NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
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 financial statements for the years ended
May 31, 2020 and 2019 have been prepared by us in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Going Concern
These financials have been prepared on a going
concern basis which contemplates the realization of assets and settlement of liabilities in the normal course of business. As reflected
in the accompanying financial statements, the Company has a net loss and net cash used in operations of $172,767 and $89,704, respectively,
for the year ended May 31, 2020. Additionally, the Company has an accumulated deficit of $4,810,909 at May 31, 2020.
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 implement its business plan, raise capital, and generate sufficient revenue; however, the Company’s cash position
may not be sufficient to support its daily operations. Management intends to raise additional funds by way of a private or public
offering. 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 lease liabilities and related right of use 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. Amounts
are due upon order for direct sales to consumers and generally net 30 days to non-consumer customers. 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.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
Note 2 – Basis of Presentation and
Summary of Significant Accounting Policies (continued)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets of
$13,708 and $2,993 at May 31, 2020 and 2019, respectively, consist primarily of cash prepayment to vendors and
for future services which will occur within a year.
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.
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 costs.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
Note 2 – Basis of Presentation and
Summary of Significant Accounting Policies (continued)
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 $41,424 and $41,825 for the years ended May 31, 2020 and 2019, 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 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. 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.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
Note 2 – Basis of Presentation and
Summary of Significant Accounting Policies (continued)
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.
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 an impairment loss of $474 as a general
and administrative expense in operating expenses in the accompanying financial statements, during the year ended May 31, 2020.
The Company did not record any impairment loss during the year ended May 31, 2019.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
Note 2 – Basis of Presentation and
Summary of Significant Accounting Policies (continued)
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 May 31, 2020 and
2019, the Company had no potentially dilutive securities outstanding related to common stock warrants.
Recently Issued Accounting Pronouncements
In November 2019, the FASB issued ASU No. 2019-08, Compensation – Stock Compensation
(Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements – Share-based Consideration
Payable to a Customer (“ASU 2019-08”). ASU 2019-08 requires that an entity apply the guidance in ASC 718 to
measure and classify share-based payment awards granted to a customer. Under ASC 718, among other things, share-based awards to
non-employees must generally be measured at the grant-date fair value of the equity instrument. For entities that have adopted
the provisions of ASU 2018-07, Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee
Share-based Payment Accounting, this amendment is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019. As discussed above, the Company has adopted the provisions of ASU 2018-07. The Company has not
adopted ASU 2019-08 but, based on its preliminary assessment, does not believe the impact of adoption will be material to its financial
statements.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
Note 2 – Basis of Presentation and
Summary of Significant Accounting Policies (continued)
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:
|
|
May 31, 2020
|
|
May 31, 2019
|
Accounts Receivable
|
|
$
|
184,019
|
|
|
$
|
82,365
|
|
Less: Allowance for doubtful debts
|
|
|
(1,818
|
)
|
|
|
(2,777
|
)
|
Total
|
|
$
|
182,201
|
|
|
$
|
79,588
|
|
The Company recorded bad debt expense (recovery) of ($959) and $5,452 during
the years ended May 31, 2020 and 2019, respectively.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
Note 4 – Inventory
Inventory consisted of the following:
|
|
May 31, 2020
|
|
May 31, 2019
|
Finished Goods
|
|
$
|
29,839
|
|
|
$
|
69,256
|
|
Raw Materials
|
|
|
258,285
|
|
|
|
195,322
|
|
Total
|
|
$
|
288,124
|
|
|
$
|
264,578
|
|
At May 31, 2020 and 2019, inventory held at
third party locations amounted to $556 and $13,176, respectively. At May 31, 2020 and 2019, there was no inventory in- transit.
During fiscal 2019 the Company sold some of
the slow- moving inventory and recovered $1,551 which is included in cost of sales.
Note 5 – Property and Equipment
Property and equipment, stated at cost, consisted
of the following:
|
|
Estimated Life
|
|
May 31, 2020
|
|
May 31, 2019
|
Furniture and Fixtures
|
|
5 years
|
|
$
|
5,759
|
|
|
$
|
5,759
|
|
Computer Equipment
|
|
3 years
|
|
|
17,392
|
|
|
|
17,392
|
|
Plant Equipment
|
|
5-10 years
|
|
|
29,720
|
|
|
|
20,490
|
|
Less: Accumulated Depreciation
|
|
|
|
|
(21,294
|
)
|
|
|
(10,838
|
)
|
Total
|
|
|
|
$
|
31,577
|
|
|
$
|
32,803
|
|
Depreciation expense amounted to $10,456 and
$5,933 for the years ended May 31, 2020 and 2019, respectively.
Note 6 – Accounts Payable and
Accrued Expenses
Accounts payable and accrued expenses comprised
of the following:
|
|
May 31, 2020
|
|
May 31, 2019
|
Trade Payables
|
|
$
|
98,608
|
|
|
$
|
14,610
|
|
Credit Cards
|
|
|
10,378
|
|
|
|
14,407
|
|
Shares to be issued
|
|
|
18,313
|
|
|
|
—
|
|
Other
|
|
|
1,552
|
|
|
|
3,454
|
|
Total
|
|
$
|
128,851
|
|
|
$
|
32,471
|
|
During the year ended May 31, 2020, the Company
recorded $18,313 as expense and liability for fair market value of shares to be potentially
issued to a consultant as remuneration, in the accompanying financials.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
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 at May 31, 2020 and 2019, the balance outstanding on the loan was $12,100 and $15,210, respectively, of which
$3,300 is payable within one year and the balance is payable after one year. The Company recorded an interest expense of $500 and
$167, during the years ended May 31, 2020 and 2019, on the loan in the accompanying financial statements.
The amount of payments due in the next five
years ended May 31, are as follows:
|
|
Total
|
|
2021
|
|
|
$
|
3,300
|
|
|
2022
|
|
|
|
3,300
|
|
|
2023
|
|
|
|
3,300
|
|
|
2024
|
|
|
|
2,200
|
|
|
2025
|
|
|
|
—
|
|
|
|
|
|
$
|
12,100
|
|
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.
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 instalments 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.
Loans Payable
|
|
May 31, 2020
|
|
May 31, 2019
|
|
|
|
|
|
Paycheck Protection Program (PPP)
|
|
$
|
12,900
|
|
|
$
|
—
|
|
Economic Injury Disaster Loan Program (EIDL)
|
|
|
150,000
|
|
|
|
—
|
|
|
|
|
162,900
|
|
|
|
—
|
|
Less: Current portion
|
|
|
(5,002
|
)
|
|
|
—
|
|
Loans Payable, Non-current portion
|
|
$
|
157,898
|
|
|
$
|
|
|
The amounts of principal loan payments due in the next five years ended
May 31, are as follows:
|
|
Total
|
|
2021
|
|
|
$
|
5,002
|
|
|
2022
|
|
|
|
14,705
|
|
|
2023
|
|
|
|
10,101
|
|
|
2024
|
|
|
|
7,659
|
|
|
2025
|
|
|
|
7,378
|
|
|
Thereafter
|
|
|
|
118,055
|
|
|
|
|
|
$
|
162,900
|
|
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
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
During the year ended May 31, 2019, the Company
issued 760,000 shares of common stock for $304,000 cash proceeds to third party investors at $0.40 per share During the year ended
May 31, 2019, the Company issued 8,344 shares of common stock for $5,000 cash proceeds to a third- party investor at $0.60 per
share.
During the year ended May 31, 2019, the Company
recorded 12,500 shares of common stock for shares earned by third party consultant for services provided to the Company. The shares
were valued at $0.40 per share or $5,000, based on the recent common stock sales.
The Company did not issue any shares during
the year ended May 31, 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
had 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 $7,567.34 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 estimated 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.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
Note 10 –Commitments and Contingencies
(continued)
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 six months ended May 31,
2020, the Company recorded a lease expense in the amount of $87,748 for the year ended May 31, 2020. As of May 31, 2020, the lease
liability balance was $203,698 and the right of use asset balance was $201,984. A lease term of three years and a discount rate
of 12% was used.
Supplemental balance sheet information related
to leases was as follows:
Assets
|
|
May 31, 2020
|
Right of use assets
|
|
$
|
235,748
|
|
Accumulated reduction
|
|
|
(33,764
|
)
|
Operating lease assets, net
|
|
$
|
201,984
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Lease Liabilities
|
|
$
|
235,748
|
|
Accumulated reduction
|
|
|
(32,050
|
)
|
|
|
|
203,698
|
|
Less: Current portion
|
|
|
(71,896
|
)
|
Lease liability non-current
|
|
$
|
131,802
|
|
Maturities of operating lease liabilities were
as follows as of May 31, 2020:
Operating Lease
|
|
|
Year 1
|
|
$
|
92,521
|
|
Year 2
|
|
|
95,948
|
|
Year 3
|
|
|
48,831
|
|
Total
|
|
|
237,300
|
|
Less: Imputed interest
|
|
|
(33,602
|
)
|
Present value of lease liabilities
|
|
|
203,698
|
|
Less: current portion
|
|
|
(71,896
|
)
|
Non- current portion
|
|
$
|
131,802
|
|
Rent expense, prior to the signing of the new lease agreement, amounted to $47,547 and $94,869 for the years ended
May 31, 2020 and 2019, respectively. Lease expense amounted to $47,117 and $0 for the years ended May 31, 2020 and 2019, respectively.
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 May 31, 2020 and 2019, the Company had a payable
to the officer of $2,396 and $210, respectively. These advances are due on demand and non-interest bearing.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
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 May 31, 2020, the Company held cash of approximately $176,210 in excess of federally insured limits. The Company
has not experienced any losses in such accounts through May 31, 2020.
Concentration of Revenue, Product Line,
and Supplier
During the years ended May 31, 2020 sales to
two customers, which each represented over 10% of our total sales, aggregated to approximately 50% of the Company’s net sales
at 10% and 40%. During the year ended May 31, 2019 sales to two customers represented approximately 54% of the Company’s
net sales at 44% and 10%.
During the year ended May 31, 2020 sales to
customers outside the United States represented approximately 27% which consisted of 20% from Canada and 7% from Italy and for
the year ended May 31, 2019 sales to customers outside the United States represented approximately 26% which consisted of 19% from
Canada, 3% from Hong Kong and 3% from Italy.
During the year ended May 31, 2020, sales by
product line which each represented over 10% of sales consisted of approximately 15% from sales of hair shampoo, 40% from sales
of hair shampoo and conditioner, 10% from sale of moisturizer and conditioner and 16% from sale of introductory kit (shampoo, conditioner
and treatment spray). During the year ended May 31, 2019, sales by product line which each represented over 10% of sales consisted
of approximately 14% from sales of hair shampoo, 34% from sales of hair shampoo and conditioner, 10% from sale of moisturizer and
conditioner and 17% from sale of introductory kit (shampoo, conditioner and treatment spray).
During the year ended May 31, 2020, sales by
product line comprised of the following:
|
|
For the Years ended
|
Hair Care Products
|
|
May 31, 2020
|
|
May 31, 2019
|
Shampoos and Conditioners
|
|
|
85
|
%
|
|
|
82
|
%
|
Ancillary Products
|
|
|
15
|
%
|
|
|
18
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
At May 31, 2020, accounts receivable from one customer represented approximately 69% and at
May 31, 2019, accounts receivable from five customers represented approximately 94% at 30%, 23%, 14%, 14% and 13%, respectively.
The Company purchased inventories and products
from one vendor totaling approximately $515,830 (79% of the purchases) and three vendors totaling approximately $311,500 (76% of
the purchases at 38%, 27% and 11%) during the years ended May 31, 2020 and 2019, respectively.
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2020 AND 2019
Note 13 – Income Taxes
The Company has incurred cumulative net
operating losses of approximately $1,033,258 for income tax purposes as of May 31, 2020. The net operating loss carries
forward for United States income taxes, which may be available to reduce future years’ taxable income. These carry
forwards through May 31, 2018 will expire, if not utilized, through 2038, while carry forwards generated after May 31, 2018
may be carried forward indefinitely subject to usage limitations. Management believes that the realization of the benefits
from these losses appear not more likely than not due to the Company’s limited operating history and continuing losses
for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax
asset to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as
necessary.
The items accounting for the difference between
income taxes at the effective statutory rate and the provision for income were as follows:
|
|
For the Year Ended May 31,
|
|
|
2020
|
|
2019
|
Tax benefit computed at “expected” statutory rate of 34%
|
|
$
|
(36,281
|
)
|
|
$
|
(31,500
|
)
|
State tax benefit of 9%
|
|
|
(15,549
|
)
|
|
|
(13,500
|
)
|
True up adjustment to tax return
|
|
|
74,853
|
|
|
|
—
|
|
Non-deductible expenses: Stock-based compensation
|
|
|
—
|
|
|
|
1,500
|
|
Increase (decrease) in valuation allowance
|
|
|
(23,023
|
)
|
|
|
43,500
|
|
Net income tax benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company has a deferred tax asset which
is summarized as follows at:
|
|
May 31, 2020
|
|
May 31, 2019
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
309,977
|
|
|
$
|
333,000
|
|
Less: valuation allowance
|
|
|
(309,977
|
)
|
|
|
(333,000
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company provided a valuation allowance equal to the deferred income tax asset at May
31, 2020 and 2019 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The
increase (decrease) in the allowance was ($23,023) in fiscal 2020 and $43,500 in fiscal 2019.
Additionally, the future utilization of the
net operating loss carryforward to offset future taxable income may be subject to an annual limitation as a result of ownership
changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforward that expires
prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.
The Company does not have any uncertain tax
positions or events leading to uncertainty in a tax position. The Company’s 2017, 2018 and 2019 Corporate Income Tax Returns
are subject to Internal Revenue Service examination.
Note 14 – Subsequent Event
On July
20, 2020, the Company agreed to issue 200,000 shares of its common stock valued at $16,000 to a third-party vendor for past services.
The common stock was valued at its closing share price of $0.08
on July 20, 2020, the date of Company’s commitment to issue common stock resulting in an expense of $16,000.
(a)(2) Financial Statement Schedules
All schedules are omitted because they are
not required or the required information is shown in the financial statements or notes thereto.
(a)(3) Exhibits
ITEM 16. Form 10-K Summary
Not Applicable.