CONDENSED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY
28, 2021 AND FEBRUARY 29,2020
Note
1 – Organization
Reviv3
Procare Company (the “Company”) was incorporated in the State of Delaware on May 21, 2015 as a reorganization of Reviv3
Procare, LLC which was organized on July 31, 2013. The Company is engaged in the manufacturing, marketing, sale and distribution
of professional quality hair and skin care products throughout the United States, Canada, Europe and Asia.
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies
Basis
of Presentation
The
unaudited financial statements for the nine months ended February 28, 2021 and February 29, 2020 have been prepared by us pursuant
to the rules and regulations of the Securities and Exchange Commission. In the opinion of the management, all adjustments necessary
to present fairly our financial position, results of operations, and cash flows as of February 28, 2021 and February 29, 2020,
and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Certain information
and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting
principles have been omitted. The unaudited financial statements should be read in conjunction with the financial statements and
notes thereto included in the Company’s annual report on Form 10-K for the year ended May 31, 2020. The results of operations
for the nine months ended February 28, 2021 are not necessarily indicative of the results to be expected for the full year.
Risk
and Uncertainty Concerning COVID-19 Pandemic
In
March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues
to spread throughout the United States and the World. We are currently monitoring the outbreak of COVID-19 and the related business
and travel restrictions and changes to behavior intended to reduce its spread. All of our Chinese facilities were temporarily
closed for a period of time. Most of these facilities have been reopened since July 2020. Depending on the progression of the
outbreak, our ability to obtain necessary supplies and ship finished products to customers may be partly or completely disrupted
globally. Also, our ability to maintain appropriate labor levels could be disrupted. If the coronavirus continues to progress,
it could have a material negative impact on our results of operations and cash flow, in addition to the impact on its employees.
We have concluded that while it is reasonably possible that the virus could have a negative impact on the results of operations,
the specific impact is not readily determinable as of the date of these financial statements. The accompanying unaudited financial
statements do not include any adjustments that might result from the outcome of this uncertainty. Management is focused on growing
the Company’s existing products offering, as well as its customer base, to increase its revenues. The Company cannot give
assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for
its planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently
experienced. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be
able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company
has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying
financial statements.
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Going
Concern
As
reflected in the accompanying financial statements, the Company has a net loss of $122,626 for
the nine months ended February 28, 2021. Additionally, the Company has an accumulated deficit of $4,933,535 at February
28, 2021. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of
12 months from the issuance date of this report. The ability of the Company to continue as a going concern is dependent on the
Company’s ability to continue its business plan, raise capital, and generate sufficient revenue; however, the Company’s
cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy
to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds, there can
be no assurances to that effect. The financial statements do not include any adjustments related to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern.
Use
of estimates
The
preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related
disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from
these estimates. Significant estimates made by management include, but are not limited to, the allowance for doubtful accounts,
inventory valuations, the useful life of property and equipment, the valuation of intangible assets, the valuation of deferred
tax assets, the value of stock-based compensation, and the fair value of non-cash common stock issuances.
Cash
and cash equivalents
The
Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less,
when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution
that is insured by the Federal Deposit Insurance Corporation.
Accounts
receivable and allowance for doubtful accounts
The
Company has a policy of providing on allowance for doubtful accounts based on its best estimate of the amount of probable credit
losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether
an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of
an account may be in doubt. Account balances deemed to be uncollectible are charged to bad debt expense and included
in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Prepaid
expenses and other current assets
Prepaid
expenses and other current assets of $103,420 and $13,708 at February 28, 2021 and
May 31, 2020, respectively, consist primarily of costs paid for future services which will occur within a year and cash prepayment
to vendors.
Inventory
The
Company values inventory, consisting of finished goods and raw materials, at the lower of cost and net realizable value. Cost
is determined using an average cost method. The Company reduces inventory for the diminution of value, resulting from product
obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its
net realizable value. The Company evaluates its current level of inventory considering historical sales and other factors and,
based on this evaluation, classifies inventory markdowns in the statement of operations as a component of cost of goods sold.
These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer
demand or competition differ from expectations.
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Property
and Equipment
Property
and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements
and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are
removed, and any resulting gains or losses are included in the statement of operations.
Revenue
recognition
Effective
June 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers,
which is effective for public business entities with annual reporting periods beginning after December 15, 2017. This new
revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists; b) Identify the performance
obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance
obligations are satisfied. The impact of the Company’s initial application of ASC 606 did not have a material impact on
its financial statements and disclosures and there was no cumulative effect of the adoption of ASC 606.
The
Company sells a variety of hair and skin care products. The Company recognizes revenue for the agreed upon sales price when a
purchase order is received from the customer and subsequently the product is shipped to the customer, which satisfies the performance
obligation. Consideration paid to the customer to promote and sell the Company’s products is typically recorded as a reduction
in revenues. See Note 12 for revenue disaggregation disclosures.
Cost
of Sales
The
primary components of cost of sales include the cost of the product and freight-in.
Shipping
and Handling Costs
The
Company accounts for shipping and handling fees in accordance with ASC 606. While amounts charged to customers for shipping products
are included in revenues, the related costs of shipping products to customers are classified in marketing and selling expenses
as incurred. Shipping costs included in marketing and selling expense were $90,669 and $31,898 for the nine months ended February
28, 2021 and February 29, 2020, respectively. Shipping costs included in marketing and selling expense were $36,853 and $11,292
for the three months ended February 28, 2021 and February 29, 2020, respectively.
Marketing,
selling and advertising
Marketing,
selling and advertising costs are expensed as incurred.
Customer
Deposits
Customer
deposits consisted of prepayments from customers to the Company. The Company will recognize the prepayments as revenue upon delivery
of products in compliance with its revenue recognition policy.
Fair
value measurements and fair value of financial instruments
The
Company adopted Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”
(“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common
definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value
measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The
adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand
certain disclosures. ASC 820 defines fair value as the price 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.
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Additionally,
ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable
inputs. These inputs are prioritized below:
Level
1:
|
Observable
inputs such as quoted market prices in active markets for identical assets or liabilities
|
Level
2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market data
|
Level
3:
|
Unobservable
inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The
Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard
Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities
are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The
estimated fair value of certain financial instruments, including prepaid expenses, deposits, accounts payable and accrued expenses
are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Income
Taxes
The
Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC
740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The
asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided
to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will
not be realized.
The
Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed,
there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions.
Tax
positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more
than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated
with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax
benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing
authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination.
As such, the Company has not recorded a liability for uncertain tax benefits.
The
Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine
whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides
that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally
extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even
if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and
the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination
by the IRS and state taxing authorities, generally for three years after they are filed.
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Impairment
of long-lived assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value. The Company recorded impairment losses of $474 as an operating
expense in the accompanying financial statements, for the nine months ended February 29, 2020.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation —
Stock Compensation” (“ASC 718”), which requires recognition in the financial statements of the cost of employee
and director services received in exchange for an award of equity instruments over the period the employee or director is required
to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the
cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
In
June 2018, the FASB issued Accounting Standards Update (“ASU”) - ASU No. 2018-07, Improvements to Nonemployee
Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions
by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring
goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including
interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new
revenue recognition guidance in ASC 606. The Company adopted ASU No. 2018-07 on June 1, 2019 and there was no cumulative effect
of adoption.
Lease
Accounting
In
February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02), which requires lessees to report
on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating
leases under the prior guidance (ASC Topic 840). Under the new guidance, codified as ASC Topic 842, the lease liability must be
measured initially based on the present value of future lease payments, subject to certain conditions. The right-of-use asset
must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires
that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense
generally is flat (straight-line) throughout the life of the lease. For finance leases, periodic expense declines over the life
of the lease. The new standard, as amended, provides an option for entities to use the cumulative-effect transition method. As
permitted, the Company adopted ASC Topic 842 effective June 1, 2019.
Net
loss per share of common stock
Basic
net loss per share is computed by dividing the net loss by the weighted average number of common shares during the period. Diluted
net loss per share is computed using the weighted average number of common shares and potentially dilutive securities outstanding
during the period. At February 28, 2021 and February 29, 2020, the Company had no potentially dilutive securities outstanding.
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Recently
Issued Accounting Pronouncements
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU
2019-12”). ASU 2019-12, among other things, (a) eliminates the exception to the incremental approach for intra-period tax
allocation when there is a loss from continuing operations and income (or a gain) from other items, (b) eliminates the exception
to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated
loss for the year, (c) requires than an entity recognize a franchise tax (or a similar tax) that is partially based on income
as an income-based tax and account for any incremental amount incurred as a non-income-based tax, and (d) requires than an entity
reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation for the interim period
that includes the enactment date. For public companies, these amendments are effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020. Early adoption is permitted but must involve the adoption of all amendments
contained in ASU 2019-12 concurrently. The Company has not adopted ASU 2019-12 and is evaluating the potential impact of adoption
on its financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Note
3 – Accounts Receivable
Accounts
receivable, consisted of the following:
|
|
February 28, 2021
|
|
|
May 31, 2020
|
|
Accounts Receivable
|
|
$
|
94,336
|
|
|
$
|
184,019
|
|
Less: Allowance for doubtful accounts
|
|
|
(2,392
|
)
|
|
|
(1,818
|
)
|
Total
|
|
$
|
91,944
|
|
|
$
|
182,201
|
|
The
Company recorded bad debt expense of $574 and a bad debts recovery of $2,342 during the nine months ended February 28, 2021 and
February 29, 2020, respectively. The Company recorded bad debt expense of $0 during the three months ended February 28, 2021 and
February 29, 2020, respectively.
Note
4 – Inventory
Inventory
consisted of the following:
|
|
February 28, 2021
|
|
|
May 31, 2020
|
|
Finished Goods
|
|
$
|
23,723
|
|
|
$
|
29,839
|
|
Raw Materials
|
|
|
277,800
|
|
|
|
258,285
|
|
Total
|
|
$
|
301,523
|
|
|
$
|
288,124
|
|
At
February 28, 2021 and May 31, 2020, inventory held at third party locations amounted to $556 and $556, respectively. At February
28, 2021 and May 31, 2020, inventory in- transit amounted to $17,778 and $0, respectively.
During
the nine months ended February 29, 2020 the Company sold some of the slow- moving inventory which had been written off and recovered
$769.
Note
5 – Property and Equipment
Property
and equipment, stated at cost, consisted of the following:
|
|
Estimated Life
|
|
February 28, 2021
|
|
|
May 31, 2020
|
|
Furniture and Fixtures
|
|
5 years
|
|
$
|
5,759
|
|
|
$
|
5,759
|
|
Computer Equipment
|
|
3 years
|
|
|
17,392
|
|
|
|
17,392
|
|
Plant Equipment
|
|
5-10 years
|
|
|
45,128
|
|
|
|
29,720
|
|
Less: Accumulated Depreciation
|
|
|
|
|
(28,916
|
)
|
|
|
(21,294
|
)
|
|
|
|
|
$
|
39,363
|
|
|
$
|
31,577
|
|
Depreciation
expense amounted to $7,622 and $7,998 for the nine months ended February 28, 2021 and February 29, 2020, respectively. Depreciation
expense amounted to $2,346 and $2,459 for the three months ended February 28, 2021 and February 29, 2020, respectively.
Note
6 – Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses comprised of the following:
|
|
February 28, 2021
|
|
May 31, 2020
|
Trade Payables
|
|
$
|
311,053
|
|
|
$
|
98,608
|
|
Accrued expenses
|
|
|
19,903
|
|
|
|
—
|
|
Credit Cards
|
|
|
9,947
|
|
|
|
10,378
|
|
Shares to be issued
|
|
|
—
|
|
|
|
18,313
|
|
Other
|
|
|
7,729
|
|
|
|
1,552
|
|
Total
|
|
$
|
348,632
|
|
|
$
|
128,851
|
|
As
of May 31, 2020, the Company had recorded $18,313 as accrued expenses for shares to be issued to a consultant. During the nine
months ended February 28, 2021, the Company entered into a settlement agreement with the consultant and paid him $2,000 as full
and final settlement. The gain of $16,313 was recorded as a gain on settlement of debt, in the accompanying unaudited financial
statements.
Note
7 – Equipment Financing Payable
During
the year ended May 31, 2019, the Company purchased a forklift under an installment purchase plan. The loan amount is $16,500 payable
in 60 monthly installment payments of $317 comprising of principal payment of $275 and interest payment of $42. As of February
28, 2021, and May 31, 2020, the balance outstanding on the loan was $9,625 and $12,100. At February 28, 2021, $3,300 of the loan
is payable within one year and the balance $6,325, is payable after one year from February 28, 2021. The Company paid off $2,475
during the nine months period ended February 28, 2021 and $4,400 during the year ended May 31, 2020. The Company recorded an interest
expense of $375 and $31, respectively on the loan in the accompanying unaudited financial statements for the nine months ended
February 28, 2021 and February 29, 2020, respectively. The Company recorded an interest expense of $125 and $10, respectively
on the loan in the accompanying unaudited financial statements for the three months ended February 28, 2021 and February 29, 2020,
respectively.
The
amounts of loan payments due in the next five years ended November 30, are as follows:
|
|
Total
|
|
2022
|
|
$
|
3,300
|
|
2023
|
|
|
3,300
|
|
2024
|
|
|
3,025
|
|
|
|
$
|
9,625
|
|
Note
8 – Loans Payable
On
May 8, 2020, a commercial bank granted to the Company a loan (the “Loan”) in the amount of $12,900, which is administered
under the authority and regulations of the U.S. Small Business Administration pursuant to the Paycheck Protection Program (the
“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Loan, which
is evidenced by a note dated May 8, 2020, bears interest at an annual rate of 1.0% and matures on May 8, 2022. The Note
may be prepaid without penalty, at the option of the Company, at any time prior to maturity. Proceeds from loans granted under
the CARES Act are intended to be used for payroll, costs to continue employee group health care benefits, rent, utilities, and
certain other qualified costs (collectively, “qualifying expenses”). The Company intends to use the loan proceeds
for qualifying expenses. The Company’s borrowings under the Loan may be eligible for loan forgiveness if used for qualifying
expenses incurred during the “covered period,” as defined in the CARES Act, except that the amount of loan forgiveness
is limited to the amount of qualifying expenses incurred during the 8-week period commencing on the loan effective date. In addition,
the amount of any loan forgiveness may be reduced if there is a decrease in the average number of full-time equivalent employees
of the Company during the covered period, compared to the comparable period in the prior calendar year. The Company’s indebtedness,
after any such loan forgiveness, is payable in 18 equal monthly installments commencing on November 8, 2020, with all amounts
due and payable by the maturity. The Company has not paid any installment to date. The Company recorded an accrued interest of
$96 and $0, as of February 28, 2021 and May 31, 2020, respectively.
During
the year ended May 31, 2020, a commercial bank granted to the Company a loan (the “Loan”) in the amount of $150,000,
which is administered under the authority and regulations of the U.S. Small Business Administration pursuant to the Economic Injury
Disaster Loan Program (the “EIDL”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”). The Loan, which is evidenced by a note dated May 18, 2020, bears interest at an annual rate of 3.75% and is
payable installments of $731 per month, beginning May 18, 2021 until May 13, 2050. The Company has to maintain a hazard insurance
policy including fire, lightning, and extended coverage on all items used to secure this loan to at least 80% of the insurable
value. Proceeds from loans granted under the CARES Act are intended to be used for payroll, costs to continue employee group health
care benefits, rent, utilities, and certain other qualified costs (collectively, “qualifying expenses”). The Company
intends to use the loan proceeds for qualifying expenses. The Company’s borrowings under the loan may be eligible for up
to $10,000 of loan forgiveness. The Company recorded an accrued interest of $4,272 and $200, as of February 28, 2021 and
May 31, 2020, respectively.
Note
8 – Loans Payable (continued)
On
February 7, 2021, a commercial bank granted to the Company a loan (the “Loan”) in the amount of $6,300, which is administered
under the authority and regulations of the U.S. Small Business Administration pursuant to the Second Draw Paycheck Protection
Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The Loan, which is evidenced by a note dated February 7, 2021, bears interest at an annual rate of 1.0% and matures
on February 6, 2026. The Note may be prepaid without penalty, at the option of the Company, at any time prior to maturity. Proceeds
from loans granted under the CARES Act are intended to be used for payroll, costs to continue employee group health care benefits,
rent, utilities, and certain other qualified costs (collectively, “qualifying expenses”). The Company intends to use
the loan proceeds for qualifying expenses. The Company’s borrowings under the Loan may be eligible for loan forgiveness
if used for qualifying expenses incurred during the “covered period,” as defined in the CARES Act. The Company’s
indebtedness, after any such loan forgiveness, is payable in 54 equal monthly installments commencing on September 7, 2021, with
all amounts due and payable by the maturity.
Loans Payable
|
|
February 28, 2021
|
|
|
May 31, 2020
|
|
|
|
|
|
|
|
|
Paycheck Protection Program (PPP)
|
|
$
|
12,900
|
|
|
$
|
12,900
|
|
Second Draw Paycheck Protection Program (PPP- 2)
|
|
|
6,300
|
|
|
|
—
|
|
Economic Injury Disaster Loan Program (EIDL)
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
169,200
|
|
|
|
162,900
|
|
Less: Current portion
|
|
|
(13,878
|
)
|
|
|
(5,002
|
)
|
Loans Payable, Non-current portion
|
|
$
|
155,322
|
|
|
$
|
157,898
|
|
The
amounts of principal loan payments due in the next five years ended February 28, are as follows:
|
|
Total
|
|
2022
|
|
$
|
13,878
|
|
2023
|
|
|
6,661
|
|
2024
|
|
|
4,618
|
|
2025
|
|
|
4,755
|
|
2026
|
|
|
4,897
|
|
Thereafter
|
|
|
134,391
|
|
|
|
$
|
169,200
|
|
Note
9 – Stockholders’ Equity
Shares
Authorized
The
authorized capital of the Company consists of 100,000,000 shares of common stock, par value $0.0001 per share and 20,000,000 shares
of preferred stock, par value $0.0001 per share.
Preferred
Stock
The
preferred stock may be issued from time to time in one or more series. The Board of Directors of the Company is expressly authorized
to provide for the issuance of all or any of the shares of the preferred stock in one or more series, and to fix the number of
shares and to determine or alter, for each such series, such voting powers, full or limited, or no voting powers and such designations,
preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof,
as shall be stated and expressed until the resolution adopted by the Board of Directors providing the issuance of such shares.
The Board of Directors is also expressly authorized to increase or decrease the number of shares of any series subsequent to the
issue of shares of that series. In case the number of shares of any such series shall be so decreased, the decrease shall resume
the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.
Common
Stock
As
of February 28, 2021, 41,725,881 shares of common stock were issued and outstanding.
During the nine months ended February 28, 2021,
the Company issued 200,000 shares to a consultant for past services. The shares were valued at the fair market value of the $16,000,
which expense was recognized immediately.
During the nine months ended February 28, 2021,
the Company issued 240,000 shares to a consultant for services. The shares were valued at the fair market value of the $50,400,
which expense is being recognized over the term of the services. The Company recognized $25,200 as expense during the nine months
ended February 28, 2001 and the balance $25,200 has been recognized as a prepayment in the accompanying financial statements.
During the nine months ended February 28, 2021,
the Company recorded $25,200 for 60,000 shares to be issued to an attorney for past services. The shares were valued at the fair
market value, which expense was recognized immediately. The shares were issued in March 2021.
No stock was issued during the nine months
ended February 29, 2020.
Note
10 – Commitments and Contingencies
Leases
As
discussed in Note 2 above, the Company adopted ASU No. 2016-02, Leases on June 1, 2019, which require lessees to report
on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating
leases under the prior guidance. The Company has a lease agreement in connection with its office and warehouse facility in California
under an operating lease which expired in October 2019. On December 1, 2019, the Company signed an extension of the lease for
3 years. The rent will be $7,567 per month for the first year and increase by a certain amount each year.
The
Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time
in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits
of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases
with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety
of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU
asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over
the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest
rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing
rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the
Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value.
The
Company reviews the impairment of ROU assets consistent with the approach applied for the Company’s other long-lived assets.
The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the
carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability
to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.
Lease
expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Variable
payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not
result in a remeasurement of lease liabilities. The Company’s lease agreements do not contain any residual value guarantees
or restrictive covenants.
Pursuant
to the new standard, the Company recorded an initial lease liability of $235,748 and an initial right of use asset in the same
amount. During the three months and nine months ended February 28, 2021, the Company recorded a lease expense in the amount of
$23,559 and $70,676, respectively. As of February 28, 2021, the lease liability balance was $151,021 and the right of use asset
balance was $147,594. A lease term of three years and a discount rate of 12% was used.
Supplemental
balance sheet information related to leases was as follows:
|
|
February 28, 2021
|
|
Assets
|
|
|
|
|
Right of use assets
|
|
$
|
235,748
|
|
Accumulated reduction
|
|
|
(88,154
|
)
|
Operating lease assets, net
|
|
$
|
147,594
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Lease liability
|
|
$
|
235,748
|
|
Accumulated reduction
|
|
|
(84,727
|
)
|
Total lease liability, net
|
|
|
151,021
|
|
Current portion
|
|
|
(80,219
|
)
|
Non-current portion
|
|
$
|
70,802
|
|
Note
10 – Commitments and Contingencies (continued)
Maturities
of operating lease liabilities were as follows as of February 28, 2021:
Operating Lease
|
|
|
|
|
Year 1
|
|
$
|
95,092
|
|
Year 2
|
|
|
73,246
|
|
Total
|
|
|
168,338
|
|
Less: Imputed interest
|
|
|
(17,317
|
)
|
Present value of lease liabilities
|
|
|
151,021
|
|
Rent
expense, prior to the signing of the new lease agreement, amounted to $0 and $0 for the three months ended February 28, 2021 and
February 29, 2020, respectively. Rent expense, prior to the signing of the new lease agreement, amounted to $0 and $71,105 for
the nine months ended February 28, 2021 and February 29, 2020, respectively.
Contingencies
On
November 23, 2020, the Company was served a copy of a complaint filed by Jacksonfill, LLC in the Fourth Circuit Court for Duval
County, Florida. The complaint alleges breach of Agreement for non-payments for certain products against the Company. The allegations
arise from alleged discrepancies discovered by the Company in the manufacturing of certain product. The Company has retained counsel
and intends to vigorously defend the allegations. The product was delivered to the Company. However, the Company believes that
the product was defective. The amount of the claim of $204,182 has been recorded as accounts payable, in the accompanying unaudited
financial statements as of February 28, 2021.
Note
11 – Related Party Transactions
The
Company’s Chief Executive Officer, from time to time, provided advances to the Company for working capital purposes. At
February 28, 2021 and May 31, 2020, the Company had a payable to the officer of $22,802 and $2,396, respectively. These advances
are due on demand and non-interest bearing.
Note
12 – Concentrations and Revenue Disaggregation
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable
and cash deposits, investments and cash equivalents instruments. The Company maintains its cash in bank deposits accounts. The
Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to
$250,000. At February 28, 2021 the Company held cash of approximately $228,721, in excess of federally insured limits. The Company
has not experienced any losses in such accounts February 28, 2021.
Concentration
of Revenue, Product Line, Accounts Receivable and Supplier
During
the three months ended February 28, 2021 sales to one customer, which each represented over 10% of our total sales, aggregated
to approximately 17% of the Company’s net sales. During the nine months ended February 28, 2021 sales to two customers,
which each represented over 10% of our total sales, aggregated to approximately 41% of the Company’s net sales at 28%, and
13%. During the three months ended February 29, 2020 sales to four customers, which each represented over 10% of our total sales,
aggregated to approximately 68% of the Company’s net sales at 21%, 20%, 15% and 12%. During the nine months ended February
29, 2020, sales to three customers, which each represented over 10% of our total sales, aggregated to approximately 48% of the
Company’s net sales at 26%, 10% and 12%.
During
the three months ended February 28, 2021, sales to customers outside the United States represented approximately 35% which consisted
of sales of 27% from Canada, 7% from Italy and 1% from United Kingdom during the nine months ended February 28, 2021, sales to
customers outside the United States represented approximately 22% which consisted of 17% from Canada and 5% from Italy. During
the three months ended February 29, 2020, sales to customers outside the United States represented approximately 42% which consisted
of 41% from Canada and 1% from other countries and during the nine months ended February 29, 2020, sales to customers outside
the United States represented approximately 33% which consisted of 24% from Canada, 8% from Italy and 1% from UK.
During
the nine months ended February 28, 2021, sales by product lines which each represented over 10% of sales consisted of approximately
35% from sale of introductory kit (shampoo, conditioner and treatment spray) and 28% from sale of fragrance shampoo and conditioner.
During the three months ended February 28, 2021, sales by product lines which each represented over 10% of sales consisted of
approximately 43% from sale of introductory kit (shampoo, conditioner and treatment spray), 19% from sale of prep cleanser and
shampoo and 11% from sale of moisturizer and conditioner. During the nine months ended February 29, 2020, sales by product lines
which each represented over 10% of sales consisted of approximately 17% from sale of introductory kit (shampoo, conditioner and
treatment spray) and 26% from sale of fragrance shampoo and conditioner. During the three months ended February 29, 2020, sales
by product lines which each represented over 10% of sales consisted of approximately 25% from sale of introductory kit (shampoo,
conditioner and treatment spray), 26% from sale of prep shampoo and 10% from prime moisturizer and conditioner.
During
the nine months ended February 28, 2021 and February 29, 2020, sales by product line comprised of the following:
|
|
For the nine months ended
|
|
Hair Care Products
|
|
February 28, 2021
|
|
|
February 29, 2020
|
|
Shampoos and Conditioners
|
|
|
86
|
%
|
|
|
80
|
%
|
Ancillary Products
|
|
|
14
|
%
|
|
|
20
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
As
of February 28, 2021, accounts receivable from three customers represented approximately 91% at 11%, 27% and 44% and at May 31,
2020, accounts receivable from one customer represented approximately 69%, respectively.
The
Company purchased inventories and products from three vendors totaling approximately $241,805 (84% of the purchases at 42%, 27%
and 15%) and one vendor totaling approximately $203,916 (77% of the purchases) during the nine months ended February 28, 2021
and February 29, 2020, respectively. The Company purchased inventories and products from two vendors totaling approximately $180,626
(96% of the purchases at 55% and 41%) and one vendor totaling approximately $39,450 (89% of the purchases) during the three months
ended February 28, 2021 and February 29, 2020, respectively.
Note
13 – Subsequent Events
Subsequent
to the nine months period ended February 28, 2021, the Company applied for the forgiveness of the first tranche of
the loan, in the amount of $12,900, granted to them under the U.S. Small Business Administration pursuant to the Paycheck Protection
Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The commercial bank received the proceeds from the U.S. Small Business Administration to repay the loan amount in full and the
Company’s obligation to repay was reduced to $0.