Item
2.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements.
These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology such as
“may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential” or “continue” or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Our unaudited condensed financial statements are stated in
United States Dollars (US$) and are prepared in accordance with United States
Generally Accepted Accounting Principles. The following discussion should be
read in conjunction with our financial statements and the related notes that
appear elsewhere in this quarterly report. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this quarterly report.
Unless otherwise specified in this quarterly report, all dollar
amounts are expressed in United States dollars and all references to “common
stock” refer to shares of our common stock.
As used in this quarterly report, the terms “we”, “us”, “our”
and “our company” mean Science to Consumers, Inc., unless the context clearly
requires or states otherwise.
Corporate Overview
We were incorporated in the State of Nevada on April 15, 2013.
Our company is planning to be a distributor of Argan oil and Argan oil products
to stores, spas, massage therapy offices and individuals in Germany. We intend
to bring the 100% pure and organic Argan oil and skin products made with Argan
oil directly from the manufacturers in Morocco to Germany and in the future to
the rest of Europe. We expect to generate revenues from sales of our products to
individual customers and commercial customers such as spas, stores and massage
therapy offices. Both individual and commercial customers will be able to order
our products by telephone, our website has been updated and changed to reflect
our name change to
www.sciencetoconsumers.com
.
At this stage, we have no revenues. The past operations had the Company engaged in preparing our business plan and the development of our website and e-commerce shopping cart. Our potential client list consists of 4 companies ranging from beauty stores, spas massage therapy offices, and cosmetic distributors.
The majority of our business will be initially marketed in China, Hong Kong, and Germany but as our operations expand, we plan to expand to other European markets. We are also looking at opportunities to expand our operations and expand product lines in the USA, European, and Asian markets.
Our company will focus on providing helpful customer service. We are currently selling six products that are available to be purchased through our website, and wholesale orders are also being accepted from June 1, 2016. The Company plans on engaging in an e-commerce strategy to be able to drive its online sales. In addition, the company is targeting cosmetic distribution companies in China and Hong Kong as part of its sales strategy.
The Company is also working with the Licensee to re-design and re-package the product line to better reflect the Chinese market place.
One June 1, 2013, we entered into a web site design agreement with Smart Creations. As compensation, our company will pay Smart Creations $300 upon completion of the creation of our company’s website which was estimated to be completed on
October 30, 2013. We have since re-designing our website in order to better market our brand and image to consumers and to better reflect our existing business. We will always look at updating our website as we grow and as our business evolves. The
re-design should be completed prior to October 31, 2015.
On July 31, 2014, our company’s board of directors approved a resolution to effect a 7 new for 1 old forward split of our authorized and our issued and outstanding shares of common stock. A Certificate of Change for the stock split was filed
and became effective with the Nevada Secretary of State on August 19, 2014. Consequently, our authorized share capital increased from 75,000,000 to 525,000,000 shares of common stock and our issued and outstanding common stock, at that time,
increased from 4,250,000 to 29,900,000 shares, all with a par value of $0.001.
The forward stock split was approved by the Financial Industry Regulatory Authority (FINRA) with an effective date of August 19, 2014.
On November 25, 2014, our board of directors approved an agreement and plan of merger to merge with our wholly-owned subsidiary Science to Consumers, Inc., a Nevada corporation, to effect a name change from Argan Beauty Corp. to Science to
Consumers, Inc. Science to Consumers, Inc. was formed solely for the change of name.
Articles of Merger to effect the merger and change of name were filed and became effective with the Nevada Secretary of State on December 23, 2014. The name change was reviewed by the FINRA and was approved for filing with an effective date of
December 24, 2014. The name change became effective with the Over-the-Counter Bulletin Board at the opening of trading on December 24, 2014 under the symbol "BEUT". Our CUSIP number is 808645105.
Effective August 18, 2015, Burt Ensley resigned as chief executive officer of our company. Mr. Ensley will remain as a company advisor. In connection with the resignation of Mr. Ensley, Edwon Lam was appointed as chief executive officer.
Mr. Ensley's resignation was not the result of any disagreement with our company regarding our operations, policies, practices or otherwise.
Our principal executive office is located at Faraday Str. 31, Leipzig, Germany, 04159. Our telephone number is 49 (0) 173 8264 717.
Our Current Business
On October 1, 2013, Science to Consumers Inc., a private Nevada corporation (the “Assignor”), entered into a License Agreement with Protein Genomics Inc., a Delaware corporation, pursuant to which the Assignor acquired the rights from
Protein Genomics Inc. to sell certain products.
On January 19, 2015, our company, as assignee, entered into an Assignment Agreement with the Assignor, pursuant to which we have acquired the right, title and interest to the License Agreement and all obligations, benefits and advantages thereunder
in relation to the territory under the License Agreement for consumer skin care products supplied by Protein Genomics. Under the terms of the Assignment Agreement, Burt Ensley, the current sole director and officer of the Assignor and a former chief
executive officer of our company, shall be issued 2,000,000 shares of common stock of our company as consideration for the transfer of the License Agreement.
Under the License Agreement our company will provide direct to consumer sales, marketing and distribution of finished consumer skin care products provided by Protein Genomics via direct response advertisements and other worldwide marketing and
distribution channels. Our company will create direct response advertisements for the products in consultation with Protein Genomics, which shall initially consist of direct response print advertisements and television commercials and other forms of
direct response advertisements.
Our company shall manage all creative testing, media, buying, telemarketing fulfillment and credit card processing relating to the sale of the consumer skin care products through direct response advertisements and will work with Protein Genomics on
appropriate publicity and home shopping opportunities for the products. We may also work together with respect to the packaging of the products.
Our company may also present buying opportunities online of the products as part of our overall web strategy including order acceptance, billing and collection.
Protein Genomics will provide our company with finished inventory, claims substantiation with respect to each product including any relevant clinical data and support for any such claims, assistance in securing testimonials and cooperation from
experts and arranging for appearances by our former chief executive officer, Burt Ensley, to promote the products in our direct response advertising channels. Protein Genomics will also provide us with fully cleared content required by our company
to create the direct response advertisements, ensure that any patents and intellectual property are in good standing and defend against any potential competition or infringement.
The terms of the Assignment Agreement signed on January 19, 2015 have not been met and a new agreement with similar terms and pricing were negotiated and entered into on December 29, 2015.
Effective December 29, 2015, we entered into an exclusive license agreement with Biomatrix Inc., a Delaware corporation, pursuant to which we obtained the exclusive rights to sell certain proprietary skincare products of Biomatrix by direct to
consumer marketing and sales in the territories of China and Europe. In consideration for the marketing, sales and distribution services to be provided by our company, Biomatrix has agreed to supply product inventory at a rate not less favorable
than that provided to any third party. Additionally, Biomatrix has agreed to transfer to our company 100% equity ownership of Biomatrix Inc., an Arizona corporation which holds all right and title to the product distribution rights acquired. In
consideration of transfer of title and rights acquired, we agreed to issue to Biomatrix (Delaware) 2,000,000 restricted common shares in the capital stock of our company.
The initial term of the exclusive license agreement is for 5 years, subject to our company achieving minimum sales of $250,000 and $500,000 during the first and second years of the agreement, respectively. Thereafter, the term will
automatically renew for successive 5 year periods provided that we achieve a minimum $500,000 in sales of the licensed products during each calendar year of the term, excluding the first year.
Closing of the transaction is subject to completion of due diligence and to the transfer of the Biomatrix, Arizona securities to our Company. Biomatrix Arizona will become our wholly owned subsidiary upon completion of the transaction.
Our Current Products
We are currently selling six products that are available to be purchased through our website, and wholesale orders are also being accepted from June 1, 2016. The Company plans on engaging in an e-commerce strategy to be able to drive its online sales. In addition, the company is targeting cosmetic distribution companies in China and Hong Kong as part of its sales strategy.
The Company is also working with the Licensee to re-design and re-package the product line to better reflect the Chinese market place.
The products being sold by the Company currently are Dermalastyl Facial Scrub, Dermalastyl Bx Pro, Dermalastyl Bx Elastropin, Dermalastyl-e Intensive Eye Serum, Dermalastyl-m Wrinkle Eye Radicator, Dermalastyl-m Anti- Wrinkle after shave for Men.
Results of Operations for the Three and Nine Months Ended February 29, 2016 and February 28, 2015
The following summary of our results of operations should be read in conjunction with our unaudited financial statements for the Nine months ended February 29, 2016 and February 28, 2015.
Our operating results for the three and Nine months ended February 29, 2016 and February 28, 2015are summarized as follows:
|
|
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Three Months Ended
|
|
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Nine Months Ended
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|
|
|
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February 29
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|
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February 28
|
|
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February 29
|
|
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February 28
|
|
|
|
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2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
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Advertising and promotion
|
$
|
Nil
|
|
$
|
Nil
|
|
$
|
Nil
|
|
$
|
15
|
|
|
Amortization expense
|
$
|
291
|
|
$
|
Nil
|
|
$
|
581
|
|
$
|
Nil
|
|
|
Bank service charges
|
$
|
Nil
|
|
$
|
48
|
|
$
|
Nil
|
|
$
|
169
|
|
|
Professional fees
|
$
|
18,501
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|
$
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11,866
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|
$
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34,449
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$
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40,856
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|
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Net Loss
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$
|
(18,792
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)
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$
|
(11,914
|
)
|
$
|
(35,030
|
)
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$
|
(41,040
|
)
|
Our net loss for the three months ended February 29, 2016 was
$18,792 compared to a net loss of $11,914 for the same period in 2015. Our net
loss for Nine months ended February 28, 2016 was $35,030 compared to a net loss
of $41,040 during the same period in 2015. During the Nine months ended February
29, 2016 we did not generate any revenue.
During the three months ended February 29, 2016, our operating
expenses were amortization expenses of $291 and professional fees of $18,501.
During the three months ended February 28, 2015, our operating expenses were
bank service charges of $48 and professional fees of $11,866. The increase in
operating expenses for this period compared to the previous period is primarily
due to an increase in professional fees.
During the Nine months ended February 29, 2016, our operating
expenses were amortization expenses of $581 and professional fees of $34,449.
During the Nine months ended February 28, 2015, our operating expenses were
advertising and promotion of $15, bank service charges of $169 and professional
fees of $40,856. The decrease in operating expenses for this period compared to
the previous period is primarily due a decrease in professional fees.
The weighted average number of shares outstanding were
30,465,000 and 29,900,000 for the Nine months ended February 29, 2016 and
February 28, 2015, respectively.
Liquidity and Financial Condition
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Working Capital
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At February 29
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At May 31,
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2016
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2015
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Current Assets
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$
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Nil
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$
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1,749
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Current Liabilities
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$
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38,893
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$
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8,891
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Working Capital Deficit
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$
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(38,893
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)
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$
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(7,142
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)
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|
Cash Flows
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|
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At February 29
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|
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At February 28,
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|
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2016
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2015
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Net cash used in operations
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$
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(20,597
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)
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$
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(41,040
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)
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Net cash (used in) provided by investing
activities
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$
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Nil
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|
$
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Nil
|
|
|
Net cash (used in) provided
by financing activities
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$
|
18,848
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$
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45,674
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Increase (Decrease) in Cash During the Period
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$
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(1,749
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)
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$
|
4,634
|
|
As at February 29, 2016, our total assets were $9,871 compared
to $1,749 in total assets at May 31, 2015. Total assets were comprised of $9,871
in website development costs, as at February 29, 2016 we had no cash or cash
equivalents. As at February 29, 2016, our current liabilities were $38,893
compared to $8,891 in current liabilities as at May 31, 2015. Stockholders’
deficit was $29,022 as of February29, 2016 compared to stockholders' deficit of
$7,142 as of May 31, 2015.
Cash Flows from Operating Activities
We have not generated positive cash flows from operating
activities. For the Nine months ended February 29, 2016, net cash flows used in
operating activities was $20,597 compared to $41,040 for the Nine months ended
February 28, 2015.
Cash Flows from Investing Activities
For the Nine months ended February 29, 2016 cash flows used in
investing activities were $0 compared to $0 for the Nine months ended February
28, 2015.
Cash Flows from Financing Activities
For the Nine months ended February 29, 2016 cash flows from
financing activities were $18,848 compared to $45,674 for the Nine months ended
February 28, 2015.
Plan of Operation and Future Financings
We expect that working capital requirements will continue to be
funded through a combination of our existing funds and further issuances of
securities. Our working capital requirements are expected to increase in line
with the growth of our business.
Existing working capital, further advances and debt
instruments, and anticipated cash flow are expected to be adequate to fund our
operations over the next three months. We have no lines of credit or other bank
financing arrangements. Generally, we have financed operations to date through
the proceeds of the private placement of equity and debt instruments. In
connection with our business plan, management anticipates additional increases
in operating expenses and capital expenditures relating to: (i) acquisition of
inventory; (ii) developmental expenses associated with a start-up business; and
(iii) marketing expenses. We intend to finance these expenses with further
issuances of securities, and debt issuances. Thereafter, we expect we will need
to raise additional capital and generate revenues to meet long-term operating
requirements. Additional issuances of equity or convertible debt securities will
result in dilution to our current shareholders. Further, such securities might
have rights, preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to take advantage of prospective new business endeavors or opportunities,
which could significantly and materially restrict our business operations. We
will have to raise additional funds in the next twelve months in order to
sustain and expand our operations. We currently do not have a specific plan of
how we will obtain such funding; however, we anticipate that additional funding
will be in the form of equity financing from the sale of our common stock. We
have and will continue to seek to obtain short-term loans from our directors,
although no future arrangement for additional loans has been made. We do not
have any agreements with our directors concerning these loans. We do not have
any arrangements in place for any future equity financing.
Cash Requirements
We estimate our operating expenses and working capital
requirements for the twelve month period to be as follows:
|
Estimated
Expenses For the Twelve Month Period ending February 28, 2017
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|
|
|
|
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Professional fees
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$
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30,000
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|
|
Establishing an office in China
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$
|
13,000
|
|
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Online Advertising
|
$
|
5,000
|
|
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Import Licenses
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|
3,500
|
|
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General and administrative expenses
|
|
60,000
|
|
|
Total
|
$
|
111,500
|
|
At present, our cash requirements for the next 12 months outweigh the funds available to maintain our operations or development of any future properties. Of the $111,500 that we require for the next 12 months, we had $0 in cash as of
February 29, 2016, and a working capital deficit of $38,893. Until we complete a transaction, acquisition or business combination, our cash requirements will be in regards to maintaining our corporate existence, and ensuring compliance with our
SEC continuous disclosure obligations, including our financial reporting requirements. In addition, we will require additional capital in order to investigate and conclude any future transaction, acquisition or business combination. In order to
improve our liquidity, we plan to pursue additional equity financing from private investors or possibly a registered public offering. We do not currently have any definitive arrangements in place for the completion of any further private placement
financings and there is no assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business
activities and administrative expenses in order to be within the amount of capital resources that are available to us.
Contractual Obligations
As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.
Going Concern
We have suffered recurring losses from operations and are dependent on our ability to raise capital from stockholders or other sources to meet our obligations and repay our liabilities arising from normal business operations when they become due. In
their report on our audited financial statements for the year ended May 31, 2015, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain
additional note disclosure describing the circumstances that lead to this disclosure by our independent auditors.
Off-Balance Sheet Arrangements
We have no 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 of operations, liquidity, capital expenditures
or capital resources that is material to stockholders.
Critical Accounting Policies
Basis of Presentation
The financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.
Accounting Basis
Our company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting). Our company has adopted a May 31 fiscal year end.
Cash and Cash Equivalents
Our company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. Our company had $nil of cash as of February 29, 2016 and $1,749 of cash as of May 31, 2015.
Fair Value of Financial Instruments
Our company’s financial instruments consist of cash and cash equivalents and amounts due to shareholder. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that
approximate prevailing market rates unless otherwise disclosed in these financial statements.
Website Development Costs
Website development costs consist of costs incurred to develop internet websites to promote, advertise, and earn revenue with respect to our company’s business operations. Costs are amortized on a straight line basis over 3 years from when the
internet web site has been completed.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Our company recognizes revenue when products are fully delivered or services have been provided and collection is reasonably assured.
Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with ASC Topic 718. To date, our company has not adopted a stock option plan and has not granted any stock options.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing our company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing our
company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for
any potentially dilutive debt or equity. There are no such common stock equivalents outstanding as of February 29, 2016 and May 31, 2015.
Comprehensive Income
Our company has which established standards for reporting and display of comprehensive income, its components and accumulated balances. When applicable, our company would disclose this information on its Statement of Stockholders’ Equity.
Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. Our company has not had any significant transactions that are required to be reported in other comprehensive income.
Recent Accounting Pronouncements
Our company does not expect the adoption of any other recent
accounting pronouncements to have a material impact on our financial statements.