Certain statements in this Report constitute "forward-looking statements." Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Factors that might
cause such a differences include, among others, uncertainties relating to
general economic and business conditions; industry trends; changes in demand for
our products and services; uncertainties relating to customer plans and
commitments and the timing of orders received from customers; announcements or
changes in our pricing policies or that of our competitors; unanticipated delays
in the development, market acceptance or installation of our products and
services; changes in government regulations; availability of management and
other key personnel; availability, terms and deployment of capital;
relationships with third-party equipment suppliers; and worldwide political
stability and economic growth. The words "believe," "expect," "anticipate,"
"intend" and "plan" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement was made.
Results of Operations
Three Months Ended November 30, 2019, compared with the Three Months Ended
November 30, 2018
Revenue for the three-month periods ended November 30, 2019 and 2018 was $67,130
and $17,328, respectively. Cost of revenues for the three-month periods ended
November 30, 2019 and 2018 was $24,626 and $4,933, respectively. Gross profit
for the three-month periods ended November 30, 2019 and 2018 was $42,504 and
$12,395, respectively. Sales revenues increased largely as a result of the
acquisition of control over the sales process in the current period compared to
the prior year. In the three months ended May 31, 2019, the Company owned 100%
of G4 Products LLC (G4) and was able to control marketing activities to increase
sales more efficiently than when G4 was owned 49% by an unrelated party who
controlled most aspects of the marketing program. Cost of goods sold as a
percentage of sales increased in the three months ended November 30, 2019
(36.7%) compared to the same period in 2018 (28%) due to the use of independent
fulfillment centers to satisfy customer orders. In the prior period, the company
fulfilled orders through a controlled subsidiary.
Total operating expenses were $357,969 for the three-month period ended November
30, 2019 and $250,781 for the three-month period ended November 30, 2018,
resulting in an increase in total operating expenses of $107,188. The increase
was attributable primarily to an impairment expense of $100,000 on intangible
assets that was recognized in the current period. Officer and director
compensation decreased during the current period to $112,500 from $140,000, and
general and administrative expenses decreased $5,308 to $17,076 from $22,384,
primarily due to normalizing of operations following the changes that occurred
in the quarter ended August 31, 2019 with the shift to fulfillment centers.
These decreases were offset by a $39,996 increase in professional fees and
contract services in the current period, to $128,393 from $88,397. The increase
was the result of $20,000 paid for non-recurring professional services relating
to due diligence investigations of acquisition candidates, and added costs for
legal and accounting relating to the filing of an S-1 Registration Statement in
the current period.
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Net loss from operations for the three-month period ended November 30, 2019 was
$315,465 compared to net loss of $250,781 for the three-month period ended
November 30, 2018. The higher net loss from operations was primarily the result
of the impairment expense.
Six-months Ended November 30, 2019, compared with the Six-months Ended November
30, 2018
Revenue for the six-month periods ended November 30, 2019 and 2018 was $88,090
and $35,714, respectively, an increase of 147%. Cost of revenues for the
six-month periods ended November 30, 2019 and 2018 was $37,070 and $11,192,
respectively. Gross profit for the six-month periods ended November 30, 2019 and
2018 was $51,020 and $24,522, respectively. As with the second quarter discussed
above, the increased revenue is a result of increased marketing efforts and
control over the entire sales process in the current period compared to the
prior year. Cost of goods sold as a percentage of sales increased in the
six-months ended November 30, 2019 (42.0%) compared to the same period in 2018
(31.3%) due to the use of independent fulfillment centers to satisfy customer
orders. In the prior period, the company fulfilled orders through a controlled
subsidiary. The set-up costs for the fulfillment centers included initial
transportation costs to shift inventory from the Company controlled warehouse to
the fulfillment centers, which increased cost of sales more in the three months
ended August 31, 2019 compared to the three months ended November 30, 2019.
Net loss from operations for the six-month period ended November 30, 2019 was
$596,764 compared to net loss of $375,876 for the six-month period ended
November 30, 2018. As with the three-month periods ended November 30, 2019 and
2018, the increase was attributable primarily to an impairment expense of
$100,000 on intangible assets that was recognized in the current period. In
addition, for the six months ended November 30, 2019, the company incurred
higher operating costs due to added personnel, increased patent counsel and
professional fees, and higher officer and director compensation. The additional
operating costs were incurred as the Company ramped up its review of potential
acquisition candidates and focused on building sales of its existing products.
The Company also incurred increased costs relating to the filing of an S-1
Registration Statement during the current period.
Total operating expenses were $647,784 for the six-month period ended November
30, 2019 and $400,398 for the six-month period ended November 30, 2018,
resulting in an increase in total operating expenses between periods of
$247,386. The increase was comprised of $57,947 in professional fees and
contract services, $62,500 in officer and director compensation, $26,939 in
general and administrative expenses, and $100,000 in impairment of intangible
assets expense.
Liquidity and Capital Resources
Cash flow from operating activities for the six-month period ended November 30,
2019, was a negative $167,917. During the period, our total cash decreased by
$1,958. Cash to fund the negative cash flow from operations was derived
primarily from proceeds of advances from related parties totaling $165,959.
The Company continues to make progress in growing sales of its existing product
line, but the business is not yet sufficient to support our current operating
structure. We continue to seek out potential acquisition candidates and
distributorships and hope to see continuing growth in sales in the coming
periods. The Company is currently reliant on funding through advances from
related parties, but no assurances can be given that such funding will continue
to be available in future periods.
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the liquidation of liabilities in the normal
course of business. As stated above, we incurred net losses of $596,764 and
$375,876, respectively, for the six-month periods ended November 30, 2019, and
2018, and had an accumulated deficit of approximately $2,815,483 as of November
30, 2019. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company may seek to raise money for working
capital purposes through a public offering of its equity capital or through a
private placement of equity capital or convertible debt. It will be important
for the Company to be successful in its efforts to raise capital in this manner
if it is going to be able to further its business plan in an aggressive manner.
Raising capital in this manner will cause dilution to current shareholders.
Off Balance Sheet Arrangements
None
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