UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
one)
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For
the Quarterly Period Ended June 30, 2017
OR
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For
the transition period from
_________________
to
________________
Commission
File Number: 000-53810
HER
IMPORTS
(Exact
name of registrant as specified in its charter)
|
Nevada
|
|
20-0667864
|
(State
or Other Jurisdiction
of Incorporation or Organization)
|
|
(I.R.S.
Employer
Identification No.)
|
|
8250
W. Charleston Blvd., Suite 110
|
|
89117
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Telephone:
702-544-0195
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ]
No [ ] Not Applicable [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
See
definitions of “large accelerated filer,” “accelerated filer,” “Smaller reporting company,”
and “emerging growth company” in Rule 12-b of the Exchange Act.
|
Large
accelerated filer
|
[ ]
|
|
Accelerated
filer
|
[ ]
|
|
|
|
|
|
|
|
Non-accelerated
filer
|
[ ]
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
|
[X]
|
|
|
|
|
|
|
|
Emerging
growth company
|
[ ]
|
|
|
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As
of August 10, 2017, the registrant’s outstanding common stock consisted of 24,899,788 shares, $0.001 par value. Authorized
– 65,000,000 common shares.
Table
of Contents
Her
Imports
Index
to Form 10-Q
For
the Quarterly Period Ended June 30, 2017
Her
Imports
Condensed
Consolidated Balance Sheets
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
106,507
|
|
|
$
|
355,568
|
|
|
Receivables
|
|
|
128,062
|
|
|
|
45,576
|
|
|
Related party receivables
|
|
|
73,765
|
|
|
|
26,612
|
|
|
Inventories
|
|
|
2,247,711
|
|
|
|
2,047,453
|
|
|
Prepaid maintenance fees - current
|
|
|
75,000
|
|
|
|
75,000
|
|
|
Other prepaid expenses
|
|
|
82,364
|
|
|
|
46,411
|
|
|
Deposits
|
|
|
302,884
|
|
|
|
32,950
|
|
|
Total current assets
|
|
|
3,016,293
|
|
|
|
2,629,570
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and software, net
|
|
|
232,398
|
|
|
|
256,525
|
|
|
Prepaid maintenance fees - non current
|
|
|
246,875
|
|
|
|
284,375
|
|
|
Other asset
|
|
|
25,000
|
|
|
|
-
|
|
|
Trademark
|
|
|
8,200,000
|
|
|
|
8,200,000
|
|
|
Total assets
|
|
$
|
11,720,566
|
|
|
$
|
11,370,470
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
784,574
|
|
|
$
|
728,425
|
|
|
Income tax liability
|
|
|
372,329
|
|
|
|
127,651
|
|
|
Notes payable
|
|
|
14,839
|
|
|
|
43,805
|
|
|
Total current liabilities
|
|
|
1,171,742
|
|
|
|
899,881
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,171,742
|
|
|
|
899,881
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
Callable $0.072 per share per year non-cumulative dividend liquidation preference of $1.00 per share, preferred stock, $0.001 par value, 10,000,000 shares authorized and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
10,000
|
|
|
|
10,000
|
|
|
Common stock, $0.001 par value, 65,000,000 shares authorized and 24,899,788 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
24,900
|
|
|
|
24,900
|
|
|
Additional paid-in capital
|
|
|
26,625,497
|
|
|
|
26,625,497
|
|
|
Accumulated deficit
|
|
|
(16,111,573
|
)
|
|
|
(16,189,808
|
)
|
|
Total stockholders' equity
|
|
|
10,548,824
|
|
|
|
10,470,589
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
11,720,566
|
|
|
$
|
11,370,470
|
|
See
accompanying notes to these condensed consolidated financial statements.
Her
Imports
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Product sales
|
|
$
|
4,623,778
|
|
|
$
|
3,426,813
|
|
|
$
|
8,984,798
|
|
|
$
|
7,599,124
|
|
|
Cost of products sold
|
|
|
2,758,268
|
|
|
|
1,934,811
|
|
|
|
4,893,332
|
|
|
|
4,029,709
|
|
|
Gross profit
|
|
|
1,865,510
|
|
|
|
1,492,002
|
|
|
|
4,091,466
|
|
|
|
3,569,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
|
5,894
|
|
|
|
344,997
|
|
|
|
5,894
|
|
|
|
726,991
|
|
|
Selling expense
|
|
|
1,522,059
|
|
|
|
1,197,708
|
|
|
|
2,786,840
|
|
|
|
2,444,056
|
|
|
General and administrative expense
|
|
|
297,113
|
|
|
|
244,577
|
|
|
|
609,959
|
|
|
|
464,362
|
|
|
Total operating expenses
|
|
|
1,825,066
|
|
|
|
1,787,282
|
|
|
|
3,402,693
|
|
|
|
3,635,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
40,444
|
|
|
|
(295,280
|
)
|
|
|
688,773
|
|
|
|
(65,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
20
|
|
|
|
68
|
|
|
|
69
|
|
|
|
68
|
|
|
Interest expense
|
|
|
(4,085
|
)
|
|
|
(187
|
)
|
|
|
(4,951
|
)
|
|
|
(504
|
)
|
|
Total other expense
|
|
|
(4,065
|
)
|
|
|
(119
|
)
|
|
|
(4,882
|
)
|
|
|
(436
|
)
|
|
Income before benefit (provision) for income taxes
|
|
|
36,379
|
|
|
|
(295,399
|
)
|
|
|
683,891
|
|
|
|
(66,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes
|
|
|
(16,043
|
)
|
|
|
112,990
|
|
|
|
(245,656
|
)
|
|
|
25,364
|
|
|
Net income (loss) attributable to Company
|
|
|
20,336
|
|
|
|
(182,409
|
)
|
|
|
438,235
|
|
|
|
(41,066
|
)
|
|
Preferred stock dividends
|
|
|
(180,000
|
)
|
|
|
-
|
|
|
|
(360,000
|
)
|
|
|
-
|
|
|
Net income (loss) to common stockholders
|
|
$
|
(159,664
|
)
|
|
$
|
(182,409
|
)
|
|
$
|
78,235
|
|
|
$
|
(41,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic income per share attributable to common Stockholders: basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: basic and
diluted
|
|
|
24,899,788
|
|
|
|
16,299,788
|
|
|
|
24,899,788
|
|
|
|
16,299,788
|
|
See
accompanying notes to these condensed consolidated financial statements.
Her
Imports
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
For the Six Month Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributible to Company
|
|
$
|
438,235
|
|
|
$
|
(41,066
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
54,579
|
|
|
|
593,434
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(82,486
|
)
|
|
|
6,226
|
|
|
Related party receivables
|
|
|
(47,153
|
)
|
|
|
(204,033
|
)
|
|
Inventories
|
|
|
(200,258
|
)
|
|
|
(688,539
|
)
|
|
Prepaid maintenance fees
|
|
|
37,500
|
|
|
|
31,250
|
|
|
Other prepaid expenses
|
|
|
(35,953
|
)
|
|
|
(16,913
|
)
|
|
Deposits
|
|
|
(269,934
|
)
|
|
|
(76,705
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
56,149
|
|
|
|
238,293
|
|
|
Income tax liability
|
|
|
244,678
|
|
|
|
(25,364
|
)
|
|
Net cash provided by (used by) operating activities
|
|
|
195,357
|
|
|
|
(183,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(30,452
|
)
|
|
|
(16,126
|
)
|
|
Investment in subsidiary
|
|
|
(25,000
|
)
|
|
|
-
|
|
|
Net cash used in investing activities
|
|
|
(55,452
|
)
|
|
|
(16,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Repayment on notes payable
|
|
|
(28,966
|
)
|
|
|
(14,497
|
)
|
|
Payment of preferred dividend
|
|
|
(360,000
|
)
|
|
|
-
|
|
|
Net cash used in financing activities
|
|
|
(388,966
|
)
|
|
|
(14,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH
|
|
|
(249,061
|
)
|
|
|
(214,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH - BEGINNING OF PERIOD
|
|
|
355,568
|
|
|
|
449,675
|
|
|
CASH - END OF PERIOD
|
|
$
|
106,507
|
|
|
$
|
235,635
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
4,951
|
|
|
$
|
504
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to these condensed consolidated financial statements.
Notes
to the Condensed Consolidated Financial Statements
1.
Description of the Company
Her
Imports, (previously known as EZJR, Inc.), (“the Company” or “Her”), was incorporated on August 14, 2006
under the laws of the State of Nevada.
Corporate
Structure and Business
HER
is a retailer of Human Hair Extensions and related haircare and beauty products headquartered in Las Vegas, Nevada. The Company
sells its products at consultation studios and shopping mall kiosks throughout the U.S. and on our Website, www.herimports.com.
As of June 30, 2017, the Company operated 35 retail locations, all of which are located in the U.S. These locations are primarily
in “executive offices suites” such as Regus PLC, where furniture, administrative staff and security are provided.
The Company then stocks the location with products and point-of-sale equipment. These locations are leased on a short-term basis
(primarily one year or less). Three leases, including our corporate office, have leases longer than one year. This allows the
Company to open and close locations with a minimal amount of time and expense. At these locations, the customer is provided with
a personal, one-on-one consultation. Additionally, the Company has one “super-store” in Greenbelt Maryland where we
have a number of consultants as well as a waiting room. Finally, the Company operates three mall kiosks where we display and sell
a limited amount of hair extensions but also hair-care and styling products. These locations expose foot traffic to the Her Imports
brand. Where necessary, the customer can be referred to a location where a confidential and personal, one-on-one consultation
is desired.
The
Company has one wholly owned subsidiary, Her Marketing Concepts, Inc. (“Her Marketing”), a Nevada Corporation. All
employees of the Company are employed by Her Marketing, using a Professional Employment Organization otherwise known as a PEO.
Also, on rare occasions, certain media purchases have been made by Her Marketing; however, this practice has been discontinued.
Agreement
with Cabello Real Ltd.
On
November 28, 2016, the Company entered into an Asset Share Purchase & Business Agreement with Cabello Real Ltd. (“Cabello”),
a private United Arab Emirates company to acquire the exclusive U.S. rights to the Her Imports trademark. In addition to these
rights, the Company also purchased certain other assets owned by Cabello including customer lists and various digital content.
In exchange for these rights, and other digital assets, the Company issued to Cabello 10,000,000 shares of non-voting, non-cumulative,
callable preferred stock with a dividend rate of $0.072 per share per annum and a liquidation preference of $1.00 per share. In
addition, the Cabello received 7,500,000 shares of common stock. Both the preferred stock and common stock issued were unregistered.
Additionally, the Company applied with the State of Nevada for the approval of the Certificate of Designations, Preferences, and
Rights of Callable Non-cumulative Preferred Stock. The Certificate designated 10 million shares as Callable Non-cumulative Preferred
Stock at a par value of $.001 per share. Cabello is controlled by Mr. Jonathan Terry, who is the Company’s principal shareholder
who is now actively involved in its daily operations.
On
January 12, 2017, the Company changed its name from EZJR, Inc. to Her Imports.
Agreements
with Her Imports, LLC, Her Holding, Inc., and termination of the Agreement
On
October 1, 2014, the Company entered into a Marketing and Selling Agreement (the “Agreement”) with Her Imports, LLC
(“LLC”), a retailer of human hair extensions and related products. Under the agreement, the Company was to custom
design LLC’s ecommerce Websites and generates customer leads through email marketing campaigns, online advertising
and social media and various affiliate marketing campaigns. Finally, the Company was to sell LLC’s products as well as other
products to these customers.
In
addition to the Company selling the LLC’s products online, LLC’s products were sold at independent retail store locations.
As part of the agreement with Her, the Company reimbursed LLC for the expenses of these store locations, employee costs, connectivity
expenses and certain other expenses as agreed upon. All retail store sales were made by the Company and are processed through
a Point-of-Sale (POS) system implemented by the Company. Additionally, the Company reimbursed LLC for specific customer service
costs, warehousing and fulfillment expenses. Finally, the Company paid LLC a 10% royalty on net sales. In return, LLC provided
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 LLC to be offset against any royalty payments. On March 7, 2015, the Agreement was transferred to Her Holding, Inc.
(“Holding”). As part of the assignment LLC transferred all rights, obligations and interest in the Agreement.
Effective September 1, 2015, the Company issued 2,000,000 shares of restricted common stock valued at $2,200,000 to 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 previously were paid by LLC.
On
November 28, 2016, the Agreement with Holding was terminated and simultaneously, the Company entered into an Asset Share Purchase
& Business Agreement with Cabello described above. Additionally, the Company hired certain LLC and Holding employees and assumed
three location leases in the name of LLC. At the time of the termination of the Agreement, the Company wrote off $977,066 in unamortized
prepaid royalties and $362,448 of advances to Holding that were forgiven in return for termination of the Agreement. This resulted
in a non-cash loss on termination of the Agreement of $1,339,514.
eCommerce
Platform
On
May 28, 2014, the Company entered an Asset Purchase Agreement with Leader Act Ltd HK, (“Leader”) a private Hong Kong
corporation to purchase an ecommerce platform software program (“Platform”) 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 agreed to service and maintain the software for a period of two years. For the Platform and service
and maintenance, the Company issued Leader 5,000,000 shares of common stock valued at $0.10 per share for a total of $500,000.
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 based on the fair market value of a service maintenance contract provided to other Third Parties.
This allocation was booked as a prepaid at the date of the acquisition and was amortized on a straight-line basis over the two-year
term of the agreement. This agreement expired in May 2016. On October 13, 2016, the Company entered into a five-year software
maintenance agreement on the Platform in exchange for 1,500,000 shares of the Company’s common stock valued at $375,000
based on the fair market value of a service maintenance contract provided to other Third Parties which approximates the fair market
value of the shares at the time they were issued.
Leader
is controlled by Mr. Aymen Boughanmi who until very recently acted together with Mr. Jonathan Terry to control the Company. Leader
owns on record 10,559,121 shares of common stock of which 5,586,170 and 50,000 shares owned by another entity controlled
by Mr. Boughanmi are in the process of being transferred to Cabello.
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 on selling various
consumer products. 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 MIP, 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 5,000,000 common shares of the Company’s stock at the fixed price of
$0.10 per share. Once Leader has acquired the 5,000,000 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 500,000 shares of the Company’s common stock at $0.10 per share. Since September 30, 2014, to the
date of these financial statements 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 and the selling of human hair extensions and related products. On July 31,
2017, the agreement was assigned by Leader to Cabello.
Agreement
with Cabello Real RDE
On
April 20, 2017, the Company entered into a Marketing and Selling Agreement with Cabello Real FDE, owner of a hair care
product line called OSIworks, whereby the Company can exclusively purchase, market and sell OSIworks’ products in the
United States. Under the agreement the Company will pay Cabello a royalty of 2% of net sales. Cabello Real FDE is also
controlled by Jonathan Terry, the Company’s principal shareholder. During the three months ended June 30, 2017 the
Company made royalty payments of $5,894 related to the agreement.
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 condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) and with the requirements of the Securities and Exchange Commission
(“SEC”) for interim financial information. Accordingly, they do not include all of the information and disclosures
required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion
of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary
for a fair presentation of the condensed consolidated financial statements of the Company as of June30, 2017 and December 31,
2016, and for the three and six months ended June 30, 2017 and 2016.
On
January 31, 2017, the Company effected a 1-for-2 reverse stock split effective January 31, 2017. The par value was not adjusted
as a result of the reverse stock split. All references to numbers of shares of our common stock and per-share information in the
accompanying financial statements and in these notes to the condensed consolidated financial statements have been adjusted retroactively
to reflect the split.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. The Company evaluates its estimates on an ongoing
basis, including those related to the fair values of stock based awards, income taxes and contingent liabilities, among others.
The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable,
the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could
differ from those estimates and such differences could be material to the consolidated financial position and results of operations.
Cash
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, 2017, and December 31, 2016, the Company’s cash consisted of cash
on deposit with banks.
Concentration
of Credit Risk
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.
Receivables
Receivables
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 receivables and with the exception of certain holdback, 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, 2017 and December 31, 2016. The Company has an allowance for doubtful accounts based on chargeback claims at the
balance sheet date.
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, 2017 and December 31, 2016.
The
Company believes the carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable,
and other accrued liabilities 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 or net realizable value 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 twelve 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
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
Deposits on Products
|
|
$
|
263,005
|
|
|
$
|
-
|
|
|
Security Deposits
|
|
|
39,879
|
|
|
|
32,950
|
|
|
Total
|
|
$
|
302,884
|
|
|
$
|
32,950
|
|
Intangibles
Intangible
assets are comprised primarily of trademarks that represent the Company’s exclusive ownership of the HER trademarks in the
US and are inclusive all related social media sites and domain names in the US., all used in connection with (consisting of the
name, Her Imports and the Her Imports Logo) the manufacture, sale and distribution of human hair extensions and related beauty
products. In accordance with Financial Accounting Standards Board Accounting Standard Codification 350 (FASB ASC 350), intangible
assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate
that an impairment exists through the use of discounted cash flow models. The Company calculates impairment as the excess of the
carrying value of its indefinite-lived assets over their estimated fair value. If the carrying value exceeds the estimate of fair
value a write-down is recorded. For the three and six months ended June 30, 2017 and there were no impairments recorded.
Impairment
Assessments of Intangibles
As
described in Note 1, on November 28, 2016, the Company entered into an Asset Share Purchase & Business Agreement with Cabello
to acquire the exclusive U.S. rights to the Her Imports trademark as well as other assets. The value of the trademark at the time
of its purchase was estimated to be $8,200,000. 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. To estimate the fair value of long-lived asset, the Company typically makes various assumptions about the 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 the trademark through June 30, 2017.
Property,
Equipment and Software, net
Property
equipment and software 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
|
|
Kiosks
|
|
3
years
|
|
Leasehold
improvement
|
|
remaining
life of the lease
|
On
May 28, 2014, the Company purchased from Leader, for 5,000,000 shares of common stock, an eCommerce software program totaling
$350,000. The software is amortized over five years. Amortization expense for the both the three and six months ended June 30,
2017 and 2016 was $37,500 and $35,000, respectively. 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. To estimate the fair value of long-lived asset, the Company typically makes various assumptions about the 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 months ended June 30, 2017 and 2016.
Revenue
Recognition
The
Company, through the Her Imports retail locations and its eCommerce Website, www.herimports.com, sells a variety of hair extensions
and related products.
Revenue
is recognized at the “point of sale” in the stores. Customers pay for the products using either cash, a debit card
or a credit card. All sales are final. In the case of cash sales at the store, the store manager makes a nightly deposit of the
cash. For credit card and debit sales, the Company recognizes the sale when the card is charged and approved. Sales tax collected
from customers is excluded from revenue and is included in accrued liabilities on our Consolidated Balance Sheets.
Product
purchases on the Company’s Website are paid for using either debit cards, credit cards, or PayPal Revenue for online product
sales are recognized upon shipment of the product. Also included in revenue is shipping revenue from our e-commerce customers.
Sales taxes collected from retail customers are excluded from reported revenues.
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.
Reverse
Stock Split
All
references to numbers of shares of our common stock and per-share information in the accompanying financial statements have been
adjusted retroactively to reflect the Company’s 1-for- 2 reverse stock split effected on January 31, 2017. The par value
was not adjusted as a result of the reverse stock split.
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. There was no stock based compensation for the three and six months ended June 30, 2017 and 2016.
Recent
Accounting Pronouncements
Except
as noted below, the Company has considered all recent accounting pronouncements and has concluded that there are no recent accounting
pronouncements that may have a material impact on its Consolidated Financial Statements, based on current information.
In
February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new guidance, lessees will be required to recognize a lease
liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The ASU
is effective for fiscal years and interim periods within those years beginning after December 15, 2018. We are still assessing
the impact of this ASU on our Consolidated Financial Statements, but we expect that it will result in a substantial increase in
our long-term assets and liabilities. We will adopt the ASU beginning in the first quarter of fiscal 2019.
In
March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting.
The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue
share-based payment awards to their employees. We adopted the provisions of this ASU in the first quarter of fiscal 2017. Beginning
in the first quarter of fiscal2017, we have made the policy election to account for forfeitures when they occur, rather than estimating
expected forfeitures, when recognizing share-based compensation cost. We adopted this provision of the ASU using a modified retrospective
transition method, which resulted in the cumulative-effect adjustment of $3 million to retained earnings as of the beginning of
the period. Also, all excess tax benefits and tax deficiencies related to share-based payment awards are now reflected in the
Consolidated Statement of Income as a component of the provision for income taxes on a prospective basis, whereas they were recognized
in equity under the previous guidance. Additionally, excess tax benefits related to share-based payment awards are now reflected
in operating activities, along with other income tax related cash flows, in our Consolidated Statement of Cash Flows on a prospective
basis.
In
January 2017, the FASB issued ASU No. 217-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment.
The amendments simplify the subsequent measurement of goodwill and eliminate the two-step goodwill impairment test. The ASU is
effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2019. Early adoption
is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate
any material impact on the Consolidated Financial Statements.
3.
Property, Equipment and Software
Property
and equipment consisted of the following:
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
Software
|
|
$
|
353,310
|
|
|
$
|
359,315
|
|
|
Computers and equipment
|
|
|
95,814
|
|
|
|
67,878
|
|
|
Furniture
|
|
|
30,391
|
|
|
|
28,349
|
|
|
Kiosks
|
|
|
2,594
|
|
|
|
-
|
|
|
Leasehold improvements
|
|
|
20,833
|
|
|
|
19,476
|
|
|
subtotal
|
|
|
502,942
|
|
|
|
475,018
|
|
|
Accumulated depreciation and amortization
|
|
|
(270,544
|
)
|
|
|
(218,493
|
)
|
|
Property, equipment and software, net
|
|
$
|
232,398
|
|
|
$
|
256,525
|
|
Depreciation
and amortization expense on property, plant, equipment and software for the three and six months ended June 30, 2017 was $27,428
and $54,579, respectively. Depreciation and amortization expense on property, plant, equipment and software for the three and
six months ended June 30, 2016 was $24,597 and $48,191, respectively.
4.
Sales tax payable
The
Company is delinquent in filing sales tax returns for certain states (including the remittance of taxes), for which the Company
has transacted business. The Company has recorded tax obligations plus potential interest and penalties estimated to be approximately
$162,136, computed through June 30, 2017, which are included in accounts payable and accrued liabilities on the balance sheet.
The Company is in the process of becoming fully compliant.
5.
Related Party Transactions
Related
Party Accounts Receivable and Payable
As
discussed in Note 1, on September 1, 2015, the Company issued 2,000,000 shares of common stock to Her Holding resulting in Her
Holding having a 12.2% interest in the Company. During the time of the agreement the Company made payments on the part of Her
Holding that were partially offset by royalties earned by Her Holding under the Marketing and Selling Agreement with Her Holding
also described in Note 1. On November 28, 2016, the Company forgave $362,447 of an advance made to Her Holding as part of the
termination of the agreement with Her Holding.
At
June 30, 2017 and December 31, 2016, the Company had a receivable from Cabello, its principal stockholder, of $73,765 and $26,612
that resulted from payments made by the Company on behalf of Cabello. The Company has the right to offset this receivable against
any future dividend payments owed Cabello related to the preferred stock described in Note 1. As described in Note 10, subsequent
to June 30, 2017, a dividend of $60,000 was declared, of which $20,000 was offset against the receivable. For further information
on related party transactions, see Note 1.
Royalty
Expense
During
the three months and six month ended June 30, 2017, royalty expense was $5,894 related to royalties on products sold under the
brand name OSIworks. 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, 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
Leases
At
June 30, 2017, the Company had leased 38 different facilities including its corporate headquarter, active retail locations, one
inactive retail location, storage facility and offices for customer service. Future lease obligation for these facilities are
as follows:
|
Year
|
|
|
Amount
|
|
|
|
2017 (remaining six months)
|
|
|
$
|
198,760
|
|
|
|
2018
|
|
|
|
92,518
|
|
|
|
2019
|
|
|
|
37,800
|
|
|
|
2020
|
|
|
|
12,600
|
|
|
|
Total
|
|
|
$
|
341,678
|
|
Rent
expense for the three months ended June 30, 2017 and 2016 was $172,204 and $109,398, respectively. Rent expense for the six months
ended June 30, 2017 and 2016 was $325,507 and $211,077, respectively.
Concentrations
As
of June 30, 2017, the Company had only ten qualified vendors that provide it with its hair extension products. The Company sources
its hair care products from one vendor. There are numerous suppliers of styling tools as this is a commodity product. During the
three months ended June 30, 2017, the Company purchased hair products from four different vendors, however, two vendors accounted
for approximately 93.6% of all hair products purchased. During the six months ended June 30, 2017, the Company purchased hair
products from six different vendors, however, two vendors accounted for approximately 95.0% of all hair products purchased.
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. (now Her Imports)
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 had 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
On
September 15, 2016, the Company purchased 150,000 common shares of Her Imports from Admanxoffers.com by issuing a promissory note
for $60,000 payable monthly in equal installments of $5,000 until fully paid on October 1, 2017. As part of this transaction Admax
agreed that it would not sell any free-trading shares for a period of one year from the transaction date. Assuming an implied
interest rate of 6.5%, the value of the note booked as a payment was $57,940. At June 30, 2017 and December 31, 2016, the remaining
outstanding balance on the note was $14,839 and $43,805, respectively. For the three months and six month ended June 30, 2017,
interest expense on the note was $399 and $1,079, respectively.
8.
Stockholders’ Equity
On
January 31, 2017, the Company effected a 1-for- 2 reverse stock split effective January 31, 2017. The par value was not adjusted
as a result of the reverse stock split. All references to numbers of shares of our common stock and per-share information in the
accompanying financial statements and in these notes to the condensed consolidated financial statements have been adjusted retroactively
to reflect the split.
On
January 12, 2017, the Company entered into a Business Purchase Agreement with EnzymeBioSystems, Inc. (“EnzymeBio”),
a Nevada corporation, whereby the Company entered into an agreement to purchase 100% ownership of EnzymeBio’s wholly owned
subsidiary, Share Acquisition Corp. (“SAC”), a Nevada corporation in exchange for approximately 55,000 shares of the
Company’s common stock and $25,000 cash. On February 28, 2017, EnzymeBio agreed to spin-off t SAC as a dividend. Pursuant
to the Business Purchase Agreement and Nevada Revised Stature 92A.180 (Merger of a subsidiary into parent or parent into subsidiary)
,
SAC will be acquired and merged into the Company. Restricted common shares of the Company will be exchanged on a pro-rata
one-for-one ownership basis. After the exchange takes place, SAC will be collapsed into the Company and subsequently dissolved
with the Nevada Secretary of State. To help facilitate the transaction, the CEO of SAC is the CEO of the Company. The Company
agreed to acquire SAC for the sole purpose to increase its shareholder base. As of the date of these financial statements, the
$25,000 had been paid, however, the share exchange has not taken place and the agreement has not been consummated. As a result,
the $25,000 payment is recorded under Other Asset on the balance sheet.
As
described in Note 1, on November 28, 2016, the Company entered into an Asset Share Purchase & Business Agreement with Cabello
to acquire the exclusive U.S. rights to the Her Imports trademark. In exchange for these rights, and other digital assets, the
Company issued to Cabello 10,000,000 shares of unregistered non-voting, non-cumulative, callable preferred stock and 7,500,000
unregistered common stock with a combined value of $8,200,000. All shares of Callable Preferred Stock rank superior to all the
Company’s preferred stock and common stock currently outstanding and hereafter issued, as to distributions of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (with the exception of a merger),
including the payment of dividends. The callable preferred stock is subject to a monthly dividend payment equal to a rate of $0.072
per share of preferred stock per annum. The declaration and payment of the dividend on a monthly basis is subject to the approval
of the Company’s Board of Directors. Such dividend is non-cumulative should the Company not pay the dividend. The Corporation
has a right of first refusal to purchase the callable preferred stock, should the shareholder decide to sell all or part of their
callable preferred stock. The callable preferred stock has no voting rights. Through June 30, 2017, the Board of Directors has
declared and approved, preferred stock dividends of $360,000 ($60,000 each month) to Cabello related to the 10,000,000 shares
of callable, non-voting, non-cumulative preferred stock. Because the dividends on the preferred stock are non-cumulative and as
this discretion of the Company, these preferred shares are considered to be equity.
At
June 30, 2017 and December 31, 2016, the Company had 10,000,000 shares of preferred stock authorized and outstanding and 65,000,000
shares of common stock authorized and 24,899,788 issued and outstanding.
As
described in Note 7, above, on September 15, 2016 the Company purchased and retired 150,000 shares of the Company’s common
stock from Admax for a promissory note in the amount of $60,000. Subsequently, on November 25, 2016, the Company purchased and
retired an additional 250,000 of its common stock from Admax for cash in the amount of $25,000.
As
described in Note 1, on October 13, 2016, the Company entered into a five-year maintenance agreement on its eCommerce platform
with Leader in exchange for 1,500,000 shares of the Company’s common stock valued at $375,000 based on the fair market value
of a service maintenance contract provided to other Third Parties which approximates the fair value of the common stock at the
time it was issued.
9.
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 35.9% was used to calculate the provision for taxes based on income for the six months
ended June 30, 2017 and 38.25% for the six months June 30, 2016. For financial reporting purposes, the provision for income taxes
is based on pre-tax income of $683,893 for the six months ended June 30, 2017 and a pre-tax loss of $66,430 for the six months
ended June 30, 2016, respectively. The provision for income taxes for the three and six months ended June 30, 2017 and 2016 consisted
of the following:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
U.S. Federal
|
|
$
|
(10,361
|
)
|
|
$
|
98,220
|
|
|
$
|
(225,758
|
)
|
|
$
|
22,042
|
|
|
U.S. State
|
|
|
(5,906
|
)
|
|
|
14,770
|
|
|
|
(19,898
|
)
|
|
|
3,322
|
|
|
Total
|
|
|
(16,267
|
)
|
|
|
112,990
|
|
|
|
(245,656
|
)
|
|
|
25,364
|
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total benefit (provision) for income taxes
|
|
$
|
(16,267
|
)
|
|
$
|
112,990
|
|
|
$
|
(245,656
|
)
|
|
$
|
25,364
|
|
10.
Subsequent Events
On
July 3, 2017, by Unanimous Written Consent, the Board of Directors approved a $60,000 dividend related to 10,000,000 shares of
Callable Preferred Stock owned by Cabello Real Ltd., of which $20,000 was offset against amounts owed by Cabello to the Company.
The net dividend of $40,000 was paid on July 5, 2017.
On
August 3, 2017, by Unanimous Written Consent, the Board of Directors approved a $60,000 dividend related to 10,000,000 shares
of Callable Preferred Stock owned by Cabello Real Ltd. The dividend was paid on August 8, 2017.
Her
Imports is referred to herein as “we”, “our” or “us”.
ITEM
2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
Our
discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that
may affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the
reported amounts of revenues, costs and expenses during the reporting periods. Actual results could differ materially from these
estimates.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words
“may,” “could,” “estimate,” “intend,” “continue,” “believe,”
“expect” or “anticipate” and similar expressions identify forward-looking statements. Although we believe
that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, these plans, intentions,
or expectations may not be achieved. Our actual results, performance, or achievements could differ materially from those contemplated,
expressed, or implied, by the forward-looking statements contained in this Quarterly Report on Form 10-Q. Important factors that
could cause actual results to differ materially from our forward-looking statements are set forth immediately below under Risks,
Trends and Uncertainties. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which
speak only as of the dates on which they are made. All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements set forth in this Quarterly Report on Form 10-Q.
Except as required by federal securities laws, we are under no obligation to update any forward-looking statement, whether because
of new information, future events, or otherwise.
The
following discussion and analysis compares our results of operations for the three and six months ended June 30, 2017 and June
30, 2016. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto
and our Form 10-K for our fiscal year ending December 31, 2016 filed with the Securities and Exchange Commission on April 17,
2017.
Risks,
Trends and Uncertainties
Although
we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results
of operations, as well as any forward-looking statements, are subject to change and also subject to business trends, risks and
uncertainties. The factors impacting these trends, risks and uncertainties include, but are not limited to:
|
|
●
|
Whether
we can raise additional financing for working capital and product development;
|
|
|
●
|
Whether
we can identify Internet marketing approaches;
|
|
|
●
|
Whether
there is a deterioration in general or regional economic, market and political conditions;
|
|
|
●
|
Our
accounting policies and methods may require management to make estimates about matters that are inherently uncertain;
|
|
|
●
|
Whether
there are adverse state or federal legislation or regulation that increases the costs of compliance;
|
|
|
●
|
Whether
we can efficiently manage our operations and effectively implement our strategies;
|
|
|
●
|
Whether
we can compete against our competitors, many of which have greater operational, financial, and human resources; and
|
|
|
●
|
Whether
we can accurately predict industry and market trends
|
Business
Organization and Overview
We
are a retailer of Human Hair Extension and related haircare and beauty products headquartered in Las Vegas, Nevada. We sell our
products at consultation studios throughout the U.S. and on our Website at www.herimports.com. Additionally, by way of our proprietary
eCommerce platform and strategic leveraging of social media buys, we convert prospects into customers while developing long-term
personal relationships and loyal customers. Our consultation studios are primarily leased on a short-term basis (one year or less).
This allows the Company to open and close locations with a minimal amount of time and expense. At these consultation studios,
the customer is provided with a personal, one-on-one consultation. Additionally, the Company has one “super-store”
in Greenbelt Maryland where we have a number of consultants as well as a waiting room. Finally, the Company operates three mall
kiosks, on a test basis, where we display and sell a limited amount of hair extensions but also hair-care and styling products.
These kiosks expose foot traffic to the Her Imports brand. Where necessary, the customer can be referred to a consultation studio
where a confidential and personal, one-on-one consultation is desired.
Seasonality
In
the opinion of our management, the business areas in which we operate are subject to seasonal fluctuations during holidays and
personal income tax filing season. We believe our quarterly revenues are highest in the late Winter and Spring when our customers
receive income tax refunds. As such, past quarterly results are not indicative of future results and may be subject to seasonal
fluctuations.
Results
of Operations
Discussion
of three months ended June 30, 2017 and 2016
Product
Sales
Product
sales for the three months ended June 30, 2017 were $4,623,778 representing a 34.9% increase from revenues of $3,426,813 for the
three months ended June 30, 2016. These sales were derived primarily from the sale of human hair extensions and related hair care
products under the brands “Her Imports” or “OSIworks.” These sales are made either online or at Her Imports’
consultation studios three shopping mall kiosks. Consultation studio sales increased by 14.7% to $2,995,555 for the three months
ended June 30, 2017 when compared to $2,610,728 for the three months ended June 30, 2016. The reason for the increase was new
consultation studios opened in December 2016 the first quarter of 2017. There were 35 consultation studios and kiosks open during
the three months ended June 30, 2017 compared to 22 consultation studios open during the same period for 2016. The primary reason
for the increase in sales was an increase in in online sales. Online sales increased by 99.5% to $1,628,233 for the three months
ended June 30, 2017 from $816,084 for the three months ended June 30, 2016. The primary reason for the increase was the launch
of a new eCommerce Website as well as a sales promotion that was implemented with new marketing techniques utilizing our customer
database.
Cost
of Products Sold, Gross Profit and Gross Margins
Cost
of products sold for the three months ended June 30, 2017 were $2,758,268 representing a 42.6% increase from cost of products
sold of $1,934,811 for the three months ended June 30, 2016. Accompanying this increase was a decrease in gross margins to 40.3%
for the three months ended June 30, 2017 from a gross margin of 43.5% for the three months ended June 30, 2016. As a result, gross
profit increase to $1,865,510 or 25.0% from gross profit of $1,492,002 for the three months ended June 30, 2017.
Operating
Expenses
Operating
expenses consist of royalty expense, selling expense and general and administrative expense and were flat when comparing the three
months ended June 30, 2017 to the same period for 2016. Total operating expenses for the three months ended June 30, 2017 was
$1,825,066, compared to $1,787,282 for the three months ended June 30, 2016. Royalty expense decrease by $339,103 due to the fact
that we no longer pay royalties on our product sales, with the exception of OSIworks, due to the termination of the royalty agreement.
This decrease was offset by increases in both selling expense and general and administrative expense. Selling expense for the
three months ended June 30, 2017 increased $324,351 or 27.1% for the three months ended June 30, 2017 when compared to the same
2016 period. The increase in selling expense was attributable to an increase in consultation studio operating expenses due to
the addition of new locations and kiosks and was offset by a decrease in advertising and Web development expense. There were 35
consultation studios open during the three months ended June 30, 2017 compared to 22 consultation studios open in the same period
for 2016. General and administrative expenses for the three months ended increased by $52,536 or 21.5% for the three months ended
June 30, 2017 when compared to the same period last year. This increase was primarily due to increased consulting and accounting
fees, investor relations expenses and travel expenses.
Income
from operations
The
above resulted in income from operations of $40,444 for the three months ended June 30, 2017 compared to a loss from operations
of $295,280 for the three months ended June 30, 2016.
Other
income and expense
For
the three months ended June 30, 2017, other expense of $4,065 consisted of interest expense of $4,085 and interest income of $20.
This compares to other expense of $119 consisting of $187 of interest expense and interest income of $68 for the three months
ended June 30, 2016.
Provision
for income taxes
For
the three months ended June 30, 2017, the provision for income tax of $16,043 compared to a tax benefit of $112,990 for the three
months ended June 30, 2016. These provisions are based on estimated income for the entire year. An approximate estimated blended
tax rate of 35.9% was used to calculate the provision for taxes based on income for the 2017 and 38.2% for 2016.
Net
income
As
a result of the above, net income attributable to the Company for the three months ended June 30, 2017 was $20,336 compared to
net loss attributable to the Company of $182,409 for the three months ended June 30, 2016.
Results
of Operations
Discussion
of six months ended June 30, 2017 and 2016
Product
Sales
Product
sales for the six months ended June 30, 2017 were $8,984,798 representing a 18.2% increase from revenues of $7,599,124 for the
six months ended June 30, 2016. These sales were derived primarily from the sale of human hair extensions and related hair care
products under the brands “Her Imports” or “OSIworks.” These sales are made either online or at Her Imports’
consultation studios. Consultation studio sales increased by 12.5% to $6,423,495 for the six months ended June 30, 2017 when compared
to $5,711,486 for the six months ended June 30, 2016. The reason for the increase was new consultation studios open in December
2016 the first quarter of 2017. There were 36 consultation studios open during the six months ended June 30, 2017 compared to
22 consultation studios open in the same period for 2016. This increase was compliments by an increase in online sales which was
partially offset by a small decrease in wholesale sales. Online sales increased by 36.1% to $2,553,381 for the six months ended
June 30, 2017 from $1,875,449 for the six months ended June 30, 2016. The primary reason for the increase was the launch of a
new eCommerce Website and sales promotions offered during the second quarter of 2017. Wholesale sales decreased by $4,267 when
comparing the six months ended June 30, 2017 to the six months ended June 30, 2016. All wholesale sales occurred during the first
quarter of both 2017 and 2016
Cost
of Products Sold
Cost
of products sold for the six months ended June 30, 2017 were $4,893,332, representing a 21.4% increase from cost of products sold
of $4,029,709 for the six months ended June 30, 2016. This increase was the result of higher sales partially and higher product
costs. Gross margin decreased to 45.5% for the six months ended June 30, 2017 from a gross margin of 47.0% for the six months
ended June 30, 2016.
Operating
Expenses
Operating
expenses consist of royalty expense, selling expense and general and administrative expense. Total operating expenses for the
six months ended June 30, 2017 was $3,402,693, representing a 6.4% or $232,716 decrease from $3,635,409 for the six months ended
June 30, 2016. This decrease is primarily attributable to a decrease in royalty expense of $721,097 due to the fact that we no
longer pay royalties on our product sales, with the exception of OSIworks, due to the termination of the royalty agreement with
Her Holding Inc. This decrease was partially offset by an increase in both selling expense and general and administrative expense.
Selling expense for the six months ended June 30, 2017 increased $342,784 or 14.0% for the six months ended June 30, 2017 when
compared to the same 2016 period. The increase in selling expense was attributable to an increase in store operating expenses
due to the addition of new consultation studios and kiosks and was offset by a decrease in advertising expense. There were 36
consultation studios and kiosks open during the six months ended June 30, 2017 compared to 22 consultation studios open in the
same period for 2016. General and administrative expenses for the six months ended increased $145,597 or 31.4% for the six months
ended June 30, 2017 when compared to the same period last year. Salaries and consulting fees, investor relation expenses and audit
fees and other consulting expenses contributed to increased general and administrative expense.
Income
from operations
The
above resulted in income from operations of $688,773 for the six months ended June 30, 2017 compared to a loss from operations
of $65,994 for the six months ended June 30, 2016.
Other
income and expense
For
the six months ended June 30, 2017, other expense of $4,882 consisted of interest expense of $4,951 and interest income of $69.
This compares other expense $436 for the six months ended June 30, 2017 of which consisted of $504 of interest expense and $68
of interest income.
Provision
for income taxes
For
the six months ended June 30, 2017, the provision for income tax of $245,658 compared to a tax benefit of $25,364 for the six
months ended June 30, 2016. These provisions are based on estimated income for the entire year. These provisions are based on
estimated income for the entire year. An approximate estimated blended tax rate of 35.9% was used to calculate the provision for
taxes based on income for the 2017 and 38.2% for 2016.
Net
income
As
a result of the above, net income attributable to the Company for the six months ended June 30, 2017 was $438,235 compared to
net loss attributable to the Company of $41,066 for the six months ended June 30, 2016.
Liquidity
and Capital Resources
Net
Cash Provided by Operating Activities
Net
cash provided by operating activities for the six months ended June 30, 2017 totaled $195,357 and resulted primarily from net
income attributable to the Company of $438,235, offset by a net change in operating assets and liabilities of ($297,457). The
most significant change in operating assets and liabilities was an increase of $200,258 in inventories, a $269,934 in deposits
in accounts receivable and a $244,679 in income tax liability. Non-cash items were $54,579 in depreciation and amortization.
Net
cash used in operating activities during the period ending June 30, 2016 totaled $183,417 and resulted from a net loss attributable
to the Company of $41,006 and a net change in operating assets and liabilities of ($183,417), both offset by non-cash items of
$593,434. The most significant change in operating assets and increase of $688,539 in inventories and a $204,033 increase in related
party receivables, partially offset by a $238,293 in accounts payable and accrued liabilities. Non-cash items were depreciation
and amortization.
Net
Cash Provided By (Used in) Investing Activities
Net
cash used in investing activities during the six months ended June 30, 2017 totaled $55,452, reflecting primarily purchase of
fixed assets of $30,452 and an investment in subsidiary of $25,000.
Net
used in investing activities during the six-months ended June 30, 2016 totaled $16,126, from purchased of fixed assets.
Net
Cash Provided by Financing Activities
Net
cash used in financing activities during the six months ended June 30, 2017 totaled $388,966 resulting from payments of preferred
dividends of $360,000 and repayments on notes payable of $28,966.
Net
cash provided used in financing activities during the period ended June 30, 2016 were $14,497, resulting from repayments on notes
payable.
We
had a working capital surplus of $1,844,551 and $1,729,689 at June 30, 2017 and December 31, 2016, respectively, representing
a $114,862 increase in our working capital. As of August 9, we had $225,144 in cash.
Our
primary use of cash is the purchase of inventory. We anticipate that inventory will continue to increase as our sales grow and
as we open new retail operations subject to the occurrence of any material risks, trends and uncertainties stated above. We currently
plan to fund our growth through earnings, however, we may also enter loans to fund operational growth. We continue to explore
opportunities to exploit our proprietary eCommerce platform and our expertise in online marketing. Additionally, it is likely
that we will raise additional working capital either through borrowing or the sale of equity in order to fund our anticipated
growth. We believe we have sufficient working capital to pay our expenses for the next 12 months.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Critical
Accounting Policies and Estimates
Revenue
Recognition: Revenue is recognized at the “point of sale” 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. For cash sales, we recognize the sale when the deposit is recorded into our account by the bank. For credit card and debit
sales, we recognize the sale when the card is charged and approved. Allowances for sales returns are recorded as a reduction of
net sales in the periods in which the related sales are recognized. Sales tax collected from customers is excluded from revenue
and is included in accrued expenses on our Consolidated Balance Sheets.
Product
purchases on the Website are paid for using either debit cards, credit cards, PayPal, or an independent financing company. Revenue
for Website product sales are recognized upon shipment of the product. Also included in revenue is shipping revenue from our e-commerce
customers. Sales taxes collected from retail customers are excluded from reported revenues.
Recent
Pronouncements
Our
management has evaluated all the recently issued accounting pronouncements through the filing date of these condensed consolidated
financial statements and does not believe that any of these pronouncements will have a material impact on our financial position
and results of operations.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), are designed to ensure that information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted
by the SEC, and that such information is accumulated and communicated to management, including the Chief Executive Officer, to
allow timely decisions regarding required disclosures.
Management,
with the participation of the Chief Executive Officer and Chief Financial Officer, who is also a member of our Board of Directors,
have evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2017. Based on such evaluation, the
Chief Executive Officer concluded that, as of June 30, 2017, our disclosure controls and procedures were not effective. Our disclosure
controls and procedures were not effective at the reasonable assurance level due to the “material weaknesses” described
below:
In
light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure
our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly,
we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial
condition, results of operations and cash flows for the periods presented.
A
material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing
Standards) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of
the annual or interim consolidated financial statements will not be prevented or detected. Management has identified the following
two material weaknesses which have caused management to conclude that, as of June 30, 2017, our disclosure controls and procedures
were not effective at the reasonable assurance level:
1.
We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls
over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ending
June 30, 2017. Management evaluated the impact of our failure to have adequate written documentation of our internal controls
and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that
resulted represented a material weakness.
2.
We do not have a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside
directors on our Board of Directors, resulting in ineffective oversight in the establishment and monitoring of required internal
controls and procedures. The Company recently added new directors and is in the process of forming an audit committee of independent
directors.
To
address these material weaknesses, management performed additional analyses and other procedures to ensure that the condensed
consolidated financial statements included herein fairly present, in all material respects, our financial position, results of
operations and cash flows for the periods presented.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of
the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
From
time to time, we 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 adversely affect our business.
ITEM
1A. RISK FACTORS
As
a Smaller Reporting Company, we are not required to provide information otherwise required by this item; however, you may review
risk factors contained in our Form 10-K for the fiscal year ending December 31, 2016.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
applicable.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
INDEX
TO EXHIBITS
|
Exhibit
|
|
|
|
Incorporated
by Reference
|
|
Filed
or
Furnished
|
|
No.
|
|
Exhibit
Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Acquisition
and Plan of Merger
|
|
10-12G
|
|
10/29/09
|
|
2.1
|
|
|
|
3.1
|
|
Articles
of Incorporation
|
|
SB-2
|
|
6/14/07
|
|
3.1
|
|
|
|
3.2
|
|
Bylaws
|
|
SB-2
|
|
6/14/07
|
|
3.2
|
|
|
|
3.2(a)
|
|
Certificate
of Amendment to Articles of Incorporation
|
|
8-K
|
|
1/12/17
|
|
10.18
|
|
|
|
10.1
|
|
Replacement
Asset Share Purchase & Business Agreement
|
|
10-K
|
|
4/17/17
|
|
10.19
|
|
|
|
10.2
|
|
Marketing
and Selling Agreement between Her Imports and Cabello Real FDE dated April 20, 2017
|
|
8-K
|
|
4/27/17
|
|
10.20
|
|
|
|
10.3
|
|
Letter
from RBSM LLP dated May 3, 2017 to the US Securities and Exchange Commission regarding statements included in this Form 8-K
|
|
8-K
|
|
5/4/17
|
|
16.2
|
|
|
|
10.4
|
|
Letter
from RBSM LLP dated June 22, 2017 to the US Securities and Exchange Commission regarding statements included in this Form
8-K
|
|
8-K/A
|
|
6/23/17
|
|
16.3
|
|
|
|
10.5
|
|
Notice
of Cancellation of Marketing and Selling Agreement between EZJR, Inc. and Her Holdings, Inc. dated November 28, 2016
|
|
8-K
|
|
12/31/16
|
|
10.16
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer (302)
|
|
|
|
|
|
|
|
Filed
|
|
31.2
|
|
Certification
of Principal Financial Officer (302)
|
|
|
|
|
|
|
|
Filed
|
|
32.1
|
|
Certification
of Principal Executive and Principal Financial Officer (906)
|
|
|
|
|
|
|
|
Furnished*
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
|
|
|
|
Filed
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
Filed
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
Filed
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
|
|
Filed
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
|
|
Filed
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
Filed
|
*
This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance
with Item 601 of Regulation S-K.
Copies
of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to
our shareholders who make a written request to our Corporate Secretary at 171 Madison Avenue, 17
th
Floor, New York,
New York 10016.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
Date:
August 11, 2017
|
By:
|
/s/
Barry Hall
|
|
|
Name:
|
Barry
Hall
|
|
|
Title:
|
Executive
Chairman, Chief Executive Officer and Chief Financial Officer
|
|
|
|
(Principal
Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
|
Her Imports (GM) (USOTC:HHER)
Historical Stock Chart
From Mar 2024 to Apr 2024
Her Imports (GM) (USOTC:HHER)
Historical Stock Chart
From Apr 2023 to Apr 2024
