2018 | Six months ended Nov. 30, 2019 | Six months ended Nov. 30, 2018 |
|---|---|---|---|---|
| Sales | $328,552 | $240,159 | $454,234 | $381,339 |
| Gross profit | $158,838 | $80,543 | $239,367 | $157,947 |
| Gross margin | 48% | 34% | 53% | 41% |
| Operating loss | $(29,885) | $(58,064) | $(130,417) | $(151,117) |
| Net loss per financial statements | $(30,374) | $(58,039) | $(130,983) | $(151,343) |
- Quarterly sales increased 37%; six-month sales increased 19% year over year.
- Cost of sales declined to 52% of quarterly sales and 47% of six-month sales, compared with 66% and 59%, respectively, in the prior-year periods. Management attributed the improvement primarily to lower product assembly costs.
- Operating expenses were $188,723 for the quarter and $369,784 for the six-month period. The principal increases were marketing and selling, compensation, and general and administrative costs, partially offset by lower professional and consulting expenses.
- Cash was $344,532 at November 30, 2019, compared with $346,179 at May 31, 2019. Total current assets were $699,326 and current liabilities were $195,705.
- Total liabilities were $205,710, including $13,305 of equipment financing payable and $7,787 due to a related party. The filing reports no external credit facility or material off-balance-sheet arrangement.
- Stockholders’ equity declined to $546,387 from $677,370 at May 31, 2019, primarily because of the six-month net loss. Common shares outstanding were approximately 41.3 million.
Cash Flow and Liquidity
- Six-month operating cash flow was positive $1,913, compared with negative $147,200 in the prior-year period. The improvement was substantially driven by a $134,637 increase in accounts payable and accrued expenses.
- Investing cash outflow was $9,230, primarily for property and equipment.
- Financing cash flow was positive $5,671, consisting of $7,577 in related-party advances and $1,906 of equipment-financing repayments. No common stock was issued during the period, compared with $304,000 raised through stock issuance in the prior-year period.
- Cash decreased by $1,647 during the six months. Management states that additional financing may be required and that failure to obtain funding or generate sufficient revenue could force the company to cease operations or seek bankruptcy protection.
- The financial statements state that substantial doubt exists regarding the company’s ability to continue as a going concern for 12 months after issuance of the report. The company had a $4,769,125 accumulated deficit at November 30, 2019.
Material Changes and Unusual Items
- Sales growth and lower product costs materially improved gross profit and reduced the operating loss, but the company remained unprofitable.
- Accounts payable and accrued expenses increased to $167,107 from $32,471 at May 31, 2019, while inventory increased to $301,969 from $264,578.
- The company entered into a three-year office and warehouse lease beginning December 1, 2019. Total future minimum rental payments are reported at $282,705. The company expected to record a corresponding right-of-use asset and lease liability under ASC 842.
- The company recorded a $474 impairment loss related to intangible assets during the six months ended November 30, 2019.
- Customer and geographic concentration remain significant. One customer represented 48% of quarterly sales; three customers represented approximately 55% of six-month sales. Three customers comprised approximately 87% of accounts receivable at November 30, 2019.
- Cash deposits exceeded FDIC-insured limits by approximately $98,330 at November 30, 2019.
Guidance, Outlook, Risks, and Controls
- No quantitative revenue or earnings guidance was provided. Management intends to expand its product lines, currently comprising seven products and 16 SKUs, and continue domestic and international distribution and promotional efforts.
- Management expects losses to continue during fiscal 2019 and acknowledges dependence on product sales, additional capital, and execution of its business plan.
- Key risks include limited liquidity, dependence on significant customers and suppliers, competition, economic conditions, product development, regulatory compliance, international operations and foreign exchange, personnel, and the ability to sustain growth.
- Management concluded that 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. The filing warns that these weaknesses could result in financial statement errors or a restatement.
- The filing reports no material litigation, no unregistered equity sales during the quarter, and no defaults upon senior securities.
Investor Verification Items
- Confirm whether this filing belongs to Axil Brands, Inc.; the document itself names Reviv3 Procare Company as registrant.
- Reconcile the quarterly net loss discrepancy: the financial statements report $(30,374), while MD&A states $(28,032).
- Reconcile the operating-expense discrepancy: the financial statements report $188,723 for the quarter, while MD&A states $186,381.
- Assess the going-concern risk, expected financing needs, and the absence of committed external liquidity.
- Evaluate customer, receivable, supplier, and uninsured cash concentrations.
- Monitor remediation of the disclosed material weaknesses in internal control over financial reporting.