Note 1 – Basis of Financial Statement Presentation
Basis of Presentation
The consolidated financial statements include the accounts of Green and its subsidiaries after elimination of intercompany accounts and transactions. All consolidated subsidiaries are wholly-owned by Green.
These statements should be read in conjunction with the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. In particular, the Company’s significant accounting policies were presented as Note 2 to the consolidated financial statements in that Annual Report. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements and consist of only normal recurring adjustments. The results of operations presented in the accompanying condensed consolidated financial statements for the three and six months ended June 30, 2017, are not necessarily indicative of the results that may be expected for the 12 months ending December 31, 2017.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates in the Preparation of the Financial Statements
The consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
Cash and Cash Equivalents
Investments with original maturities of three months or less at the time of purchase are considered cash equivalents. As of June 30, 2017 and December 31, 2016, Green had no cash equivalents.
Inventory
Inventory consists of items held for resale and is carried at the lower of cost or market. Cost is determined using the first in, first out (“FIFO”) method. Management has determined that no reserve is required at June 30, 2017.
Property, Plant, and Equipment
Property, plant, and equipment are stated at historical cost. Depreciation is generally provided over the estimated useful lives, using the straight-line method, as follows:
|
Leasehold improvements
|
Shorter of the lease term or the estimated useful life
|
|
Computer equipment and related software
|
3 years
|
|
Furniture and fixtures
|
3-10 years
|
|
Equipment
|
3-10 years
|
|
Vehicle
|
7 years
|
|
Signage
|
10 years
|
6
The following is a summary of Green’s property, plant, and equipment by major category as of June 30, 2017:
|
|
|
|
Cost
|
Accumulated Depreciation
|
Net
|
|
Computer equipment and related software
|
$ 46,547
|
$ 40,117
|
$ 6,430
|
|
Leasehold improvements
|
|
732,690
|
560,215
|
172,476
|
|
Furniture and fixtures
|
|
27,201
|
26,145
|
1,056
|
|
Equipment
|
|
|
362,126
|
332,137
|
29,989
|
|
Vehicle
|
|
|
48,193
|
48,193
|
-
|
|
Signage
|
|
|
25,154
|
17,418
|
7,736
|
|
|
|
|
$ 1,241,911
|
$ 1,024,224
|
$ 217,687
|
The following is a summary of Green’s property, plant, and equipment by major category as of December 31, 2016:
|
|
|
|
Cost
|
Accumulated Depreciation
|
Net
|
|
Computer equipment and related software
|
$ 44,401
|
$ 36,333
|
$ 8,068
|
|
Leasehold improvements
|
|
732,690
|
530,039
|
202,651
|
|
Furniture and fixtures
|
|
27,201
|
25,650
|
1,551
|
|
Equipment
|
|
|
362,126
|
315,227
|
46,899
|
|
Vehicle
|
|
|
48,193
|
46,472
|
1,721
|
|
Signage
|
|
|
25,154
|
16,213
|
8,941
|
|
|
|
|
$ 1,239,765
|
$ 969,934
|
$ 269,831
|
As of June 30, 2017 and 2016, Green recorded depreciation expense of $54,292 and $53,770, respectively.
Derivative Liability
The Company has convertible notes that could be considered derivatives or contain embedded features subject to derivative accounting. We have estimated the fair value of these embedded derivatives for convertible debentures using a multinomial lattice model.
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Basic and Diluted Income (Loss) Per Common Share
Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the six months ended June 30, 2017, there were 1,016,895,830 potential common shares not included in the diluted net loss per share calculation as their effect would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. The three month period ended June 30, 2017 included these potentially dilutive shares as there was a net gain for that time period.
7
Deferred Revenue
Deferred revenue arises when customers pay for products and/or services in advance of receiving the product or service. Green’s deferred revenue consists solely of unearned revenue associated with the purchase of gift certificates for which revenue is recognized only when the service is performed or the product is delivered. As of June 30, 2017 and December 31, 2016, deferred revenue was $71,096 and $86,223, respectively.
Advertising
The Company expenses advertising production costs as they are incurred and advertising communication costs the first time the advertising takes place. For the six month period ended June 30, 2017 and 2016, advertising costs amounted to $49,886 and $47,278, respectively.
Income Taxes
Deferred income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Also, Green's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Green is 100% consolidated into its parent company, SAKL, and therefore does not file an income tax return. Its financial amounts are consolidated into the SAKL income tax returns. As of June 30, 2017 and December 31, 2016, a 100% valuation allowance has been placed against the deferred tax asset and therefore is not reflected on the balance sheets.
Recent Accounting Pronouncements
Management believes the impact of recently issued standards and updates, which are not yet effective, will not have a material impact on Green’s consolidated financial position, results of operations or cash flows upon adoption.
Note 3 – Going Concern
Generally accepted accounting principles in the United States of America contemplate the continuation of Green as a going concern. As of and for the six months ended June 30, 2017, Green had negative working capital of $989,982 and a net loss of $126,852, which raises substantial doubt about Green’s ability to continue as a going concern. Green’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to successfully fulfill its business plan. Management plans to attempt to raise additional funds to finance the operating and capital requirements of Green through a combination of equity and debt financings. While Green is making its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be sufficient for operations.
Note 4 – Inventory
Green’s inventory consists of items held for resale and product that is used in services by the Landis and Landis II salons, and all are considered finished goods. Inventory is carried at the lower of cost or market. As of June 30, 2017 and December 31, 2016, inventory amounted to $126,323 and $152,790, respectively.
Note 5 – Derivative Liability
The Company has convertible notes that could be considered derivatives or contain embedded features subject to derivative accounting. We have estimated the fair value of these embedded derivatives for convertible debentures using a multinomial lattice model. As of June 30, 2017 and December 31, 2016, the Company has a $64,590 and $108,297 derivative liability respectively, related to convertible notes payable. For the six months ended June 30, 2017 and 2016 the Company recorded gains of $43,707 and $67,775 from derivative liability fair value adjustments, respectively.
8
Note 6 – Fair Value Measurement
Our financial assets and (liabilities) carried at fair value measured on a recurring basis as of June 30, 2017 and December 31, 2016, consisted of the following:
|
|
|
|
|
Total fair
|
Quoted prices
|
Significant other
|
Significant
|
|
|
|
|
|
value at
|
in active
|
observable
|
unobservable
|
|
|
|
|
|
June 30,
|
markets
|
inputs
|
inputs
|
|
Description
|
|
|
2017
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|
Derivative liability (1)
|
|
$64,590
|
$ -
|
$64,590
|
$ -
|
|
|
|
|
|
Total fair
|
Quoted prices
|
Significant other
|
Significant
|
|
|
|
|
|
value at
|
in active
|
observable
|
unobservable
|
|
|
|
|
|
December 31,
|
markets
|
inputs
|
inputs
|
|
Description
|
|
|
2016
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|
Derivative liability (1)
|
|
$108,297
|
$ -
|
$108,297
|
$ -
|
(1)
Derivative liability amounts are due to the embedded derivatives of certain convertible notes payable issued by the Company and are calculated using
a multinomial lattice model
(see Note 5 - Derivative liability)
Note 7 – Related Party Transactions
As of June 30, 2017 and December 31, 2016, amounts due from related parties were $227,487 and $248,778, respectively. The balances represent notes and interest receivable from SAKL, the parent, and Color Me Rad Productions, Inc., an SAKL subsidiary. The SAKL note accrues interest at 18% per annum and matured on April 30, 2017. The Color Me Rad note was paid in full in April 2017.
As of June 30, 2017 and December 31, 2016, amounts due to related parties were $751,428 and $694,361, respectively. The balances, represent advances from SAKL and SAKL subsidiaries, and certain notes payable to SAKL, Richard Surber and a company affiliated with Richard Surber. These notes have maturity dates from April 2015 to November 2017.
Richard Surber, a related party, is providing his personal guaranty for several lines of credit and credit cards that are being utilized by the Company and its operating subsidiaries. In addition to the above, Mr. Surber is a personal guarantor to notes payable by the Company with remaining principal balances of approximately $5,000. Subsequent to June 30, 2017, Mr. Surber continues to provide his personal guaranty for several lines of credit, credit cards, and loans that are being utilized by the Company and its subsidiaries. The total amount of these credit obligations could exceed the amount of $300,000 from time to time.
Note 8 – Equity
Preferred Stock
Green is authorized to issue 15,000,000 shares of preferred stock (par value $.001 per share). Green’s preferred stock may be divided into such series as may be established by the Board of Directors. As of June 30, 2017, Green has designated 12,000,000 of the preferred stock into two series as follows: 2,000,000 shares of Convertible Series B Preferred and 10,000,000 shares of Convertible Super voting Preferred.
The Preferred Stock is classified as equity as long as there are sufficient shares available to effect the conversion. In some instances certain contracts may pass the option to receive cash or common stock to the shareholder. In this case, it is assumed that a cash settlement will occur and balance sheet classification of the affected Preferred Stock and related preferred paid-in capital as a liability.
9
Convertible Super voting Preferred Stock
Each share of the Convertible Super voting Preferred Stock is convertible into 100 shares of Green’s Common stock and has the voting rights equal to 100 shares of common stock.
As of June 30, 2017 and December 31, 2016, Green had 10,000,000 shares of Convertible Super voting Preferred stock issued and outstanding.
Convertible Series B Preferred Stock
Each share of Green’s Convertible Series B Preferred Stock (Series B) has one vote per share and is convertible into $5.00 worth of common stock. The number of common shares received is based on the average closing bid market price of Green's common stock for the five days before conversion notice date by the shareholder. Series B shareholders, at the option of Green, can receive cash or common stock upon conversion.
As of June 30, 2017 and December 31, 2016, Green had 934,947 and 956,447 shares of Series B issued and outstanding respectively. During the six months ended June 30, 2017 the company received and cancelled 21,500 shares of Series B Preferred Stock.
Common Stock
Green is authorized to issue 2,000,000,000 shares of common stock (par value $0.0001 per share).
As of June 30, 2017 and December 31, 2016, Green had 5,127,408 shares of common stock issued and outstanding.
Note 9 – Litigation
TCA Global Credit Master Fund, L.P. vs Sack Lunch Productions, Green Endeavors, Inc., Landis Salons, Inc., Landis Salons II, Inc., Diversified Managements Services, Inc., Wasatch Capital Corporation, Downtown Development Corporation, WG Productions Company, Landis Experience Center, LLC, Redline Entertainment, Inc., Springbok Holdings, LLC, Color Me Rad, LLC, The Dirty Dash, LLC, Springbok Franchising LLC, and Springbok Management, LLC, Case CACE-17-011661 Division 12, in the Circuit Court of the 17th Judicial Circuit In and For Broward County, Florida. The suit seeks recovery for payments that were due in accordance with the terms and provisions of the Senior Secured Credit Facility Agreement effective between the parties as of October 31, 2015. Defendants have not yet filed responses to the complaint and discussions to resolve the matter are ongoing.
Note 10 – Concentration of Risk
Supplier Concentrations
The Company purchases most of its salon inventory that is used for service and product sales from Aveda™. Aveda™ product purchases for the six months ended June 30, 2017 and 2016 accounted for approximately 99% of salon products purchased.
Market or Geographic Area Concentrations
100% of the Company's sales are in the salon services and products market and are concentrated in the Salt Lake City, Utah geographic area.
Note 11 – Subsequent Events
In accordance with ASC 855-10 Company management reviewed all material events through the date of this report.
On July 27, 2017, the Company entered into a loan agreement with a bank in the amount of $378,000. The note is a merchant account financing arrangement wherein Landis Salons INC. repays the loan at the rate of 75% of the American Express credit card sales receipts that are collected each month. In addition to the merchant account receivables, collateral for the loan includes all receivables, financial instruments, equipment assets, inventories, intangibles, deposits, and other assets as applicable. The loan requires a prepaid interest charge that is 6% ($22,680) of the $378,000 loan amount. These financing costs are being amortized monthly to interest expense during the one year term of the loan. The total amount due at the inception date is $400,680.
On July 28, 2017 Landis Salon, Inc. entered into a Promissory Note agreement with The Lantern Fest Productions, Inc., to loan $165,000 with an interest rate of 20%. This sum is to be repaid in weekly payments of $4,328.16.
10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q, or this Quarterly Report, and in conjunction with our Form 10-K for the fiscal year ended December 31, 2016 and Form 10-Q for the quarter ended March 31, 2017. Certain of these statements, including, without limitation, statements regarding the extent and timing of future revenues and expenses, customer demand and other statements using words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecast,” “intends,” “may,” “plans,” “projects,” “should,” “will” and “would,” and words of similar import and the negatives thereof, constitute forward-looking statements. These statements are predictions based upon management’s best judgment at the time they are made about future events that are not historical facts. Actual results could vary materially as a result of certain factors, including but not limited to, those expressed in these statements. We refer you to the “Risk Factors,” “Results of Operations,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.
We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report. All subsequent written or oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We do not intend, and undertake no obligation, to update these forward-looking statements.
Overview
Green Endeavors, Inc. (“Green”) is a Utah corporation originally formed on April 25, 2002. Our fiscal year ends on December 31. We have never filed bankruptcy nor been through any similar financial reorganization.
As of June 30, 2017, we operate two high-quality hair care salons that feature Aveda™ products for retail sale. Landis Salons, Inc. (“Landis I”) operates its business within a 4,000 square foot space located in the Liberty Heights District of Salt Lake City, Utah as an Aveda™ Lifestyle Salon. Landis Salons II, Inc. (“Landis II”) operates within a 3,024 square foot space located in the Marmalade District of Salt Lake City, Utah under the Landis Lifestyle Salon brand as an Aveda™ Lifestyle Salon. A third location opened August 16, 2012, and operates as an Aveda™ Experience Center ("LEC") in the City Creek Mall in Salt lake City, Utah.
Aveda™ Lifestyle Salons can be distinguished from Aveda™ Concept Salons in that Aveda™ Lifestyle Salons are required to carry all of Aveda’s products and must meet a higher threshold for product sales than Aveda™ Concept Salons. An Aveda™ Lifestyle Salon is the highest level within the Aveda™ hierarchy of salons which is classified by higher purchasing volume, location, array of products carried and size of retail space.
Salon operations consist of three major components, an Aveda™ retail store, an advanced hair salon, and a training academy, which educates and prepares future staff about the culture, services, and products provided by the salon. The design of the salons is intended to look modern and feel comfortable, appealing to both genders, and all age groups.
Additional information on Landis can be found on its website at: www.landissalons.com
.
Critical Accounting Estimates
Use of Estimates
In preparing our Condensed Consolidated Financial Statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates and make changes accordingly. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results.
11
Results of Operations
The following discussion examines our results of operations and financial condition based on our Consolidated Financial Statements for the three and six months ended June 30, 2017 and 2016.
For the six months ended June 30, 2017, we owned and operated three wholly owned subsidiaries. Two of the subsidiaries, Landis Salons, Inc. and Landis Salons II, Inc., operate as full-service hair and retail salons featuring the Aveda™ line of products. The third subsidiary, Landis Experience Center, LLC, is a retail Aveda™ Experience Center.
Revenue
We generate revenue through the sale of services and products in the hair salon industry. For the six month periods ended June 30, 2017 and 2016, we had net revenue of $1,727,649 and $1,656,255, respectively.
Three months ended June 30, 2017 and 2016
The following table shows the change in service revenue by salon for the three month periods ended June 30, 2017 and 2016:
|
|
|
Three Months Ended June 30,
|
|
Increase (Decrease) over prior period
|
|
Salon
|
|
2017
|
|
2016
|
|
Dollar
|
%
|
|
Liberty Heights
|
$ 524,979
|
|
$ 484,508
|
|
$ 40,471
|
8.35
|
|
Marmalade
|
|
161,030
|
|
181,066
|
|
(20,036)
|
(11.07)
|
|
City Creek
|
|
4,336
|
|
5,955
|
|
(1,619)
|
(27.19)
|
|
|
|
$ 690,345
|
|
$ 671,529
|
|
$ 18,816
|
2.80
|
As can be seen from the above table our three locations experienced an increase of 2.80% in service revenues for the three month period ending June 30, 2017 over the comparable period of service sales for 2016. Several of the stylists that were servicing their clients at the Marmalade location have begun to service several of their clients at the Liberty heights location, this has resulted in the decrease and increase of revenues at those locations respectively when compared with the same time period in for 2016.
The following table shows the change in product revenue by salon for the three month periods ended June 30, 2017 and 2016:
|
|
|
Three Months Ended June 30,
|
|
Increase (Decrease) over prior period
|
|
Salon
|
|
2017
|
|
2016
|
|
Dollar
|
%
|
|
Liberty Heights
|
$ 104,168
|
|
$ 107,445
|
|
$ (3,277)
|
(3.05)
|
|
Marmalade
|
|
37,637
|
|
36,754
|
|
883
|
2.40
|
|
City Creek
|
|
50,976
|
|
49,019
|
|
1,957
|
3.99
|
|
|
|
$ 192,781
|
|
$ 193,218
|
|
$ (437)
|
(0.23)
|
As can be seen from the above table our three locations experienced a decrease of 0.23% in product revenues for the three month period ended June 30, 2017 over the comparable period of product sales for 2016. This decline in product revenue is primarily due to the Company's senior staff spending more time in our training programs for new artists.
Six months ended June 30, 2017 and 2016
The following table shows the change in service revenue by salon for the six month periods ended June 30, 2017 and 2016:
|
|
|
Six Months Ended June 30,
|
|
Increase (Decrease) over prior period
|
|
Salon
|
|
2017
|
|
2016
|
|
Dollar
|
%
|
|
Liberty Heights
|
|
$ 1,039,487
|
|
$ 931,190
|
|
$ 108,297
|
11.63
|
|
Marmalade
|
|
311,549
|
|
332,838
|
|
(21,289)
|
(6.40)
|
|
City Creek
|
|
10,699
|
|
7,755
|
|
2,944
|
37.96
|
|
|
|
$ 1,361,735
|
|
$ 1,271,783
|
|
$ 89,952
|
7.07
|
12
As can be seen from the above table our three locations experienced an increase of 7.07% in service revenues for the six month period ending June 30, 2017 over the comparable period of service sales for 2016. Several of the stylists that were servicing their clients at the Marmalade location have begun to service several of their clients at the Liberty heights location. This has resulted in the decrease and increase of revenues at those locations respectively when compared with the same time period in for 2016. This movement by our stylists has enabled them to retain more clients and increase sales for the six months ended June 30, 2017 as compared to the same period in 2016.
The following table shows the change in product revenue by salon for the six month periods ended June 30, 2017 and 2016:
|
|
|
Six Months Ended June 30,
|
|
Increase (Decrease) over prior period
|
|
Salon
|
|
2017
|
|
2016
|
|
Dollar
|
%
|
|
Liberty Heights
|
|
$ 197,399
|
|
$ 217,790
|
|
$ (20,391)
|
(9.36)
|
|
Marmalade
|
|
64,431
|
|
73,549
|
|
(9,118)
|
(12.40)
|
|
City Creek
|
|
104,084
|
|
93,133
|
|
10,951
|
11.76
|
|
|
|
$ 365,914
|
|
$ 384,472
|
|
$ (18,558)
|
(4.83)
|
As can be seen from the above table our three locations experienced a decrease of 4.83% in product revenues for the three month period ended June 30, 2017 over the comparable period of product sales for 2016. This decline in product revenue is primarily due to the Company's senior staff spending more time in our training programs for new artists.
Costs of Revenue
Three months ended June 30, 2017 and 2016
The following table shows cost of revenue by type as a percentage of related revenue for the three month periods ended June 30, 2017 and 2016:
|
|
|
Three Months Ended June 30,
|
|
Revenue Type
|
|
2017
|
|
2016
|
|
Service
|
|
55.4%
|
|
63.5%
|
|
Product
|
|
54.1%
|
|
46.9%
|
The above table shows the cost of services revenue as a percentage of service revenue decreasing by 8.1% for the three month period ended June 30, 2017 over the comparable period for 2016. This decrease in service cost is primary due to our stylists becoming more effective sales people and providing higher revenue services for their clients. The 7.2% increase in product costs as a percentage of product sales for the same comparable periods is primarily due to normal fluctuations in the purchase price of product.
Six months ended June 30, 2017 and 2016
The following table shows cost of revenue by type as a percentage of related revenue for the six month periods ended June 30, 2017 and 2016:
|
|
|
Six Months Ended June 30,
|
|
Revenue Type
|
|
2017
|
|
2016
|
|
Service
|
|
56.0%
|
|
59.1%
|
|
Product
|
|
57.4%
|
|
55.4%
|
The above table shows the cost of services revenue as a percentage of service revenue decreasing by 3.1% for the six month period ended June 30, 2017 over the comparable period for 2016. The 2% increase in product costs as a percentage of product sales for the same comparable periods is primarily due to normal fluctuations in the purchase price of product.
Operating Expenses
Three months ended June 30, 2017 and 2016
13
The following table shows general and administrative expenses for the three months ended June 30, 2017 and 2016:
|
|
|
Three Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
% Change
|
|
Salaries and wages
|
|
$ 145,474
|
|
$ 111,029
|
|
$ 34,445
|
|
31
|
|
Rent
|
|
46,299
|
|
43,488
|
|
2,811
|
|
6
|
|
Advertising
|
|
22,218
|
|
23,863
|
|
(1,645)
|
|
(7)
|
|
Credit card merchant fees
|
|
13,805
|
|
1,319
|
|
12,486
|
|
947
|
|
Insurance
|
|
3,018
|
|
21,113
|
|
(18,095)
|
|
(86)
|
|
Utilities and telephone
|
|
13,131
|
|
13,224
|
|
(93)
|
|
(1)
|
|
Professional services
|
|
9,502
|
|
22,359
|
|
(12,857)
|
|
(58)
|
|
Repairs and maintenance
|
|
12,838
|
|
13,647
|
|
(809)
|
|
(6)
|
|
Dues and subscriptions
|
|
9,053
|
|
7,477
|
|
1,576
|
|
21
|
|
Office expense
|
|
32,076
|
|
47,586
|
|
(15,510)
|
|
(33)
|
|
Travel
|
|
5,323
|
|
4,556
|
|
767
|
|
17
|
|
Investor relations and company promotion
|
|
30,233
|
|
1,395
|
|
28,838
|
|
2,067
|
|
Other
|
|
16,317
|
|
15,021
|
|
1,296
|
|
9
|
|
Total general and administrative expenses
|
|
$ 359,287
|
|
$ 326,077
|
|
$ 33,210
|
|
10
|
The above table shows an increase of $33,210 in general and administrative expenses. As can be seen above there are several increases and decreases in the various categories the most notable of which are those of salaries and wages and investor relations and company promotion for an aggregate increase of $63,283 in the three month period ended June 30, 2017 compared to the three month period ended June 30, 2016. Salaries and wages increased due to new management employment contracts. Expenses related to professional services and investor relations and company promotions are not cyclical or recurring in nature and increased due to the timing of strategic decisions.
Depreciation expense for the three months ended June 30, 2017, was $24,969 compared to $26,735 for the comparable three months in 2016. The decrease of $1,766 is primarily due to certain fixed assets becoming fully depreciated after reaching the end of their estimated useful lives.
Six months ended June 30, 2017 and 2016
The following table shows general and administrative expenses for the six months ended June 30, 2017 and 2016:
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
|
Salaries and wages
|
|
$ 298,172
|
|
$ 243,635
|
|
$ 54,537
|
|
22
|
|
Rent
|
|
90,902
|
|
88,488
|
|
2,414
|
|
3
|
|
Advertising
|
|
49,886
|
|
47,278
|
|
2,608
|
|
6
|
|
Credit card merchant fees
|
|
28,082
|
|
3,240
|
|
24,842
|
|
767
|
|
Insurance
|
|
17,958
|
|
41,767
|
|
(23,809)
|
|
(57)
|
|
Utilities and telephone
|
|
27,830
|
|
27,420
|
|
410
|
|
1
|
|
Professional services
|
|
75,214
|
|
46,995
|
|
28,219
|
|
60
|
|
Repairs and maintenance
|
|
22,119
|
|
22,305
|
|
(186)
|
|
(1)
|
|
Dues and subscriptions
|
|
18,720
|
|
15,145
|
|
3,575
|
|
24
|
|
Office expense
|
|
73,284
|
|
77,103
|
|
(3,819)
|
|
(5)
|
|
Travel
|
|
10,142
|
|
6,427
|
|
3,715
|
|
58
|
|
Investor relations and company promotion
|
|
118,017
|
|
3,659
|
|
114,358
|
|
3,125
|
|
Other
|
|
23,514
|
|
25,016
|
|
(1,502)
|
|
(6)
|
|
Total general and administrative expenses
|
|
$ 853,840
|
|
$ 648,478
|
|
$ 205,362
|
|
32
|
14
The above table shows an increase of $205,362 in general and administrative expenses. As can be seen above there are several increases and decreases in the various categories the most notable of which are those of salaries and wages, professional services and investor relations and company promotion for an aggregate increase of $197,114 in the six month period ended June 30, 2017 compared to the six month period ended June 30, 2016. Salaries and wages increased due to new management employment contracts. Expenses related to professional services and investor relations and company promotions are not cyclical or recurring in nature and increased due to the timing of strategic decisions. Insurance expense decreased due to a decrease in health insurance costs in 2017.
Depreciation expense for the six months ended June 30, 2017, was $54,292 compared to $53,770 for the comparable six months ended June 30, 2016. The increase of $522 is primarily due to adding certain fixed assets that will be depreciated over their estimated useful lives.
Other Income (Expense)
Three months ended June 30, 2017 and 2016
Other income (expense) for the three months ended June 30, 2017 was $4,348 compared to ($9,782) for the three months ended June 30, 2016, an increase of $14,130. The increase is primarily attributable to a decrease in interest expense, and a reduction of the loss on stock subscription receivable, also the decrease in the gain on derivative fair value adjustment.
Six months ended June 30, 2017 and 2016
Other income (expense) for the three months ended June 30, 2017 was $25,997 compared to ($112,846) for the six months ended June 30, 2016, an increase of $138,843. The increase is primarily attributable to a decrease in interest expense, and a reduction of the loss on stock subscription receivable and the change in the fair value adjustment of derivative.
Liquidity and Capital Resources
Cash and Investments in marketable securities
As of June 30, 2017, our principal source of liquidity consisted of $188,347 of cash, compared to $347,284 as of December 31, 2016. Our primary sources of cash during the three month period ended June 30, 2017 were customer payments for salon services and products. Our primary uses of cash were for payments relating to salaries, rent, general operating expenses and payments on notes payable.
Working Capital
We had a working capital deficit of $989,982 as of June 30, 2017. Our current assets were $554,470, which consisted of $188,347 in cash, $12,313 in accounts receivable, $126,323 in inventory, and $227,487 in notes receivable, related party. Our total assets were $793,562, which included $217,687 in property and equipment (net), and $21,405 in other assets. Our current liabilities were $1,544,452, including $377,337 in accounts payable and accrued expenses, $689,869 due to related parties, $270,607 in the current portion of convertible notes, and notes payable; $142,049 in deferred revenue and rents, and a $64,590 derivative liability. Our long-term liabilities were $42,992 consisting of notes payable. Our total stockholders’ deficit at June 30, 2017 was $793,882.
Working capital decreased by $82,111 as of June 30, 2017, compared to December 31, 2016 primarily due to the decrease in cash.
Cash Flows from Operating Activities
Cash flows from operating activities include net loss, adjusted for certain non-cash charges, as well as changes in the balances of certain assets and liabilities. Net cash provided by (used in) operating activities for the six month period ended June 30, 2017 was $85,637 compared to ($80,472) used in operating activities for the same period in 2016. This change was primarily due to a decrease in prepaid expenses, inventories, and amounts due to related parties, offset by the change in value of the derivative liability.
Cash Flows from Investing Activities
Cash flow from investing activities for the six months ended June 30, 2017 was $35,848 compared to $(173,946) for the six months ended June 30, 2016, a $209,794 difference. The change was due primarily to a reduction of payments made to related party note receivable offset by a decrease in proceeds from related party notes receivable.
Cash Flows from Financing Activities
Cash flow from financing activities for the three months ended June 30, 2017 was ($280,422) compared to $236,472 provided by financing activities for the six months ended June 30, 2016, a change of ($516894). The decrease is attributable to the issuance of notes payable in prior periods.
15
Other Factors Affecting Liquidity and Capital Resources
We have insufficient current assets to meet our current liabilities due to negative working capital of $989,982 as of June 30, 2017. Historically, we have funded our cash needs from a combination of revenues, carried payables, sales of equity, and debt transactions. Since we are not currently realizing net cash flows from our business, we may need to seek financing to continue our operations. Prospective sources of funding could include shareholder loans, equity sales or loans from other sources though no assurance can be given that such sources would be available or that any commitment of support is forthcoming to date.
We do not intend to pay cash dividends in the foreseeable future.
We expect to purchase property or equipment as part of our normal ongoing operations.
Going Concern
Our audit opinion for the year ended December 31, 2016 expressed substantial doubt as to our ability to continue as a going concern as a result of recurring losses and negative working capital. These conditions raise substantial doubt about our ability to continue as a going concern. Management’s plans to address our ability to continue as a going concern include raising additional funds to finance the operating and capital requirements through a combination of equity and debt financings. While we are making our best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations.
Impact of Inflation
We compensate some of our salon employees with percentage commissions based on sales they generate. Accordingly, this provides us certain protection against inflationary increases, as payroll expense is a variable cost of sales. In addition, we may increase pricing in our salons to offset any significant increases in wages and cost of services provided. Therefore, we do not believe inflation has had a significant impact on the results of our operations.
Off-Balance Sheet Arrangements
As of June 30, 2017 and December 31, 2016, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.