Business Context and Reporting Period
The filing is a Form 10-Q for the quarter and six months ended November 30, 2018, filed January 14, 2019. The registrant named in the filing is Reviv3 Procare Company, not Axil Brands, Inc.; this identity discrepancy should be verified. The company manufactures, markets, sells, and distributes 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 November 30 | Six Months Ended November 30 |
|---|---|---|
| Sales | $240,159 | $381,339 |
| Gross profit | $80,543 | $157,947 |
| Gross margin | 34% | 41% |
| Operating loss | $(58,064) | $(151,117) |
| Net loss | $(58,039) | $(151,343) |
| Net loss per share | $(0.00) | $(0.00) |
At November 30, 2018, cash was $382,053, accounts receivable net was $35,548, inventory was $320,681, and total current assets were $762,923. Total liabilities were $115,693, consisting primarily of accounts payable, accrued expenses, and customer deposits. The filing reports no significant debt financing; due to a related party was $210. Stockholders’ equity was $671,002, and the accumulated deficit was $4,639,510.
For the six months, operating cash flow was negative $147,200, investing cash flow was negative $2,617, and financing cash flow was positive $304,000 from common-stock issuances. Cash increased by $154,183 from May 31, 2018. The company had no external liquidity arrangements or material off-balance-sheet arrangements.
Material Changes Versus Prior Comparable Period
- Quarterly sales increased 77% to $240,159 from $135,909; six-month sales increased 54% to $381,339 from $247,154.
- Quarterly gross profit increased from $68,291 to $80,543, while gross margin declined from 50% to 34%. Six-month gross margin declined from 55% to 41%.
- Cost of sales increased 136% for the quarter and 99% for the six-month period, partly because promotional products were sold at lower margins and freight costs increased.
- Quarterly operating expenses declined 18% to $138,607, and six-month operating expenses declined 14% to $309,064, primarily due to lower contractor, legal, and professional fees.
- The quarterly net loss improved from $101,298 to $58,039; the six-month net loss improved from $228,027 to $151,343.
- Operating cash usage improved from $352,135 to $147,200, while financing proceeds increased from $283,610 to $304,000.
- Common shares outstanding increased to 41,277,547 from 40,505,047 at May 31, 2018, primarily from issuing 760,000 shares for $304,000 cash and recording 12,500 shares for consultant services.
Guidance, Outlook, Risks, and Unusual Items
Management attributed the sales increase primarily to a large November order for holiday promotion and broader brand recognition. The company plans to expand its product lines over the following 12 months and currently has seven products and 13 separate SKUs. No quantitative revenue or earnings guidance was provided.
The financial statements include a going-concern warning. Management stated that the company’s losses, negative operating cash flow, and accumulated deficit create substantial doubt about its ability to continue as a going concern for 12 months after issuance. Continued operations depend on implementing the business plan, generating sufficient revenue, and raising additional capital. Management intends to pursue private or public offerings, but provides no assurance that financing will be available.
- Revenue concentration was significant: two customers represented approximately 45% of six-month sales, and three customers represented approximately 77% of accounts receivable.
- Three vendors represented approximately 75% of six-month inventory purchases, creating supplier concentration risk.
- The company had a California office and warehouse lease with approximately $79,528 of remaining minimum payments, primarily due within one year.
- Inventory included $265,354 of raw materials; the company recorded a $636 inventory-obsolescence write-down during the six months.
- Sales outside the United States represented approximately 37% of six-month sales, exposing the company to foreign-market and currency risks.
- The company adopted ASC 606 effective June 1, 2018, with no material reported impact.
- The company sold 760,000 shares for $304,000 in cash and issued 12,500 shares valued at $5,000 for consulting services.
- Management stated that disclosure controls were effective and that no material changes to internal control over financial reporting occurred during the quarter. No material litigation was reported.
Important Facts for Investors to Verify
- Confirm whether this filing belongs to Axil Brands, Inc. or Reviv3 Procare Company and reconcile the registrant name, ticker, and corporate history.
- Assess the company’s ability to raise additional capital given the explicit going-concern warning and continuing operating losses.
- Evaluate whether the November sales surge and holiday order are recurring or non-recurring and whether the associated lower-margin promotional sales can generate cash.
- Review customer and supplier concentration, including the collectibility of the 77% of receivables held by three customers.
- Verify the terms, dilution implications, and exemptions associated with the 760,000-share private placement and consultant share issuance.
- Monitor inventory conversion, raw-material levels, obsolescence exposure, and the company’s ability to fund lease and operating obligations.