See accompanying
notes to these unaudited condensed consolidated financial statements.
See accompanying
notes to these unaudited condensed consolidated financial statements.
See accompanying
notes to these unaudited condensed consolidated financial statements.
Notes
to the Condensed Consolidated Financial Statements
1.
Description of the Company
EZJR,
Inc., (“the Company” or the “Registrant” or “EZJR”) was incorporated on August 14, 2006 under
the laws of the State of Nevada as IVPSA Corporation (“IVP”). The Company was incorporated as a subsidiary of Eaton
Laboratories, Inc., a Nevada corporation.
Corporate
Structure and Business
EZJR
is an Internet marketing company headquartered in Las Vegas, Nevada. The Company has one wholly owned subsidiary, Her Marketing
Concepts, Inc. (“Her Marketing”), a Nevada Corporation. The primary purpose of Her Marketing is to purchase various
media for customer and lead generation. Additionally, Her Marketing acts as a conduit for the implementation and management of
the Media Investor Purchase Agreement described below. The Company’s primary business is to improve the sales performance
of brands, products and services by way of its proprietary e-commerce platform. The Company’s unique methodology minimizes
the cost of generating leads and then maximizes the conversion of those leads into customers. After the initial sale, EZJR utilizes
a process for monetizing customers to the greatest extent possible through up sales, down sales and cross sales.
Corporate
History
On
July 25, 2008, EZJR, a Nevada corporation and IVPSA Corporation, entered into an Acquisition Agreement and Plan of Merger. Immediately
upon the effectiveness of the merger, the original EZJR ceased to exist.
In
January 2012, the Company entered into a two-step transaction with OwnerWiz Realty Inc. (“OWR”), a privately held
Georgia corporation. The first step of the transaction occurred in January 2012, when an entity owned by the shareholders of OWR
and parent company of OW Marketing, Inc. (“OWM”) acquired seven million five hundred thousand (7,500,000) restricted
common stock shares of EZJR, representing approximately 95.25% of the then total outstanding common stock shares of 7,873,750
shares from the then two major shareholders in a private transaction. The second step of the transaction occurred on March 1,
2012, when the Company, EZJR Acquisition Corporation (“Sub”), a Nevada corporation and subsidiary of the Company and
OWR, entered into a Share Exchange Agreement and Plan of Merger “Share Exchange” pursuant to which the Sub was merged
with and into OWR, with OWR surviving as a wholly-owned subsidiary of the Company. The Company acquired all of the outstanding
capital stock of OWR in exchange for issuing restricted 390,000 shares of the Company’s common stock, which were issued
to two shareholders of OWR. Since the former shareholders of OWR owned over 95% of the outstanding common stock of the Company
upon consummation of the Share Exchange, the transaction was recorded as a reverse merger and resulted in a recapitalization with
OWR being the acquirer for accounting purposes.
On
January 28, 2014, the Company acquired Leading Edge Financial (“LEF”), a private Florida corporation engaged in the
business of personal credit management in a stock exchange transaction whereby the Company exchanged 4,585,000 shares of restricted
common stock in exchange for 100% of the stock of LEF.
On
April 22, 2015, the Company incorporated Her Marketing Concepts, Inc. (“Her Marketing”), a Nevada Corporation, as
a wholly owned subsidiary. The primary purpose of Her Marketing is to purchase various media for customer and lead generation.
On
May 15, 2015, the Company entered into an agreement with AdMaxOffers.com LLC (“Admax”), a shareholder and beneficial
owner of the Company to sell all of its ownership interest in OWR and LEF in exchange for Admax returning to the Company 650,000
shares of its common stock (valued at $422,500 at the time of the transaction). Pursuant to this divesture transaction, the majority
of the assets and obligations of OWR, LEF, and OWM are no longer the assets and obligations of the Company. As part of the sale
of these subsidiaries to Admax, Admax agreed to assume the liabilities for all compensation owed to both the Company’s former
Chief Technology Officer and the then Chief Executive Officer. In turn, the Company agreed to assume the following liabilities
of OWM and LEF: 1) estimated unpaid payroll taxes of $6,665 plus estimated late fees of $1,033; 2) remaining administrative fees
and other fees owed under an Assurance of Voluntary Compliance pursuant to the Fair Business Practice Act with the State of Georgia
of approximately $10,000; 3) a customer refund for $1,500; and 4) a $25,000 note payable plus unpaid interest. Additionally, the
Company agreed to reimburse Edward Zimbardi and Brenda Zimbardi up to $10,000 for legal fees that they may incur to defend against
lawsuits related to any legal decisions that they took on behalf of the Company while serving as an officer of the Company or
any of its subsidiaries at the time.
For
the three and six months ended June 30, 2015, the operations of OWR, LEF and OWM are accounted for as discontinued operations.
EZJR’s
Business
Agreement
with Her Holding, Inc.
As
of October 1, 2014, the Company entered into a Marketing and Selling Agreement (the “Agreement”) with Her Imports,
LLC (“Her”), a retailer of human hair extensions and related products. Under the agreement, the Company was to custom
design Her’s ecommerce Websites and generate customer leads through email marketing campaigns, online advertising and social
media and various affiliate marketing campaigns. Finally, the Company was to sell Her’s products as well as other products
to these customers. As part of the Agreement, the Company purchased Her’s inventory that was on hand at September 30, 2014
in exchange for a Secured Promissory Note. The Company intends to enter into similar agreements with other brands and retailers
some of who will pay a commission to the Company based on the sales generated.
In
addition to the Company selling the Her products online, Her’s products are sold at independent retail store locations.
As part of the agreement with Her, the Company reimburses Her for the expenses of these store locations, employee costs, connectivity
expenses and certain other expenses as agreed upon. All retail store sales are made by the Company and are processed through a
Point-of-Sale (POS) system implemented by the Company. Additionally, the Company reimburses Her for specific customer service
costs, warehousing and fulfillment expenses. Finally, the Company pays Her a 10% royalty on net sales. In return, Her provides
the Company with assistance in developing and sourcing of products, promotion of products, employee training, customer service
and high level store management. On November 14, 2014, the agreement was modified to allow any payments made by the Company on
behalf of Her to be offset against any royalty payments. Effective September 1, 2015, the Company issued 4,000,000 shares of restricted
common stock valued at $2,200,000 to Her Holding in exchange for a reduction in the royalty cash payments to 2.5%. Additionally,
the Company agreed to pay for certain connectivity, telephony and customer services expenses that heretofore were paid by Her.
During
the three and six months ended June 30, 2016 and June 30, 2015, sales of Her Import products accounted for substantially all of
the Company’s revenues.
eCommerce
Platform
On
May 28, 2014, the Company entered into an Asset Purchase Agreement with Leader Act Ltd HK, (“Leader”) a private Hong
Kong corporation to purchase an ecommerce Platform (“Platform”) software program developed and owned by Leader. The
Platform entails all aspects of interaction that a company has with its customer, whether it is sales or service-related, provides
a greater understanding of the customer and helps manage customer data and all interaction with the customer. Under the terms
of the Asset Purchase Agreement, Leader agrees to service and maintain the software for a period of two years. Subsequently, Leader
will be paid to service and maintain the software. For the Platform and service and maintenance, the Company issued Leader 10,000,000
restricted shares of common stock valued at $0.05 per share. For financial reporting purposes, $350,000 of the purchase price
was allocated to the Platform and $150,000 was allocated to the software maintenance agreement, which was booked as a prepaid
at the date of the acquisition and is being amortized on a straight-line basis over the two-year term of the agreement. This agreement
has expired and the Company is in the process of negotiating for another two-year period.
Media
Investor Purchaser Agreement
On
June 29, 2014, the Company entered into a Media Investor Purchaser Agreement (“MIP”) with Leader. Under the terms
of the MIP Agreement, Leader undertakes the responsibility to provide the investment dollars of the “media purchase”
for customers and lead generation and to manage this process. In doing so, Leader will create the offers, spend the funds necessary
to purchase various media and manage the overall process. The Company’s current on-line offers are focused in the financial
services industry, representing credit monitoring and management. Leader is also responsible for graphic design, Website design
and various other programming expenses. The net revenue from the media purchase will be shared with each party receiving 50 percent
after the deduction of certain costs and expenses including the media purchase, merchant fees, product costs, and affiliate fees.
Under the agreement the Company will be responsible for customer service, network costs, accounting and other general and administrative
costs. Leader can advance the Company up to $500,000, which may be converted, into a total of 10,000,000 restricted common shares
of the Company’s stock at the fixed price of $0.05 per share. Once Leader has acquired the 10,000,000 shares of the Company’s
stock ownership, the MIP Agreement is no longer in force. Leader had previously advanced the Company the sum of $50,000 for media
purchases. On June 26, 2014, these funds were used to purchase 1,000,000 restricted shares of the Company’s common stock
at $0.05 per share. Since September 30, 2014, there has been no activity related to the MIP agreement as the Company has been
focusing its marketing efforts on the agreement with Her Imports. However, the Company anticipates that the MIP program will be
reactivated at some point in the future.
Reclassifications
Certain
reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current
year’s presentation. These reclassifications had no effect on previously reported results of operations. The Company reclassified
certain expense accounts to conform to the currents year’s treatment.
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of the Company (a Nevada Corporation) and its wholly owned subsidiary,
Her Marketing Concepts, Inc. All significant intercompany transactions have been eliminated in consolidation.
Basis
of Presentation of the Condensed Consolidated Financial Statements
The
accompanying unaudited condensed consolidated financial statements of the Company are prepared by management on the accrual basis
of accounting and in accordance with principles generally accepted in the United States of America (“GAAP”) for interim
financial information as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”), and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required
for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the unaudited
condensed consolidated financial statements do not include all of the information and footnotes required by the US GAAP for complete
financial statements. The unaudited condensed consolidated financial statements include accounts and related adjustments, which
are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company’s financial
position, results of operations and cash flows for the interim period. Operating results for the three and six months ended June
30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. These unaudited
condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements
and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
The
condensed consolidated balance sheet as of December 31, 2015 contained herein has been derived from the audited consolidated financial
statements as of December 31, 2015, but do not include all disclosures required by the US GAAP.
Use
of Estimates
The
preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain reported amounts and disclosures. Management uses its historical
records and knowledge of its business in making estimates. Accordingly, actual results could differ from those estimates.
Discontinued
Operations
As
described in Note 1, above, on May 15, 2015 the Company sold three wholly owned subsidiaries as part of an exchange of stock.
For financial reporting purposes the sale of these entities is reported as discontinued operations for the three months and six
months ended June 30, 2015.
Cash
Equivalents
The
Company considers deposits that can be redeemed on demand and investments that have original maturities of less than three months,
when purchased, to be cash equivalents. As of June 30, 2016 and December 31, 2015, the Company’s cash and cash equivalents
were on deposit in federally insured financial institutions, and at times may exceed federally insured limits.
Concentration
of Credit Risk for Cash Deposits at Banks
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. The Federal
Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 for any single account at the Company’s financial institutions.
From time-to-time one or more of the Company’s bank accounts may exceed the FDIC insurance limits.
Accounts
Receivable
Accounts
receivable represent balances related to products sold for which the Company had not received the related funds from various financial
institutions as of the reporting period. Interest is not accrued on accounts receivable and all receivables were received within
one week of the end of the reporting period and, as such, the Company has no allowance for doubtful accounts as of June 30, 2016
and December 31, 2015.
Fair
Value of Financial Instruments
The
Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. Fair value measurements are based on a three tier hierarchy
that prioritizes the inputs used to measure fair value, using quoted prices in active markets for identical assets (Level 1);
significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).
The
Company did not have any assets measured at fair value on a recurring basis at June 30, 2016 or December 31, 2015.
The
Company believes the carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable,
accrued salaries, wages and payroll taxes, and other accrued expenses are a reasonable approximation of the fair value of those
financial instruments because of the nature of the underlying transactions and the short-term maturities involved.
Inventories
Inventory
is booked at cost on a FIFO basis. The Company evaluates the carrying value of inventory to determine if the carrying value is
recoverable at estimated selling prices. To the extent that estimated selling prices do not exceed the associated carrying values,
inventory carrying amounts are written down. In addition, the Company inventory on hand or committed with suppliers, that is not
expected to be sold within the next 12 months, is considered as excess and thus appropriate write-downs of the inventory carrying
amounts are established through a charge to cost of revenues. Significant reductions in product pricing or changes in technology
and/or demand may necessitate additional write-downs of inventory carrying value in the future.
Deposits
Deposits
consists of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Deposits on Products
|
|
$
|
71,085
|
|
|
$
|
-
|
|
Security Deposits
|
|
|
23,400
|
|
|
|
17,780
|
|
Total
|
|
$
|
94,485
|
|
|
$
|
17,780
|
|
Intangible
asset, net
Effective
September 1, 2015, the Company issued 4,000,000 shares of restricted common stock valued at $2,200,000 to Her Holding in exchange
for a reduction in the royalty cash payments to 2.5%. Additionally, the Company agreed to pay for certain connectivity, telephony
and customer service expenses that heretofore were paid by Her. For financial statement reporting purposes, the value of the stock
paid to Her was treated as an intangible asset to be amortized into expense until such time as the reduction in royalties paid
totals $2,200,000. During the three and six months ended June 30, 2016, amortization of the intangible asset was $258,747 and
$545,243. The amount of intangible asset amortized is calculated by taking the difference between the royalty calculation at previous
royalty rate of 10% and the new rate of 2.5%.
Basis
for Recording Fixed Assets, Lives, and Depreciation Methods
Property
and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements,
maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of,
the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results
of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using
the straight-line method for financial statement purposes. The Company uses other depreciation methods for tax purposes where
appropriate. The estimated useful lives for significant property and equipment categories are as follows:
Furniture
and fixtures
|
5
years
|
Computers
and equipment
|
3
years
|
Software
|
5
years
|
Leasehold
improvement
|
remaining
life of the lease
|
Revenue
Recognition
Product
Sales
The
Company, through the Her Imports store locations and its eCommerce Website, www.herimports.com, sells a variety of hair extensions
and related products. In the stores, customers pay for the products using either cash, a debit card or a credit card. In the case
of cash sales at the store, the store manager makes a nightly deposit of the cash, rounded down to a dollar. For cash sales, the
Company recognizes the sale when the deposit is recorded into the Company’s account by the bank. For credit card and debit
sales, the Company recognizes the sale when the card is charged.
Product
sales on the Website are paid for using either debit cards, credit cards, PayPal or an independent financing company. Sales for
Website product sales are recognized upon shipment of the product.
The
Company recognizes revenue from product sales and services once all of the following criteria for revenue recognition have been
met: persuasive evidence that an agreement exists; the services have been rendered; the fee is fixed and determinable and not
subject to refund or adjustment; and collection of the amount due is reasonably assured.
Impairment
Assessments of Purchased Software
On
May 28, 2014, the Company purchased, for restricted shares of common stock, an eCommerce software program. The value of the software
is amortized over five years. The Company makes judgments about the value of this long-lived asset whenever events or changes
in circumstances indicate that an impairment in the remaining value of the assets recorded on the balance sheet may exist. In
order to estimate the fair value of long-lived asset, the Company typically makes various assumptions about the future prospects
for the business that the asset relates to, considers market factors specific to that business and estimates future cash flows
to be generated by that business. These assumptions and estimates are necessarily subjective and based on management’s best
estimates based on the information available at the time such estimates are made. Based on these assumptions and estimates, the
Company determines whether it needs to record an impairment charge to reduce the value of the asset stated on the balance sheet
to reflect its estimated fair value determined by a discounted cash flow analysis. The Company has not recognized any impairment
charges related to software during the three and six month periods ended June 30, 2016 and June 30, 2015.
Income
Taxes
The
Company accounts for income taxes under the liability method in accordance with FASB ASC 740-10. Under this standard, deferred
income tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets
and liabilities using the enacted tax rates expected to be in effect for the year in which the differences are expected to reverse.
Deferred income tax assets are reduced by a valuation allowance when the Company is unable to make the determination that it is
more likely than not that some portion or all of the deferred income tax asset will be realized.
Earnings
(Loss) per Share
The
Company utilizes FASB ASC 260. Basic earnings per share is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share
except that the denominator is increased to include the number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded
from the computation if their effect is anti-dilutive.
Stock-based
compensation
The
Company records stock-based compensation issued to external entities for goods and services at either the fair market value of
the shares issued or the value of the services received, whichever is more readily determinable, using the measurement date guidelines
enumerated in FASB ASC 505-50-30.
Recent
Accounting Pronouncements
ASU
2015-14
In
August 2015, the FASB issued ASU No. 2015-14, Revenue From Contracts With Customers (Topic 606).” The amendments in this
ASU defer the effective date of ASU 2014-09. Public business entities should apply the guidance in ASU 2014-09 to annual reporting
periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application
is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within
that reporting period. We are still evaluating the effect of the adoption of ASU 2014-09.
ASU
2015-11
In
July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory (Topic 330).” ASU 2015-11 simplifies
the accounting for the valuation of all inventory not accounted for using the last-in, first-out (“LIFO”) method by
prescribing that inventory be valued at the lower of cost and net realizable value. ASU 2015-11 is effective for financial statements
issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis.
We do not expect the adoption of ASU 2015-11 to have a material effect on our financial position, results of operations or cash
flows.
ASU
2015-05
In
April 2015, the FASB issued ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40).”
ASU 2015-05 provides guidance regarding the accounting for a customer’s fees paid in a cloud computing arrangement; specifically,
about whether a cloud computing arrangement includes a software license, and if so, how to account for the software license. ASU
2015-05 is effective for public companies’ annual periods, including interim periods within those fiscal years, beginning
after December 15, 2015 on either a prospective or retrospective basis. Early adoption is permitted. We do not expect the adoption
of ASU 2015-05 to have a material effect on our financial position, results of operations or cash flows.
ASU
2015-03
In
April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs.” The amendments in this ASU require that debt issuance costs related to a recognized debt liability
be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The
amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual
period presented is adjusted to reflect the period-specific effects of applying the new guidance. We do not expect the adoption
of ASU 2015-03 to have a material effect on our financial position, results of operations or cash flows.
ASU
2015-02
In
February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,”
which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited
liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed
security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate
whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to
two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis
on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party
guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation
conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted,
including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial
position, results of operations or cash flows.
The
Company has evaluated other recent pronouncements and believes that none of them will have a material impact on the Company’s
financial position, results of operations or cash flows.
3.
Discontinued Operations
On
May 15, 2015, the Company completed the sale of all of the issued and outstanding stock of OwnerWiz Realty Inc., OwnerWiz Management,
Inc., and Leading Edge Financial, Inc. to Admax.com LLC, a shareholder and beneficial owner of the Company in exchange for 650,000
common stock shares of the Company. All non-recurring costs associated with these dispositions have been included as discontinued
operations in the condensed consolidated financial statements.
The
Company’s results from discontinued operations are summarized below. These operating results for the three and six month
ended June 30, 2015 do not necessarily reflect what they would have been had these three previous subsidiaries not been classified
as discontinued operations.
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
June 30, 2015
|
|
|
June 30, 2015
|
|
Revenues
|
|
$
|
(2,420
|
)
|
|
$
|
60,955
|
|
Cost of revenues
|
|
|
-
|
|
|
|
(5,568
|
)
|
Commission expenses
|
|
|
-
|
|
|
|
(15,464
|
)
|
Selling expense
|
|
|
-
|
|
|
|
(37,835
|
)
|
General and administrative expenses
|
|
|
7
|
|
|
|
(66,892
|
)
|
Interest expense
|
|
|
-
|
|
|
|
(31,800
|
)
|
Loss from discontinued operations
|
|
$
|
(2,413
|
)
|
|
$
|
(96,604
|
)
|
During
the three and six months ended June 30, 2015 the Company recorded a gain on the sale as follows:
Common stock received and cancelled
|
|
$
|
422,500
|
|
Liabilities sold
|
|
|
1,005,434
|
|
Intercompany payables forgiven
|
|
|
8,034
|
|
Carrying value of assets sold
|
|
|
(14,878
|
)
|
Intercompany receivables forgiven
|
|
|
(6,186
|
)
|
Investment in LEF
|
|
|
(100
|
)
|
Net gain on sale of subsidiaries
|
|
$
|
1,414,804
|
|
4.
Property and Equipment
Property
and equipment consisted of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Software
|
|
$
|
359,315
|
|
|
$
|
356,005
|
|
Computers and equipment
|
|
|
47,019
|
|
|
|
38,610
|
|
Furniture
|
|
|
25,166
|
|
|
|
21,197
|
|
Leasehold improvements
|
|
|
11,793
|
|
|
|
11,354
|
|
|
|
|
443,293
|
|
|
|
427,166
|
|
Accumulated depreciation and amortization
|
|
|
(168,202
|
)
|
|
|
(120,010
|
)
|
Property and equipment, net
|
|
$
|
275,091
|
|
|
$
|
307,156
|
|
Depreciation
and amortization expense on property, plant and equipment for the three months ended June 30, 2016 and June 30, 2015 was $24,597
and $18,636, respectively. Depreciation and amortization expense on property, plant and equipment for the six months ended June
30, 2016 and June 30, 2015 was $48,191 and $36,136, respectively.
5.
Related Party Transactions
Related
Party Accounts Receivable and Payable
As
discussed in Note 1, above, on September 1, 2015, the Company issued 4,000,000 shares of common stock to Her resulting in Her
having a 12.2% interest in EZJR. At June 30, 2016 and December 31, 2015, the Company had a receivable balance of $292,610 and
$88,577, respectively, from Her related to payments made by the Company and on behalf of Her, partially offset by royalties earned
by Her under Marketing and Selling Agreement with Her also described in Note 1.
Royalty
expense
During
the three and six months ended June 30, 2016, the Company recognized royalty expense of $344,997 and $726,991, respectively. During
the three and six months ended June 30, 2015, the Company recognized royalty expense of $343,797 and $594,211, respectively. During
the three and six months ended June 30, 2016, $258,747 and $545,243, respectively, of royalty expense was the result of the amortization
of the intangible asset described in Note 2, above.
6.
Commitments and Contingencies
Facility
Sublease
On
April 27, 2016, the Company renewed for two years its sublease agreement, effective May 1, 2015, for its corporate office. Under
the terms of the sublease the Company pays $925 per month and is responsible to pay its own expenses for utilities, taxes, insurance
and repairs. Future lease payments related to the Company’s office lease as of June 30, 2016 are as follows:
Year
|
|
|
Amount
|
|
2016
|
|
|
$
|
5,550
|
|
2017
|
|
|
|
11,100
|
|
2018
|
|
|
|
3,700
|
|
Total
|
|
|
$
|
20,350
|
|
Concentrations
As
of June 30, 2016, the Company had only eight qualified vendors that provide it with its hair extension products. Quality among
these vendors can vary greatly between orders. Should any of these vendors fail to deliver quality products to the Company on
a timely basis, our operations could be adversely affected. The Company is actively attempting to source additional qualified
vendors but there can be no assurance that it will succeed in this effort.
Legal
Proceedings
From
time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of
business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise
from time to time that may harm the Company’s business. On or about September 5, 2015 the Company received a summons naming
it in a civil action against Her Imports, LLC, Her Imports New York, LLC, Her Holding, Inc. and EZJR, Inc. from a former independent
contractor of Her Imports, LLC. The complaint claims unpaid wages and overtime wages in violation of New York Labor Law, among
other things. No specific damages are mentioned in the complaint. The Company subsequently answered the complaint and denied any
wrongdoing as EZJR has no relationship with the contractor, whatsoever. At this point in the litigation it is impracticable to
foresee the outcome, however, the Company believes it has meritorious defense and is vigorously defending this litigation.
7.
Promissory Notes
As
discussed in Note 1, above, on May 15, 2015, the Company entered into an agreement with AdMaxOffers.com LLC (“Admax”),
a shareholder and beneficial owner of the Company to sell all stock in OWR and LEF in exchange for Admax returning to the Company
650,000 shares of common stock of the Company. As part of the agreement the Company assumed a $25,000 Note payable plus unpaid
interest. Through September 30, 2015 unpaid interest on the note was $15,375. On September 30, 2015, the Company entered into
a Settlement Exchange Agreement with the noteholders for a new note with a face value of $30,000 and twelve monthly payments due
of $2,500. Assuming an implied interest rate on the new note of 6.5%, the difference between the payments due and the amount of
the previous note plus accrued interest was $10,405 which has been recognized as other income at the time of the settlement. As
of June 30, 2016, the remaining outstanding balance was $7,406-.
8.
Income Taxes
The
Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. An
approximate estimated blended tax rate of 38.25% has been used to calculate the provision for taxes based on income for the three
and six months ended June 30, 2016 and 35% for the three and six months ended June 30, 2015. For financial reporting purposes
the provision for income taxes is based on pre-tax income (loss) of ($295,399) and $532,995 for the three month ended June 30,
2016 and 2015, respectively. For financial reporting purposes the provision for income taxes is based on pre-tax income (loss)
of ($66,430) and $999,078 for the six ended June 30, 2016 and 2015, respectively. The provision (benefit) for income taxes for
the three and six months ended June 30, 2016 and 2015 consisted of the following:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
98,220
|
|
|
$
|
(188,857
|
)
|
|
$
|
22,042
|
|
|
$
|
(348,182
|
)
|
U.S. State
|
|
|
14,770
|
|
|
|
-
|
|
|
|
3,322
|
|
|
|
-
|
|
Total
|
|
|
112,990
|
|
|
|
(188,857
|
)
|
|
|
25,364
|
|
|
|
(348,182
|
)
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total benefit (provision) for income taxes
|
|
$
|
112,990
|
|
|
$
|
(188,857
|
)
|
|
$
|
25,364
|
|
|
$
|
(348,182
|
)
|
EZJR,
Inc. is referred to herein as “we”, “our” or “us”.