The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
DESCRIPTION OF BUSINESS
|
Boomer Naturals Holdings Inc. (the “Company”), through its wholly-owned subsidiary Boomer Naturals, Inc., a Nevada corporation, provides wellness solutions to multiple target markets through multiple sales
channels, including PPE products, retail locations, e-commerce, and wholesale distribution networks. Boomer sells health and wellness products and services geared toward alleviating pain, anxiety and improving general wellness through our
proprietary lines of Boomer Botanics products. Our Boomer Botanics terpene formula combines five natural and powerful ingredients and is the first FDA-compliant alternative that fully supports the body’s central nervous system.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Unaudited Interim Financial Information
These unaudited interim financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of
the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or
omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made.
The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending July 31,
2021. The balance sheets and certain comparative information as of July 31, 2020 are derived from the audited financial statements and related notes for the year ended July 31, 2020.
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial
statements and notes are representation of the company’s management who are responsible for the integrity and objectivity of the financial statements. These accounting policies confirm to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the financial statements.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) as
promulgated in the United States of America and in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. The consolidated financial statements include the account of Boomer
Holdings, Inc. and a wholly owned subsidiary, Boomer Naturals, Inc. All intercompany accounts, transactions, and profits have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include, but are not limited
to, the estimated useful lives of property and equipment, patent and trademark, the ultimate collection of accounts receivable and accrued expenses. Actual results could materially differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the
reported results of operations or cash flows.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectability is reasonably assured, and delivery has occurred or services have been
rendered. The Company offers the Boomer Botanics proprietary formula and PPE products through various channels, e-commerce, and brick and mortar retail.
The Company includes shipping and handling costs in cost of sales. Amounts billed for shipping and handling are included with revenues in the statement
of operation.
The Company recognizes an allowance for estimated future sales returns in the period revenue is recorded, based on pending returns and historical return
data, among other factors. Management did not believe any allowance for sales returns was required as of October 31, 2020.
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense amounted to $6,638,805 and $259,085 for the three months ended October 31, 2020 and
2019, respectively.
Cash and Cash Equivalents
The Company considers all deposits with financial institutions and all highly liquid investments with original maturities of three months or less to be
cash equivalents.
Accounts Receivable
Accounts receivable are carried at original invoice amount less the allowance for doubtful accounts based on a review of all outstanding amounts at year
end. Management determines the allowance for doubtful accounts based on a combination of write-off history, aging analysis, and any specific known troubled accounts. Trade receivables are written off when deemed uncollectible.
Factoring Accounts Receivables
The Company entered into factoring agreement with Prestige Capital Finance, LLC (“Factorer”) on June 24, 2020. Under the agreement, the Company may factor its accounts receivables of up to 80%
of the face value with maximum outstanding balance of $2.0 million and the fee ranges between 1% and 3% depending on the period when customers pay the outstanding accounts receivables. The Company had $4,022,988 of accounts receivables
factored as of October 31, 2020, had factor payable based on accounts receivables factored of $3,218,390 as of October 31, 2020, and incurred approximately $193,000 of factor fees for the three months ended October 31, 2020. The Company did
not have material factor balance as of July 31, 2020 as the Company started factoring its accounts receivables towards end of July 2020.
Inventories
Inventories primarily consist of finished goods and are stated at the lower of cost (first-in-first-out) or market. The Company maintains an allowance for
potentially excess and obsolete inventories and inventories that are carried at costs that are higher than their estimated net realizable values.
Property and Equipment
Property and equipment consist of leasehold improvements, furniture and fixtures, machinery and equipment are stated at cost. Property and equipment are
recorded at cost. Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of the assets, generally 5-7 year. Leasehold improvements are depreciated over the shorter of the useful life of the
improvement or the lease term, including renewal periods that are reasonably assured.
Impairment of Long-lived Assets
In accordance with ASC 360, “Property, Plant, and Equipment,” the Company reviews for impairment of long-lived assets and certain identifiable intangibles
whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. The Company considers the carrying value of assets may not be recoverable based upon our review of the following events or changes in
circumstances: the asset’s ability to continue to generate income from operations and positive cash flow in future periods; loss of legal ownership or title to the assets; significant changes in our strategic business objectives and utilization of
the asset; or significant negative industry or economic trends. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset are less than its carrying amount.
Fair Value of Financial Instruments
The Company records its financial assets and liabilities at fair value, which is defined under the applicable accounting standards as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measure date. The Company uses
valuation techniques to measure fair value, maximizing the use of observable outputs and minimizing the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The
inputs are unobservable in the market and significant to the instrument’s valuation.
As of October 31, 2020 and July 31, 2020, the Company believes that the carrying value of cash, account receivables, accounts payable, accrued expenses,
and other current assets and liabilities approximate fair value due to the short maturity of theses financial instruments. The financial statements do not include any financial instruments at fair value on a recurring or non-recurring basis.
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Income Taxes
The Company has elected to be taxed as an S-corporation. Accordingly, except for a minimal state tax, the Company is not taxed at the corporate level;
rather, the tax on corporate income is paid and the benefits of losses are recognized at the stockholder level. Therefore, no provision or credit for federal income taxes has been included in the financial statements. Certain transactions of the
Company are subject to accounting methods for income tax purposes which differ from the accounting methods used in preparing the financial statements. Accordingly, the net income of the Company reported for federal income tax purposes may differ
from the net income reported in these financial statements. The major differences relate to accounting for depreciation on property and equipment, stock compensation, and research credits
The Company has adopted ASC 740-10-25, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The
Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company did not recognize additional liabilities
for uncertain tax positions as a result of the implementation of ASC 740-10-25 for the three months ended October 31, 2020.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and other receivables arising from its
normal business activities. The Company has a diversified customer base. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial
strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectable accounts and, as a consequence, believes that its accounts receivable related credit risk exposure beyond such
allowance is limited.
The Company generates significant revenues derived from the PPE products which accounted for 98% and 0% of revenues for the three months ended October 31,
2020 and 2019, respectively. The Company had 2 customers that accounted for 92% of revenue for the three months ended October 31, 2020 and had related accounts receivable of $3,508,750 as of October 31, 2020.
The Company maintains its cash and cash equivalents with various credit institutions. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act,
deposits of up to $250,000 at FDIC-insured institutions are covered by FDIC insurance. At times, deposits may be in excess of the FDIC insurance limit; however, management does not believe the Company is exposed to any significant related credit
risk.
Leases
The Company accounted for leases under Accounting Standards Codification (ASC) 840, Accounting for Leases and as such the Company recognized a right-of-use
asset and a lease liability for virtually all leases.
On February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. ASC 842 requires that lessees recognize right of use assets and lease liabilities calculated based on
the present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the
statement of operations and statement of cash flows.
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Recently Adopted and Issued Accounting Pronouncements
|
●
|
Recently Adopted Accounting Pronouncements
|
In June 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2016‐13, Financial Instruments—Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018‐19, ASU 2019‐04, ASU 2019‐05, and ASU 2019‐11 (collectively, “Topic 326”). Topic 326 changed the impairment model for
most financial assets and certain other instruments. For trade and other receivables, guarantees and other instruments, entities are required to use a new forward‐looking expected loss model that replaces the previous incurred loss model and
generally results in earlier recognition of credit losses. The Company adopted this standard in the first quarter of fiscal 2021 on August 2, 2020, the effective and initial application date, using a modified‐retrospective basis as required by the
standard by means of a cumulative‐effect adjustment to the opening balance of Retained earnings in the Company’s Condensed Consolidated Statement of Stockholders’ Equity. The difference between reserves and allowances recorded under the former
incurred loss model and the amount determined under the current expected loss model, net of the deferred tax impact, was recorded as an adjustment to Retained earnings. Adoption of this standard did not have a material impact to the Company’s
Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes
to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The Company adopted this
guidance in the first quarter of fiscal 2021. The provisions of the new standard do not have any effect on the Company’s interim financial statements.
|
●
|
Recently Issued Accounting Pronouncements
|
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain
exceptions to Topic 740’s general principles. The amendments also improve consistent application and simplifies its application. The Company is required to adopt this guidance in the first quarter of fiscal 2022. The Company is currently reviewing
the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.
Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on our present or future consolidated
financial statements.
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Inventories primarily consisted of finished goods in the amount of $5,103,554 and $3,559,936 as of October 31, 2020 and July 31, 2020, respectively.
4.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consisted of the following:
|
|
October 31, 2020
|
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
64,738
|
|
|
$
|
46,134
|
|
Leasehold improvements
|
|
|
130,001
|
|
|
|
130,001
|
|
Computers
|
|
|
79,163
|
|
|
|
75,672
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
273,902
|
|
|
|
251,807
|
|
Less – accumulated depreciation
|
|
|
(36,724
|
)
|
|
|
(28,224
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
237,178
|
|
|
$
|
223,583
|
|
Depreciation expense on property and equipment amounted to $8,500 and $4,508 for the three months ended October 31, 2020 and 2019, respectively.
5.
|
ACCOUNTS PAYABLE – RELATED PARTIES
|
On April 9, 2020, the Company entered into an Exclusive Distributorship Agreement with PhamVan Trading Co., Ltd. (the “Supplier”). Pursuant to the
agreement, the Company is the exclusive distributor of the supplier’s PPE products in the United States. The Supplier in turn has exclusive manufacturing agreements with certain manufacturers provide that the manufacturers will not sell these items
to any other U.S. based customer provided that the Supplier orders an annual minimum of 1,500,000 masks from one manufacture and 750,000 masks from a second manufacturer, respectively. If the minimum amounts are not met, the agreements become
non-exclusive for the U.S. market. Giang Thi Hoang, a member of the Company’s board of directors and holder of approximately 7.7% of the Company’s Common Stock and holds a minority equity position in the Supplier which is controlled by her sister
and brother-in-law. At the time the Company entered into the agreement with the Supplier, Ms. Hoang was not yet a member of the board of directors.
The Company purchased approximately $10,803,100 and $0 of inventory for the three ended October 31, 2020 and 2019, respectively. The Company had accounts
payable to related party in the amount of $687,040 and $713,836 as of October 31, 2020 and July 31, 2020, respectively.
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6.
|
LINES OF CREDIT FROM FINANCIAL INSTITUTIONS
|
Lines of credit from financial institutions consisted of the following:
|
|
October 31, 2020
|
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
June 2020 ($60,000 line of credit) - Line of credit with maturity date of June 23, 2021 with non-bearing
interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
$
|
-
|
|
|
$
|
137,352
|
|
|
|
|
|
|
|
|
|
|
July 2020 ($2,000,000 line of credit) - Line of credit with maturity date of July 28, 2021 with non-bearing
interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
1,699,618
|
|
|
|
1,156,196
|
|
|
|
|
|
|
|
|
|
|
July 2020 ($979,300 line of credit) - Line of credit with maturity date of November 23, 2020 with
non-bearing interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
-
|
|
|
|
931,315
|
|
|
|
|
|
|
|
|
|
|
Total lines of credit from financial institutions
|
|
$
|
1,699,618
|
|
|
$
|
2,224,863
|
|
Interest expense was $292,810 and $0 for the three months ended October 31, 2020 and 2019, respectively, for lines of credit from financial institutions.
7.
|
LINES OF CREDIT – RELATED PARTIES
|
Lines of credit related parties consisted of the following:
|
|
October 31, 2020
|
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
July 2019 ($1,000,000 line of credit) - Line of credit with maturity date of June 30, 2021 with 6%
interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
$
|
447,500
|
|
|
$
|
947,500
|
|
|
|
|
|
|
|
|
|
|
July 2019 ($66,125 line of credit) - Line of credit with maturity date of July 29, 2029 with 6% interest
per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
-
|
|
|
|
66,125
|
|
|
|
|
|
|
|
|
|
|
Total lines of credit – related parties
|
|
$
|
447,500
|
|
|
$
|
1,013,625
|
|
Interest expense was $10,342 and $1,650 for the three months ended October 31, 2020 and 2019, respectively, for lines of credit from related parties.
Notes payable consisted of the following:
|
|
October 31, 2020
|
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
August 2019 ($5,980 note payable) - Note payable with maturity date of December 1, 2020 with 8.25% interest
per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
$
|
1,472
|
|
|
$
|
1,801
|
|
|
|
|
|
|
|
|
|
|
April 2020 ($159,000 note payable) - US Small Business note payable with maturity date of April 15, 2050
with 3.75% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
159,000
|
|
|
|
159,000
|
|
|
|
|
|
|
|
|
|
|
April 2020 ($347,700 note payable) - Paycheck Protection Program payable with maturity date of December 31,
2020 with 1% interest per annum with unpaid principal balance and accrued interest payable on the maturity date. If loan is not forgiven.
|
|
|
347,700
|
|
|
|
347,700
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
508,172
|
|
|
|
508,501
|
|
Less – current portion
|
|
|
-
|
|
|
|
(1,802
|
)
|
|
|
|
|
|
|
|
|
|
Total notes payable, net of current portion
|
|
$
|
508,172
|
|
|
$
|
506,699
|
|
Interest expense was $2,359 and $0 for the three months ended October 31, 2020 and 2019, respectively, for notes payable.
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
9.
|
CONVERTIBLE NOTES PAYABLE
|
Convertible notes payable consisted of the following:
|
|
October 31, 2020
|
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
January 2020 ($250,000 convertible note payable) - Convertible payable with maturity date of January 4,
2021 with 12% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
$
|
260,070
|
|
|
$
|
260,070
|
|
|
|
|
|
|
|
|
|
|
January 2020 ($250,000 convertible note payable) - Convertible payable with maturity date of January 4,
2021 with 12% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
260,070
|
|
|
|
260,070
|
|
|
|
|
|
|
|
|
|
|
January 2020 ($100,000 convertible note payable) - Convertible payable with maturity date of January 4,
2021 with 12% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
105,375
|
|
|
|
105,375
|
|
|
|
|
|
|
|
|
|
|
January 2019 ($100,000 convertible note payable) - Convertible payable with maturity date of January 6,
2021 with 12% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
February 2020 ($500,000 convertible note payable) - Convertible payable with maturity date of February 24,
2021 with 12% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
February 2019 ($500,000 convertible note payable) - Convertible payable with maturity date of February 24,
2021 with 12% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
February 2020 ($50,000 convertible note payable) - Convertible payable with maturity date of May 9, 2020
with 12% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
September 2019 ($200,000 convertible note payable) - Convertible payable with maturity date of September
14, 2021 with 12% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
June 2020 ($50,000 convertible note payable) - Convertible payable with maturity date of June 10, 2021 with
25% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
September 2019 ($300,000 convertible note payable) - Convertible payable with maturity date of December 14,
2021 with 12% interest per annum with unpaid principal balance and accrued interest payable on the maturity date.
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable
|
|
|
2,300,515
|
|
|
|
2,300,515
|
|
Less – current portion
|
|
|
(1,020,140
|
)
|
|
|
(1,580,375
|
)
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable, net of current portion
|
|
$
|
1,280,375
|
|
|
$
|
720,140
|
|
Interest expense was $69,673 and $0 for the three months ended October 31, 2020 and 2019, respectively, for convertible notes payable.
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company had $215,519 and $7,049,264 in unearned revenue as of October 31, 2020 and July 31, 2020. This amount was comprised of customer deposit for
an order that was fulfilled subsequent to the period end or customer orders that were shipped FOB Destination and had not been delivered as of period end. This revenue was recognized by the Company subsequent to the period end when delivered.
The Company calculates earnings per share in accordance with ASC 260, “Earnings Per Share,” which requires a dual presentation of basic and diluted
earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Dilutive earnings per share is computed on the basis of the weighted average number of shares plus potentially
dilutive common shares which would consist of stock options outstanding (using the treasury method), which was none since the Company had net losses and any additional potential shares would be antidilutive.
The Company did not have material income tax provision (benefit) because of net loss and valuation allowances against deferred income tax provision for
the three months ended October 31, 2020 and 2019.
A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:
|
|
October 31, 2020
|
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
Statutory federal rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State income taxes net of federal income tax benefit and others
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Permanent differences for tax purposes and others
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Change in valuation allowance
|
|
|
-21.0
|
%
|
|
|
-21.0
|
%
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of 21%, primarily due to the change in the
valuation allowance and state income tax benefit, offset by nondeductible expenses.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The components of deferred tax assets and liabilities are as follows:
|
|
October 31, 2020
|
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
1,694,000
|
|
|
$
|
3,268,603
|
|
Other temporary differences
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
1,694,000
|
|
|
|
3,268,603
|
|
Less – valuation allowances
|
|
|
(1,694,000
|
)
|
|
|
(3,268,603
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowances
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company had available net operating loss carryovers of approximately $8,068,000 and $15,564,778 as of October 31, 2020 and July 31, 2020,
respectively. Per the Tax Cuts and Jobs Act (TCJA) implemented in 2018, the two-year carryback provision was removed and now allows for an indefinite carryforward period. The carryforwards are limited to 80% of each subsequent year’s net income.
As a result, net operating loss may be applied against future taxable income and expires at various dates subject to certain limitations. The Company has a deferred tax asset arising substantially from the benefits of such net operating loss
deduction and has recorded a valuation allowance for the full amount of this deferred tax asset since it is more likely than not that some or all of the deferred tax asset may not be realized.
The Company files income tax returns in the U.S. federal jurisdiction and Nevada and is subject to income tax examinations by federal tax authorities
for tax year ended 2019 and later and by not subject to Nevada authorities for tax year ended 2019 and later. The Company currently is not under examination by any tax authority. The Company’s policy is to record interest and penalties on uncertain
tax positions as income tax expense. As of October 31, 2020, the Company has no accrued interest or penalties related to uncertain tax positions.
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
13.
|
RELATED PARTY TRANSACTIONS
|
The Company had the following related party transactions:
|
●
|
Purchases and Accounts Payables – On April 9, 2020, the Company entered into an Exclusive Distributorship Agreement with PhamVan Trading Co., Ltd.
(the “Supplier”). Pursuant to the agreement, the Company is the exclusive distributor of the supplier’s PPE products in the United States. The Supplier in turn has exclusive manufacturing agreements with certain manufacturers provide that
the manufacturers will not sell these items to any other U.S. based customer provided that the Supplier orders an annual minimum of 1,500,000 masks from one manufacture and 750,000 masks from a second manufacturer, respectively. If the
minimum amounts are not met, the agreements become non-exclusive for the U.S. market. Giang Thi Hoang, a member of the Company’s board of directors and holder of approximately 7.7% of the Company’s Common Stock and holds a minority equity
position in the Supplier which is controlled by her sister and brother-in-law. At the time the Company entered into the agreement with the Supplier, Ms. Hoang was not yet a member of the board of directors.
|
|
●
|
The Company purchased approximately $10,803,100 and $0 of inventory for the three ended October 31, 2020 and 2019, respectively. The Company had accounts payable to related party in the
amount of $687,040 and $713,836 as of October 31, 2020 and July 31, 2020, respectively.
|
|
●
|
Line of Credit – The Company entered into various lines of credit with shareholders of the Company. Refer to Lines of Credit Related Parties
disclosure.
|
|
●
|
Notes Payable (related parties) – The Company entered into various notes payable with related parties who are also shareholders of the Company.
Refer to Notes Payable – Related Parties for additional information.
|
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
14.
|
COMMITMENTS AND CONTINGENCIES
|
Operating Leases
The Company entered into the following operating facility lases:
|
●
|
Cheyenne Fairways – On July 25, 2019, the Company entered into an operating facility lease for its corporate office located in Las Vegas with 84
months term and with option to extend from 2 years to 5 years at the market rate. The lease started on September 1, 2019 and expires on August 31, 2026.
|
|
●
|
Cheyenne Technology Center – On September 16, 2019, the Company entered into an operating facility lease for its retail and warehouse located in
Las Vegas for 37 months expiring on November 31, 2022.
|
|
●
|
Losee Industrial Park – On July 31, 2020, the Company entered into an operating facility lease for warehouse for initial lease payment of $9,345 per
month expiring October 31, 2023.
|
The two facility leases for two separate locations dated on July 25, 2019 and September 16, 2019. Rent expense paid under the lease agreements for the
three months ended October 31, 2020 and 2019 was $100,550 and $121,259, respectively.
For operating leases, we calculated right of use assets and lease liabilities based on the present value of the remaining lease payments as of the date
of adoption using the incremental borrowing rate. The adoption of ASC 842 resulted in recording an adjustment to operating lease right of use assets and operating lease liabilities of $1,325,558 million and $1,387,158 million as of October 31,
2020. The difference between the operating lease ROU assets and operating lease liabilities at transition represented existing deferred rent expenses and tenant improvements, and indirect costs that was derecognized. The adoption of ASC 842 did not
materially impact our results of operations, cash flows, or presentation thereof.
In accordance with ASC 842, the components of lease expense were as follows:
Three months Ended October 31, 2020
|
|
Fairways
|
|
|
Technology Center
|
|
|
Losee Industrial
Park
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
20,193
|
|
|
$
|
2,506
|
|
|
$
|
9,345
|
|
|
$
|
32.044
|
|
Others
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
32.044
|
|
Three months Ended October 31, 2019
|
|
Fairways
|
|
|
Technology Center
|
|
|
Losee Industrial
Park
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
20,193
|
|
|
$
|
2,506
|
|
|
$
|
-
|
|
|
$
|
22,699
|
|
Others
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease expense
|
|
$
|
20,193
|
|
|
$
|
2,506
|
|
|
$
|
-
|
|
|
$
|
22,699
|
|
In accordance with ASC 842, maturities and operating lease liabilities as of April 30, 2020 were as follows:
Year ended July 31,
|
|
Fairways
|
|
|
Technology Center
|
|
|
Losee Industrial
Park
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undiscounted cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
143,953
|
|
|
$
|
22,696
|
|
|
$
|
84,105
|
|
|
$
|
250,754
|
|
2022
|
|
|
235,520
|
|
|
|
31,169
|
|
|
|
112,140
|
|
|
|
378,829
|
|
2023
|
|
|
242,077
|
|
|
|
10,596
|
|
|
|
112,140
|
|
|
|
364,813
|
|
2024
|
|
|
248,635
|
|
|
|
-
|
|
|
|
28,035
|
|
|
|
276,670
|
|
2025
|
|
|
255,192
|
|
|
|
-
|
|
|
|
-
|
|
|
|
255,192
|
|
Thereafter
|
|
|
273,403
|
|
|
|
-
|
|
|
|
-
|
|
|
|
273,403
|
|
Total undiscounted cash flows
|
|
|
1,398,780
|
|
|
|
64,461
|
|
|
|
336,420
|
|
|
|
1,799,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discounted cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities - current
|
|
|
80,073
|
|
|
|
18,834
|
|
|
|
64,104
|
|
|
|
163,011
|
|
Lease liabilities - long-term
|
|
|
958,542
|
|
|
|
39,949
|
|
|
|
225,656
|
|
|
|
1,224,147
|
|
Total discounted cash flows
|
|
|
1,038,615
|
|
|
|
58,783
|
|
|
|
289,760
|
|
|
|
1,387,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference between undiscounted and discounted cash flows
|
|
$
|
360,165
|
|
|
$
|
5,678
|
|
|
$
|
46,660
|
|
|
$
|
412,503
|
|
Year ended July 31,
|
|
Fairways
|
|
|
Technology Center
|
|
|
Losee Industrial
Park
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
172,132
|
|
|
$
|
26,574
|
|
|
$
|
78,721
|
|
|
$
|
277,427
|
|
2022
|
|
|
177,477
|
|
|
|
25,017
|
|
|
|
96,219
|
|
|
|
298,713
|
|
2023
|
|
|
161,860
|
|
|
|
7,957
|
|
|
|
87,099
|
|
|
|
256,916
|
|
2024
|
|
|
147,534
|
|
|
|
-
|
|
|
|
20,453
|
|
|
|
167,987
|
|
2025
|
|
|
134,383
|
|
|
|
-
|
|
|
|
-
|
|
|
|
134,383
|
|
Thereafter
|
|
|
132,904
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present values of minimum lease payments
|
|
$
|
926,290
|
|
|
$
|
59,548
|
|
|
$
|
282,492
|
|
|
$
|
1,268,330
|
|
Contingencies
The Company is subject to various legal proceedings from time to time as part of its business. As of October 31, 2020, the Company was not currently
party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, it believes would have a material adverse effect on its business, financial condition and results of operations.
BOOMER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company evaluated all events or transactions that occurred after April 30, 2020 up through the date the financial statements were available to be
issued. During this period, the Company did not have any material recognizable subsequent events required to be disclosed as of and for the year ended October 31, 2020.
In December 2020, Boomer became a vendor partner with Core-Mark, a leading marketer to the North American Convenience retail industry, to distribute the Company’s face coverings.
In November 2020, the Company began a distribution deal with the Chevron Terrible Herbst network in Nevada, with over 100 locations, to distribute Boomer Naturals, facemasks.