UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended November 30, 2020

 

    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

 

Commission File Number: 333-220846

 

Reviv3 Procare Company

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   47-4125218
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)
     
9480 Telstar Avenue., Unit 5, El Monte, CA   91731
(Address of Principal Executive Office)   (Zip Code)

 

(888) 638-8883

(Registrant’s Telephone Number, Including Area Code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Not Applicable    

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer              Accelerated filer
Non-accelerated filer                Smaller reporting company 
(Do not check if a smaller reporting company)   Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  

 

As of January 11, 2021, there were 41,485,881 shares of the registrant’s common stock, $0.0001 par value, outstanding.

 
 
 
 

REVIV3 PROCARE COMPANY

INDEX

 

    Page
     
PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 7
     
Item 4. Controls and Procedures 7
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 8
     
Item 1A. Risk Factors 8
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 8
     
Item 3. Defaults Upon Senior Securities 8
     
Item 4. Mine Safety Disclosures 8
     
Item 5. Other Information 8
     
Item 6. Exhibits 9
     
Signatures 10

 

 -i -

 

FORWARD-LOOKING STATEMENTS

 

Except for any historical information contained herein, the matters discussed in this quarterly report on Form 10-Q contain certain “forward-looking statements’’ within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,’’ “will,’’ “expect,’’ “intend,’’ “estimate,’’ “anticipate,’’ “believe,’’ “continue’’ or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Important factors that may cause actual results to differ from projections include, for example:

 

the success or failure of management’s efforts to implement our business plan;
our ability to fund our operating expenses;
our ability to compete with other companies that have a similar business plan;
the effect of changing economic conditions impacting our plan of operation;
The scope and duration of the COVID-19 outbreak and its impact on global economic systems; and
our ability to meet the other risks as may be described in future filings with the Securities and Exchange Commission (the “SEC”).

 

Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this quarterly report on Form 10-Q.

 

When considering these forward-looking statements, you should keep in mind the cautionary statements in this quarterly report on Form 10-Q and in our other filings with the SEC. We cannot assure you that the forward-looking statements in this quarterly report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.

 

 -ii -

 

PART 1 – FINANCIAL INFORMATION

  

ITEM 1. FINANCIAL STATEMENTS

 

REVIV3 PROCARE COMPANY

INDEX TO FINANCIAL STATEMENTS

NOVEMBER 30, 2020

UNAUDITED

 

CONTENTS

 

Condensed Balance Sheets As of November 30, 2020 (Unaudited) and May 31, 2020 F-1
   
Condensed Statement of Operations - For the three months and six months ended November 30, 2020 and 2019 (Unaudited) F-2
   
Condensed Statement of Changes in Stockholders’ Equity - For the three months and six months ended November 30, 2020 and 2019 (Unaudited) F-3
   
Condensed Statement of Cash Flows – For the six months ended November 30, 2020 and 2019 (Unaudited) F-4
   
Condensed Notes to Unaudited Financial Statements F-5 - F-14

 

-1 -

REVIV3 PROCARE COMPANY

CONDENSED BALANCE SHEETS

 

    November 30,   May 31,
    2020   2020
    (Unaudited)    
ASSETS        
 CURRENT ASSETS:                
 Cash   $ 579,498     $ 409,031  
 Accounts receivable, net     78,981       182,201  
 Inventory     323,304       288,124  
 Prepaid expenses and other current assets     13,548       13,708  
                 
 Total Current Assets     995,331       893,064  
                 
 OTHER ASSETS:                
 Property and equipment, net     41,709       31,577  
 Deposits     16,277       16,277  
 Right of use assets, net     166,248       201,984  
                 
 Total Other Assets     224,234       249,838  
                 
 TOTAL ASSETS   $ 1,219,565     $ 1,142,902  
                 
 LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
 CURRENT LIABILITIES:                
 Accounts payable and accrued expenses   $ 325,877     $ 128,851  
 Customer deposits     17,364       128,354  
 Due to related party     28,862       2,396  
 Equipment payable, current     3,300       3,300  
 Loan payable, current     10,294       5,002  
 Lease liability, current     77,020       71,896  
                 
 Total Current Liabilities     462,717       339,799  
                 
 LONG TERM LIABILITIES:                
 Equipment payable     7,150       8,800  
 Loan payable     152,606       157,898  
 Lease liability, non- current     92,655       131,802  
                 
 Total Long Term Liabilities     252,411       298,500  
                 
 Total Liabilities     715,128       638,299  
                 
 Commitments and contingencies (see Note 9)                
                 
 STOCKHOLDERS' EQUITY:                
                 
Preferred stock, $0.0001 par value; 20,000,000 shares authorized; none issued and outstanding     —         —    
Common stock, $0.0001 par value: 100,000,000 shares authorized; 41,485,881 shares issued and outstanding as of November 30, 2020 and 41,285,881 shares issued and outstanding as of May 31, 2020     4,149       4,129  
Additional paid-in capital     5,327,363       5,311,383  
Accumulated deficit     (4,827,075 )     (4,810,909 )
                 
 Total Stockholders' Equity     504,437       504,603  
                 
 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 1,219,565     $ 1,142,902  

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

F-1

REVIV3 PROCARE COMPANY

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

    For the Three Months Ended   For the Six Months Ended
    November 30,   November 30,
    2020   2019   2020   2019
                 
 Sales   $ 644,061     $ 328,552     $ 912,515     $ 454,234  
                                 
 Cost of sales     247,828       169,714       384,087       214,867  
                                 
 Gross profit     396,233       158,838       528,428       239,367  
                                 
 OPERATING EXPENSES:                                
 Marketing and selling expenses     228,828       45,726       299,804       102,763  
 Compensation and related taxes     9,835       20,899       17,803       31,193  
 Professional and consulting expenses     31,369       9,073       89,479       37,472  
 General and administrative     71,643       113,025       134,824       198,356  
                                 
 Total Operating Expenses     341,675       188,723       541,910       369,784  
                                 
 INCOME (LOSS) FROM OPERATIONS     54,558       (29,885 )     (13,482 )     (130,417 )
                                 
OTHER INCOME (EXPENSE):                                
 Interest income     12       30       19       70  
 Interest expense and other finance charges     (1,467 )     (519 )     (2,703 )     (636 )
                                 
Other Income (Expense), Net     (1,455 )     (489 )     (2,684 )     (566 )
                                 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES     53,103       (30,374 )     (16,166 )     (130,983 )
                                 
 Provision for income taxes     —         —         —         —    
                                 
 NET INCOME (LOSS)   $ 53,103     $ (30,374 )   $ (16,166 )   $ (130,983 )
                                 
NET INCOME (LOSS) PER COMMON SHARE - Basic and diluted   $ 0.00     $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                                
 Basic and diluted     41,485,881       41,285,881       41,431,236       41,285,881  

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

F-2

REVIV3 PROCARE COMPANY

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2020 AND 2019

(UNAUDITED)

 

For the six months ended November 30, 2020        
    Preferred Stock   Common Stock   Additional Paid-in   Accumulated   Stockholders'
    Shares   Amount   Shares   Amount   Capital   Deficit   Equity
Balance, May 31, 2020     —       $ —         41,285,881     $ 4,129     $ 5,311,383     $ (4,810,909 )   $ 504,603  
                                                         
Shares issued for services     —         —         200,000       20       15,980       —         16,000  
                                                         
Net loss for the six months ended November 30, 2020     —         —         —         —         —         (16,166 )     (16,166 )
                                                         
Balance, November 30, 2020     —       $ —         41,485,881     $ 4,149     $ 5,327,363     $ (4,827,075 )   $ 504,437  
                                                         
For the three months ended November 30, 2020            
                                      Additional               Total  
      Preferred Stock        Common Stock        Paid-in       Accumulated       Stockholders'  
      Shares       Amount       Shares       Amount       Capital       Deficit       Equity   
Balance, August 31, 2020     —       $ —         41,485,881     $ 4,149     $ 5,327,363     $ (4,880,178 )   $ 451,334  
                                                         
Net income for the three months ended November 30, 2020     —         —         —         —         —         53,103       53,103  
                                                         
Balance, November 30, 2020     —       $ —       $ 41,485,881     $ 4,149     $ 5,327,363     $ (4,827,075 )   $ 504,437  
                                                         
For the six months ended November 30, 2019            
      Preferred Stock        Common Stock        Additional Paid-in       Accumulated       Stockholders'  
      Shares       Amount       Shares       Amount       Capital       Deficit       Equity   
Balance, May 31, 2019     —       $ —         41,285,881     $ 4,129     $ 5,311,383     $ (4,638,142 )   $ 677,370  
                                                         
Net loss for the six months ended November 30, 2019     —         —         —         —         —         (130,983 )     (130,983 )
                                                         
Balance, November 30, 2019     —       $ —         41,285,881     $ 4,129     $ 5,311,383     $ (4,769,125 )   $ 546,387  
                                                         
For the three months ended November 30, 2019                  
      Preferred Stock        Common Stock        Additional Paid-in       Accumulated       Stockholders'  
      Shares       Amount       Shares       Amount       Capital       Deficit       Equity   
Balance, August 31, 2019     —       $ —         41,285,881     $ 4,129     $ 5,311,383     $ (4,738,751 )   $ 576,761  
                                                         
Net loss for the three months ended November 30, 2019     —         —         —         —         —         (30,374 )     (30,374 )
                                                         
Balance, November 30, 2019     —       $ —         41,285,881     $ 4,129     $ 5,311,383     $ (4,769,125 )   $ 546,387  

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

F-3

REVIV3 PROCARE COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    For the Six Month Periods Ended
    November 30,
    2020   2019
         
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (16,166 )   $ (130,983 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
     Depreciation     5,276       5,539  
     Bad debt expense (recovery)     574       (2,342 )
     Stock based compensation     16,000       —    
     Intangibles written off     —         474  
     Non cash lease expense     1,713       —    
Change in operating assets and liabilities:                
Accounts receivable     102,647       29,106  
Inventory     (35,179 )     (37,391 )
Prepaid expenses and other current assets     160       2,993  
Accounts payable and accrued expenses     197,024       134,637  
Deposits     —         (1,428 )
Customer deposits     (110,990 )     1,308  
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES     161,059       1,913  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of property and equipment     (15,408 )     (9,230 )
                 
NET CASH USED IN INVESTING ACTIVITIES     (15,408 )     (9,230 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Repayment of equipment financing     (1,650 )     (1,906 )
Advances from a related party     26,466       7,577  
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES     24,816       5,671  
                 
NET INCREASE (DECREASE) IN CASH     170,467       (1,647 )
                 
CASH - Beginning of period     409,031       346,179  
                 
CASH - End of period   $ 579,498     $ 344,532  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid during the period for:                
Interest   $ 250     $ 519  
Income taxes   $ —       $ —    

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

F-4

 REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 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 unaudited financial statements for the six months ended November 30, 2020 and 2019 have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the management, all adjustments necessary to present fairly our financial position, results of operations, and cash flows as of November 30, 2020 and 2019, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. The unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended May 31, 2020. The results of operations for the six months ended November 30, 2020 are not necessarily indicative of the results to be expected for the full year.

 

Risk and Uncertainty Concerning COVID-19 Pandemic

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States and the World. We are currently monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread. All of our Chinese facilities were temporarily closed for a period of time. Most of these facilities have been reopened since July 2020. Depending on the progression of the outbreak, our ability to obtain necessary supplies and ship finished products to customers may be partly or completely disrupted globally. Also, our ability to maintain appropriate labor levels could be disrupted. If the coronavirus continues to progress, it could have a material negative impact on our results of operations and cash flow, in addition to the impact on its employees. We have concluded that while it is reasonably possible that the virus could have a negative impact on the results of operations, the specific impact is not readily determinable as of the date of these financial statements. The accompanying unaudited financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management is focused on growing the Company’s existing products offering, as well as its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the unaudited accompanying financial statements.

 

Going Concern

 

As reflected in the accompanying financial statements, the Company has a net loss of $16,166 for the six months ended November 30, 2020.  Additionally, the Company has an accumulated deficit of $4,827,075 at November 30, 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 continue its business plan, raise capital, and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

F-5

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

 

Use of estimates

 

The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates made by management include, but are not limited to, the allowance for doubtful accounts, inventory valuations, the useful life of property and equipment, the valuation of intangible assets, the valuation of deferred tax assets, the value of stock-based compensation, and the fair value of non-cash common stock issuances. 

 

Cash and cash equivalents

 

The Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents.  The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation.

 

Accounts receivable and allowance for doubtful accounts

 

The Company has a policy of providing on allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable.  The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt.  Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Prepaid expenses and other current assets

 

Prepaid expenses and other current assets of $13,548 and $13,708 at November 30, 2020 and May 31, 2020, respectively, consist primarily of costs paid for future services which will occur within a year and cash prepayment to vendors.

 

Inventory

 

The Company values inventory, consisting of finished goods and raw materials, at the lower of cost and net realizable value. Cost is determined using an average cost method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its net realizable value. The Company evaluates its current level of inventory considering historical sales and other factors and, based on this evaluation, classifies inventory markdowns in the statement of operations as a component of cost of goods sold. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.

 

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.

 

F-6

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

 

Revenue recognition

 

Effective June 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers, which is effective for public business entities with annual reporting periods beginning after December 15, 2017. This new revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied. The impact of the Company’s initial application of ASC 606 did not have a material impact on its financial statements and disclosures and there was no cumulative effect of the adoption of ASC 606.

 

The Company sells a variety of hair and skin care products. The Company recognizes revenue for the agreed upon sales price when a purchase order is received from the customer and subsequently the product is shipped to the customer, which satisfies the performance obligation. Consideration paid to the customer to promote and sell the Company’s products is typically recorded as a reduction in revenues. See Note 12 for revenue disaggregation disclosures.

 

Cost of Sales

 

The primary components of cost of sales include the cost of the product and freight-in.

 

Shipping and Handling Costs

 

The Company accounts for shipping and handling fees in accordance with ASC 606. While amounts charged to customers for shipping products are included in revenues, the related costs of shipping products to customers are classified in marketing and selling expenses as incurred. Shipping costs included in marketing and selling expense were $53,816 and $20,606 for the six months ended November 30, 2020 and 2019, respectively. Shipping costs included in marketing and selling expense were $41,195 and $10,314 for the three months ended November 30, 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 Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

F-7

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

 

Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The estimated fair value of certain financial instruments, including prepaid expenses, deposits, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

 

Income Taxes

 

The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

  

The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.

 

Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

 

The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.

 

F-8

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

 

Impairment of long-lived assets  

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment losses of $474 as an operating expense in the accompanying financial statements, for the six months ended November 30, 2019.

 

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 November 30, 2020 and 2019, the Company had no potentially dilutive securities outstanding.

 

F-9

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

 

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 on June 1, 2019 and adopted ASU 2019-08 on June 1, 2020 and it did not have a material impact on the Company’s financial statements.

 

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 

 

F-10

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 3 – Accounts Receivable

 

Accounts receivable, consisted of the following:

    November 30, 2020   May 31, 2020
Accounts Receivable   $ 81,373     $ 184,019  
Less: Allowance for doubtful accounts     (2,392 )     (1,818 )
Total   $ 78,981     $ 182,201  

  

The Company recorded bad debt expense of $574 and a bad debt recovery of $2,342 during the six months ended November 30, 2020 and 2019, respectively. The Company recorded bad debt expense of $0 during the three months ended November 30, 2020 and 2019, respectively.

 

Note 4 – Inventory

 

Inventory consisted of the following:

 

    November 30, 2020   May 31, 2020
Finished Goods   $ 28,148     $ 29,839  
Raw Materials     295,156       258,285  
Total   $ 325,877     $ 288,124  

 

At November 30 and May 31, 2020, inventory held at third party locations amounted to $556 and $556, respectively. At November 30 and May 31, 2020, inventory in- transit amounted to $3,450 and $0, respectively.

 

During the six months ended November 30, 2019, the Company sold some of the slow-moving inventory which had been written off and recovered $769.

 

F-11

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 5 – Property and Equipment

 

Property and equipment, stated at cost, consisted of the following:

 

    Estimated Life   November 30, 2020   May 31, 2020
Furniture and Fixtures   5 years   $ 5,759     $ 5,759  
Computer Equipment   3 years     17,392       17,392  
Plant Equipment   5-10 years     45,128       29,720  
Less: Accumulated Depreciation     (26,570 )     (21,294 )
        $ 41,709     $ 31,577  

 

Depreciation expense amounted to $5,276 and $5,539 for the six months ended November 30, 2020 and 2019, respectively.  Depreciation expense amounted to $2,712 and $2,770 for the three months ended November 30, 2020 and 2019, respectively.  

 

 Note 6 – Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses comprised of the following:

 

    November 30, 2020   May 31, 2020
Trade Payables   $ 275,797     $ 98,608  
Accrued expenses     19,903       —    
Credit Cards     7,311       10,378  
Shares to be issued     18,313       18,313  
Other     4,553       1,552  
Total   $ 354,529     $ 128,851  

 

Note 7 - Equipment Financing Payable

 

During the year ended May 31, 2019, the Company purchased a forklift under an installment purchase plan. The loan amount is $16,500 payable in 60 monthly installment payments of $317 comprising of principal payment of $275 and interest payment of $42. As of November 30, 2020, and May 31, 2020, the balance outstanding on the loan was $10,450 and $12,100. At November 30, 2020, $3,300 of the loan is payable within one year and the balance $7,150, is payable after one year from November 30, 2020. The Company recorded an interest expense of $250 and $29, respectively on the loan in the accompanying unaudited financial statements for the six months ended November 30, 2020 and 2019, respectively. The Company recorded an interest expense of $125 and $15, respectively on the loan in the accompanying unaudited financial statements for the three months ended November 30, 2020 and 2019, respectively.

 

The amounts of loan payments due in the next five years ended November 30, are as follows:

 

  2021     $ 3,300  
  2022       3,300  
  2023       3,300  
  2024       550  
  Total     $ 10,450  

 

F-12

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

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. The Company recorded an accrued interest of $2,835 and $200, as of November 30, 2020 and May 31, 2020, respectively.

 

Loans Payable   November 30, 2020   May 31, 2020
         
Paycheck Protection Program (PPP)   $ 12,900     $ 12,900  
Economic Injury Disaster Loan Program (EIDL)     150,000       150,000  
      162,900       162,900  
Less: Current portion     (10,294 )     (5,002 )
Loans Payable, Non-current portion   $ 152,606     $ 157,898  

  

The amounts of principal loan payments due in the next five years ended November 30, are as follows:

  2021     $ 10,294  
  2022       7,412  
  2023       3,185  
  2024       3,307  
  2025       3,433  
  Thereafter       135,269  
  Total     $ 162,900  

 

F-13

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 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

 

As of November 30, 2020, 41,485,881 shares of common stock were issued and outstanding.

 

During the six months ended November 30, 2020, the Company issued 200,000 shares to a consultant for past services. The shares were valued at the fair market value of the $16,000, which expense was recognized immediately.

 

No stock was issued during the three months ended November 30, 2019.

 

F-14

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 10 – Commitments and Contingencies

 

Leases

 

As discussed in Note 2 above, the Company adopted ASU No. 2016-02, Leases on June 1, 2019, which require lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance. The Company has a lease agreement in connection with its office and warehouse facility in California under an operating lease which expired in October 2019. On December 1, 2019, the Company signed an extension of the lease for 3 years. The rent will be $7,567 per month for the first year and increase by a certain amount each year.

 

The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value.

 

The Company reviews the impairment of ROU assets consistent with the approach applied for the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.

 

Lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not result in a remeasurement of lease liabilities. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

 

Pursuant to the new standard, the Company recorded an initial lease liability of $235,748 and an initial right of use asset in the same amount. During the three months and six months ended November 30, 2020, the Company recorded a lease expense in the amount of $23,559 and $47,117, respectively. As of November 30, 2020, the lease liability balance was $169,675 and the right of use asset balance was $166,248. A lease term of three years and a discount rate of 12% was used.

 

F-15

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 10 – Commitments and Contingencies (continued)

 

Supplemental balance sheet information related to leases was as follows:

 

    November 30, 2020
Assets        
  Right of use assets   $ 235,748  
  Accumulated reduction     (69,500 )
Operating lease assets, net   $ 166,248  
         
Liabilities        
Lease liability   $ 235,748  
Accumulated reduction     (66,073 )
Total lease liability, net     169,675  
Current portion     (77,020 )
   Non-current portion   $ 92,655  

 

Maturities of operating lease liabilities were as follows as of November 30, 2020:

 

Operating Lease        
Year 1   $ 94,235  
Year 2     97,661  
         
Total     191,896  
Less: Imputed interest     (22,221 )
Present value of lease liabilities     169,675  
Less: current portion     (77,020 )
Non- current portion   $ 92,655  

 

Rent expense, prior to the signing of the new lease agreement, amounted to $0 and $23,880 for the three months ended November 30, 2020 and 2019, respectively. Rent expense, prior to the signing of the new lease agreement, amounted to $0 and $47,547 for the six months ended November 30, 2020 and 2019, respectively.

 

Contigencies

 

On November 23, 2020, the Company was served a copy of a complaint filed by Jacksonfill, LLC in the Fourth Circuit Court for Duval County, Florida. The complaint alleges breach of Agreement for non-payments for certain products against the Company. The allegations arise from alleged discrepancies discovered by the Company in the manufacturing of certain product. The Company has retained counsel and intends to vigorously defend the allegations. The product was delivered to the Company. However, the Company believes that the product was defective. The amount of the claim of $204,182 has been recorded as accounts payable, in the accompanying unaudited financial statements as of November 30, 2020.

 

F-16

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

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 November 30, 2020 and May 31, 2020, the Company had a payable to the officer of $28,862 and $2,396, respectively. These advances are due on demand and non-interest bearing.  

 

Note 12 – Concentrations and Revenue Disaggregation

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable and cash deposits, investments and cash equivalents instruments. The Company maintains its cash in bank deposits accounts. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At November 30, 2020 the Company held cash of approximately $317,895, in excess of federally insured limits. The Company has not experienced any losses in such accounts through November 30, 2020.

 

Concentration of Revenue, Product Line, Accounts Receivable and Supplier

 

During the three months ended November 30, 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 11% and 39%. During the six months ended November 30, 2020 sales to two customers, which each represented over 10% of our total sales, aggregated to approximately 51% of the Company’s net sales at 39%, and 12%. During the three months ended November 30, 2019 sales to one customer, which represented over 10% of our total sales at 48%. During the six months ended November 30, 2019 sales to three customers, which each represented over 10% of our total sales, aggregated to approximately 55% of the Company’s net sales at 35%, 10% and 11%.

 

During the three months ended November 30, 2020, sales to customers outside the United States represented approximately 14% which consisted of sales of 8% from Canada and 6% from the EU during the six months ended November 30, 2020, sales to customers outside the United States represented approximately 18% which consisted of 14% from Canada and 4% from the EU. During the three months ended November 30, 2019, sales to customers outside the United States represented approximately 21% which consisted of 13% from Canada and 8% from the EU and during the six months ended November 30, 2019, sales to customers outside the United States represented approximately 30% which consisted of 18% from Canada, 10% the EU and 2% from UK.

 

During the six months ended November 30, 2020, sales by product lines which each represented over 10% of sales consisted of approximately 32% from sale of introductory kit (shampoo, conditioner and treatment spray) and 37% from sale of fragrance shampoo and conditioner. During the three months ended November 30, 2020, sales by product lines which each represented over 10% of sales consisted of approximately 36% from sale of introductory kit (shampoo, conditioner and treatment spray) and 37% from sale of fragrance shampoo and conditioner. During the six months ended November 30, 2019, sales by product lines which each represented over 10% of sales consisted of approximately 16% from sales of prep cleanser and shampoo, 10% from sale of moisturizer and conditioner, 19% from sale of introductory kit (shampoo, conditioner and treatment spray) and 35% from sale of fragrance shampoo and conditioner. During the three months ended November 30, 2019, sales by product lines which each represented over 10% of sales consisted of approximately 14% from sale of introductory kit (shampoo, conditioner and treatment spray) and 48% from sale of fragrance shampoo and conditioner.

 

F-17

REVIV3 PROCARE COMPANY

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOVEMBER 30, 2020 AND 2019

 

Note 12 – Concentrations and Revenue Disaggregation (continued)

 

During the six months ended November 30, 2020 and 2019, sales by product line comprised of the following:

 

    For the six months ended
Hair Care Products   November 30, 2020   November 30, 2019
Shampoos and Conditioners     86 %     88 %
Ancillary Products     14 %     12 %
Total     100 %     100 %

 

As of November 30, 2020, accounts receivable from two customers represented approximately 65% at 24% and 41% and at May 31, 2020, accounts receivable from one customer represented approximately 69%, respectively.

 

The Company purchased inventories and products from one vendor totaling approximately $257,810 (74% of the purchases) and two vendors totaling approximately $196,692 (88% of the purchases at 76% and 12%) during the six months ended November 30, 2020 and 2019, respectively. The Company purchased inventories and products from two vendors totaling approximately $32,582 (67% of the purchases at 39% and 28%) and two vendors totaling approximately $125,451 (88% of the purchases at 70% and 18%) during the three months ended November 30, 2020 and 2019, respectively.

 

Note 13 – Subsequent Events

 

As of November 30, 2020, the Company had recorded $18,313 as accrued expenses for shares to be issued to a consultant. Subsequent to November 30, 2020, the Company entered into a settlement agreement with the consultant and paid him $2,000 as full and final settlement. The gain of $16,313 was recorded as a gain on settlement of debt, on the books, subsequent to November 30, 2020.

 

F-18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the condensed financial statements and notes thereto included in Item 1 in this Quarterly Report on Form 10-Q. 

 

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking.  Forward-looking statements are, by their very nature, uncertain and risky.  Forward-looking statements are often identified by words like: “believe”, “expect”, “estimate”, “anticipate”, “intend”, “project” and similar expressions, or words that, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks that might be detailed from time to time in our filing with the Securities and Exchange Commission. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q.

 

Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in herein and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.”

 

Overview

 

Reviv3 Procare Company is engaged in the manufacturing, marketing, sale and distribution of professional quality hair and skin care products under various trademarks and brands. We have adopted and used the trademarks of our products for distribution throughout the United States, Canada, Europe, and Asia pursuant to the terms of twelve exclusive distribution agreements with various parties throughout our targeted market. Our manufacturing operations are outsourced and fulfilled by our co-packers and manufacturing partners. Currently, we produce seven products with sixteen separate stock-keeping units (“SKUs”) and look to expand our product lines over the next twelve months.

 

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Jumpstart Our Business Startups Act of 2012 (“JOBS Act”)

 

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

 

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions from, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (a) the last day of our fiscal year following the fifth anniversary of the closing of this offering, (b) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (c) the last day of our fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or Exchange Act (which would occur if the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or (d) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.

 

Results of Operations

 

For the Three Months and Six Months Ended November 30, 2020 Compared to the Three Months and Six Months Ended November 30, 2019

 

Sales for the three months ended November 30, 2020 and 2019 were $644,061 and $328,552, respectively. Sales for the three months ended November 30, 2020 increased by $315,509 or 96% over the same comparable period in 2019. Sales for six months ended November 30, 2020 and 2019 were $912,515 and $454,234 respectively. Sales for the six months ended November 30,2020 increased by $458,281 or 101% over the same comparable period in 2019. Revenues increased in the 2020 respective periods due to (1) increased sales generated by our existing distributors during the quarter ended November 30, 2020, (2) general increase in our direct sales to consumer segment during the quarter ended November 20, 2020.

 

Cost of sales consisted primarily of cost of product, freight-in costs, distribution and merchant fees. Cost of sales for the three months ended November 30, 2020 and 2019 was $247,828 and $169,714, respectively. Cost of sales as a percentage of sales for the three months ended November 30, 2020 and 2019 was 38% and 52%, respectively. Cost of sales for the six months ended November 30, 2020 and 2019 was $384,087 and $214,867, respectively. Cost of sales as a percentage of sales for the six months ended November 30, 2020 and 2019 was 42% and 47%, respectively. Cost of sales as a percentage of sales decreased in 2020 for the respective periods as compared to the same comparable periods in 2019 primarily due to our continued expansion in the direct sales to consumer segment. In addition, the freight-out costs increased significantly due to the increased number of shipments in the direct sales to consumer sales.

 

Gross profit for the three months ended November 30, 2020 and 2019 was $396,233 and $158,838, respectively. Gross profit as a percentage of sales for the three months ended November was 62% as compared to 48% for the same comparable period in 2019. Gross profit for the six months ended November 30, 2020 and 2019 was $528,428 and $239,367, respectively. Gross profit as a percentage of revenues for the six months ended November 30, 2020 was 58% as compared to 53% for the same comparable period in 2019. The increase in gross profit was primarily attributable to the increased sale of products in the direct to consumer sales segment.

 

Operating expenses consisted of marketing and selling expenses, professional and consulting fees, compensation to employees and other general and administrative expenses. Operating expenses for the three months ended November 30, 2020 and 2019 were $341,675 and $188,723, respectively. Operating expenses as a percentage of sales for the three months ended November 30, 2020 and 2019 were 53% and 57%, respectively. Operating expenses for the three months ended November 30, 2020 increased by $152,952 or 81% over the comparable period in 2019. This increase is primarily as a result of marketing and advertising expense to promote the Company’s product line and brand in the direct to consumer channels. Operating expenses for the six months ended November 30, 2020 and 2019 were $541,910 and $369,784, respectively. Operating expenses as a percentage of revenues for the six months ended November 30, 2020 and 2019 were 59% and 81%, respectively. Operating expenses for the six months ended November 30, 2020 increased by $172,126 or 47% over the comparable period in 2019. The increase in operating expenses is attributed primarily due to the increase in marketing and advertising expense of $197,041 to promote Company’s brand name and its products in the direct to consumer channels, a general increase in the professional and consulting expenses of $52,007, offset by reduction in general and administrative costs in 2020 of $13,390 compared to the same comparable periods in 2019.

 

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Other income (expense) consisted of interest income, interest expense and other finance charges, and other income. Interest income for the three months ended November 30, 2020 and 2019 was $12 and $30, respectively. Interest expense and finance changes for the three months ended November 30, 2020 and 2019 were $1,467 and $519, respectively, primarily due to interest expense related to business credit card financing charges. Other income (expense) consisted of interest income, interest expense and other finance charges, and other income. Interest income for the six months ended November 30, 2020 and 2019 was $19 and $70, respectively. Interest expense and finance changes for the six months ended November 30, 2020 and 2019 were $2,703 and $636, respectively, primarily due to interest expense related to business credit card financing charges.

 

As a result of the above, we reported a net income of $53,103 compared to a net loss of $30,374 for the three months ended November 30, 2020 and 2019, respectively. As a result of the above, we reported a net loss of $16,166 and $130,983 for the six months ended November 30, 2020 and 2019, respectively.

 

Liquidity and Capital Resources

   

We are an emerging growth company and currently engaged in our initial product sales and development. We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during the fiscal year 2020. We believe our current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet our working capital requirements in the short term. We continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in the short-term to invest in revenue growth. We have and will continue to generate sufficient cash for our operational needs, including any required debt payments, for at least one year from the date of issuance of the accompanying financial statements. Management is focused on growing the Company’s existing products offering, as well as its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying financial statements.

 

Cash Flows

 

Operating Activities

 

Net cash flows provided by operating activities for the six months ended November 30, 2020 was $161,059, attributable to a net loss of $16,166, depreciation of $5,276, bad debt expense of $574, stock based compensation expense of $16,000, non-cash lease expense of $1,713, and net change in operating assets and liabilities of $153,661 primarily due to increase in accounts receivable, prepaid expenses and other current assets, and customer deposits, offset by accounts payable and accrued expenses. Net cash flows provided in operating activities for the six months ended November 30, 2019 was $1,913 attributable to a net loss of $130,983, depreciation of $5,539, bad debts recovery of $2,342, write-off of intangibles of $474, and net change in operating assets and liabilities of $129,225 primarily due to decrease in accounts receivable, prepaid expenses and other current assets, and security deposits, and increase in inventory, accounts payable and accrued expenses, and customer deposits.

 

Investing Activities

 

Net cash flows used by investing activities for the six months ended November 30, 2020 and 2019 was $15,408 and $9,230, respectively, attributable to purchase of property and equipment during the six months period.

 

Financing Activities

 

Net cash flows provided by financing activities for the six months ended November 30, 2020 and 2019, was $24,816 and $5,671, respectively. For the six months ended November 30, 2020, we received advances from a related party of $26,466 and repaid $1,650 towards equipment financing. For the six months ended November 30, 2019, we received advances from a related party of $7,577 and repaid $1,906 towards equipment financing.

 

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As a result of the activities described above, we recorded a net increase in cash of $170,467 for the six months ended November 30, 2020, and a net decrease of cash of $1,647 for the six months ended November 30, 2019.

 

We currently have no external sources of liquidity, such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.

 

We are dependent on our product sales to fund our operations and may require the sale of additional common stock to expand our operations. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans, and/or financial guarantees.

 

If we are unable to raise the funds required to fund our operations, we will seek alternative financing through other means, such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities. We have not located any sources for these funds and may not be able to do so in the future. We expect that we will seek additional financing in the future. However, we may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Critical Accounting Policies 

 

The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of 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. Such estimates and assumptions affect the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

 

We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require the most difficult, subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These critical accounting policies relate to revenue recognition, impairment of intangible assets and long-lived assets, inventory, stock compensation, and evaluation of contingencies. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial condition or results of operations.

 

Significant Accounting Policies

 

See the footnotes to our unaudited condensed financial statements for the quarter ended November 30, 2020, included with this quarterly report.

 

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Impact of COVID-19

 

During the three months ended November 30, 2020, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the three months ended November 30, 2020 was limited, in all material respects, to our sales in Europe and in China where the Chinese government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.

 

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.

 

To the extent that COVID-19 continues or worsens, governments may impose additional restrictions or additional governments may impose restrictions. The result of COVID-19 and those restrictions could result in a number of adverse impacts to our business, including but not limited to additional disruption to the economy and consumers’ willingness and ability to spend, temporary or permanent closures by businesses that consume our products, such as salons and spas, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. As a result, it may be challenging to obtain and process raw materials and supply chains to support our business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Also, governments may impose other laws, regulations or taxes which could adversely impact our business, financial condition or results of operations. Further, if our customers’ businesses or incomes are similarly affected, they might delay or reduce purchases from us. The potential effects of COVID-19 also could impact us in a number of other ways including, but not limited to, reductions to our profitability, laws and regulations affecting our business, the availability of future borrowings, the cost of borrowings, and credit risks of our customers and counterparties.

 

Given the evolving health, economic, social, and governmental environments, the potential impact that COVID-19 could have on our business remains uncertain and could be significant.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain "disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of November 30, 2020, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting.

 

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The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses in our internal control over financial reporting which we identified and previously reported in the Annual Report on Form 10-K for the year ended May 31, 2020: (1) insufficient number of qualified accounting personnel governing the financial close and reporting process, (2) lack of independent directors, and (3) lack of proper segregation of duties.

 

We expect to be materially dependent upon third parties to provide us with accounting and consulting services for the foreseeable future. We believe this will be sufficient to remediate the material weaknesses related to our accounting discussed above. We plan to recruit independent directors in the near future to oversee, establish and maintain adequate internal controls over financial reporting. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses in our disclosure controls and procedures will not result in errors in our financial statements which could lead to a restatement of those financial statements. A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

Changes in internal control over financial reporting

 

There were no changes in our internal control over financial reporting during the quarter ended November 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

On November 23, 2020, the Company was served a copy of a complaint filed by Jacksonfill, LLC in the Fourth Circuit Court for Duval County, Florida. The complaint alleges breach of Agreement for non-payments for certain products against the Company. The allegations arise from alleged discrepancies discovered by the Company in the manufacturing of certain product. The Company has retained counsel and intends to vigorously defend the allegations. The product was delivered to the Company. However, the Company believes that the product was defective. The amount of the claim of $204,182 has been recorded as accounts payable, in the accompanying unaudited financial statements as of November 30, 2020.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to provide risk factors. Please refer to our registration statement under Form S-1 for more information regarding risks related to the securities of the Company.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

(a) Not applicable.

 

(b) During the quarter ended November 30, 2020, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.

 

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ITEM 6. EXHIBITS

 

Exhibit       Filed   
Number   Exhibit Description   herewith  
31.1   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   X  
31.2   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   X  
32.1   Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   X  
32.2   Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   X  
101.INS   XBRL Instance   X  
101.SCH   XBRL Taxonomy Extension Schema   X  
101.CAL   XBRL Taxonomy Extension Calculation   X  
101.DEF   XBRL Taxonomy Extension Definition   X  
101.LAB   XBRL Taxonomy Extension Labels   X  
101.PRE   XBRL Taxonomy Extension Presentation   X  

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

REVIV3 PROCARE COMPANY

 

 

Date: January 12, 2021

By: /s/ Jeff Toghraie              

Jeff Toghraie

Chief Executive Officer

(Principal Executive Officer)

 

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