UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 2019
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 Offices, including zip code)
(888) 638-8883
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
| Common Stock, $0.0001 par value |
| (Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:
YES ☒ NO ☐
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES ☒ NO ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| 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 Act). YES ☐ NO ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Shares Outstanding | ||||
| Title of Class | July 17, 2019 | |||
| Common Stock | 41,285,881 | |||
DOCUMENTS INCORPORATED BY REFERENCE
None.
| PART I | 1 |
| ITEM 1. DESCRIPTION OF BUSINESS. | 1 |
| ITEM 1A. RISK FACTORS. | 3 |
| ITEM 1B. UNRESOLVED STAFF COMMENTS. | 3 |
| ITEM 2. PROPERTIES. | 3 |
| ITEM 3. LEGAL PROCEEDINGS. | 3 |
| ITEM 4. MINE SAFETY DISCLOSURES. | 3 |
| PART IV | 21 |
| ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. | 21 |
| SIGNATURES | 23 |
| EXHIBIT INDEX | 24 |
Cautionary Note Regarding Forward-Looking Information
This Report on Form 10-K, in particular Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements represent our expectations, beliefs, intentions or strategies concerning future events, including, but not limited to, any statements regarding our assumptions about financial performance; the continuation of historical trends; the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations; and the economy in general or the future of the defense industry, all of which were subject to various risks and uncertainties.
When used in this Report on Form 10- K and other reports, statements, and information we have filed with the Securities and Exchange Commission (“Commission” or “SEC”), in our press releases, presentations to securities analysts or investors, in oral statements made by or with the approval of an executive officer, the words or phrases “believes,” “may,” “will,” “expects,” “should,” “continue,” “anticipates,” “intends,” “will likely result,” “estimates,” “projects” or similar expressions and variations thereof are intended to identify such forward-looking statements. However, any statements contained in this Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. We caution that these statements by their nature involve risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors.
We do not assume the obligation to update any forward-looking statement. You should carefully evaluate such statements in light of factors described in this annual report. In this Form 10-K, Reviv3 Procare Company (“Reviv3 Procare”) has identified important factors that could cause actual results to differ from expected or historic results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete list of all potential risks or uncertainties.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
Reviv3 Procare is engaged in the manufacturing, marketing, sale and distribution of professional quality hair and skin care products under various trademarks and brands, and has adopted and used the trademark products for distribution throughout the United States, Canada, Europe and Asia pursuant to the terms of 11 exclusive and non-exclusive distribution agreements with various parties throughout our targeted markets. Our manufacturing operations are outsourced and fulfilled through our co-packers and manufacturing partners. Currently, we produce 8 products with 14 separate stock keeping units (SKU) and plan to expand our product lines over the next 12 months.
The personal care product industry boasts roughly 750 companies that generate a combined annual revenue of more than $40 billion. The 50 largest companies comprise almost 70% of the entire revenue. Still, we believe the market will bear competition from small companies able to offer specialized products or cater to particular niche markets.
Makeup, deodorant and nail products comprise 33% of health and beauty care industry revenue. Hair care products generate 25% of personal care product revenue, while creams and lotions comprise 21%. Perfumes, mouthwashes, shaving preparations and other products make up the remaining revenue for beauty skin care product revenues.
Reviv3 Procare stands for skin health and benefits of healthy scalp and hair follicle. Currently, we sell our hair and skincare products under the Reviv3 Procare brand which includes 8 distinct products. Our Reviv3 System is a series of products which are meant to be used together or on a stand-alone basis. The hair care products consist of PREP shampoo, PRIME conditioner, and TREAT maintenance care. We also sell an introductory kit which includes all three Reviv3 System products. In addition, we have products dedicated to hair treatment and repair. Currently we have 3 products in our treatment and repair line. BOOST is designed to deliver nutrients and increase circulation to the scalp, MEND Deep Hair Repair Mask for added moisture and PROTECT, a heat protectant product to prevent damage from irons and dryers. We also have a stand-alone Thickening Spray for giving hair more volume and body.
Recent additions to our products lines are our series of baby care products. We’ve recently created a baby shampoo, lotion and body wash. These products will be sold under the brand LANU which we launched in January of 2018. We plan to initiate the marketing of the LANU line in the current fiscal year.
Competition
Hair care and cosmetics markets are highly competitive and there are many companies offering similar products in the market today. We believe we are able to compete directly with these companies and products by offering quality products which will distinguish our performance and develop brand loyalty.
Top Brands/Market Leaders
| · | Nioxin: https://www.nioxin.com/en-US |
| · | PhytoWorx |
| · | Keranique: https://keranique.com/scalp-stimulating-shampoo-for-thinning-hair?AFID=282&gclid=CM_xkJLq99ICFQJrfgodP0QL_A |
| · | Ultrax Labs: https://ultraxlabs.com/products/hair-surge-shampoo |
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Large Names
| · | Aveda Invati: http://www.aveda.com/hair-care/invati-thinning-hair-solutions |
| · | Propecia (Merck & Co.) http://www.merck.com/product/usa/pi_circulars/p/propecia/propecia_ppi.pdf |
| · | Bosley: https://www.bosley.com/ (Organic/Minoxidil) |
| · | Dr. Reddy’s Laboratories – Mintop: http://www.mintop.in/ (Minoxidil) |
Other Competitors
| · | Lipogaine: http://www.lipogaine.com/lipogaine-big-3-shampoo/ |
| · | Mediceutical Labs: http://www.mediceuticallabs.com/products/ |
| · | Just Natural: http://www.justnaturalskincare.com/hair-loss/shampoo-hair-loss.html |
| · | Revita: https://www.dslaboratories.com/revita |
| · | Majestic Pure: https://majesticpure.com/collections/hair-care |
| · | Zenagen: http://www.zenagen.com/ |
| · | Kevin Murphy: http://kevinmurphy.com.au/ |
| · | PURA D'OR https://www.purador.com/ |
| · | Procerin FoliRevita Kroning's Signature Neugaine Hairgenics |
Patents and Trademarks
We currently hold four trademarks properly registered in their respective jurisdiction. Specifically, we hold a trademark for “Reviv3 Procare” issued on November 1, 2016 as well as trademark for our logo that was registered on October 20, 2015. We also have our original logo trademarked for the Reviv3 Procare brand registered on March 17, 2015. In addition, we have registered the name “Reviv3 Procare” in the Russian Federation, issued on June 13, 2017. On August 17, 2017, we applied for the mark “LANU” for our new product line, which application is currently pending.
We do not have any additional trademarks, but as we establish new product lines, we will immediately file for trademark protection. Our formulas are proprietary, but we have not yet taken steps to establish a patent for our processes, formulations or products.
Governmental Regulation
Currently there are no governmental regulations which affect our operations.
Customers
The beauty industry is known to be resilient during economic downturns - even faring well during the Great Recession of 2008. Though consumers tend to be more price conscious during those times, they do not stop spending. In today’s environment of rising per capita incomes, the beauty business continues to be booming.
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In 2015 the industry generated $56.2 billion in the United States. Hair care is the largest segment with 86,000 locations. Skin care is a close second and growing fast, expected to have revenue of almost $11 billion by 2018. This growth is being driven in part by a generally increasing awareness of the importance of skin care, but also specifically due to an increase in the market for men.
Market and Revenue Generation
Reviv3 Procare is focused on expanding its business-to-business salon sales through its network of domestic and international distributors. We are also continuing our focus on direct-to-consumer marketing programs through our own ecommerce site and various third-party online platforms. In addition, we are exploring other revenue channels such as co-branding and private label manufacturing.
Employees
We currently have six (6) full time employees, including our officers and a director. There are no formal employment agreements in place. We have currently engaged four (4) individuals as outside consultants for sales, marketing and design. No formal agreements are in place.
Seasonality and Cyclical Nature of our Business
We do not believe our business is subject to substantial seasonal fluctuations. We may experience lower sales in difficult economic scenarios but we do not foresee the seasonality of our products to be a significant factor. In the future, seasonality trends could however have a material impact on our financial condition and results of operations but we are not currently aware of the total impact that could affect our business.
Our Office
Our principal executive office is located at 9480 Telstar Avenue, El Monte, CA 91731. Our telephone number is (888) 638-8883.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
We currently lease approximately 7,200 square feet of office and warehouse space at 9480 Telstar Avenue., Unit 5, El Monte, CA 91731 as our principal offices. We lease our offices pursuant to a written lease dated in September 2016. The term of our lease is from October 2016 and expiring in October 2019. Our current monthly base rent is $7,888. We believe these facilities are in good condition and satisfy our operational requirements. We intend to seek additional leased space, which will include some warehouse facilities, as our business efforts increase.
We are not aware of any pending or threatened legal proceedings in which we are involved.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our stock is listed for trading on the OTCQB market under the symbol "RVIV". The shares of common stock began trading in the first calendar quarter of 2019. There are no outstanding options or warrants to purchase, or securities convertible into, our common stock. There is currently no trading market for the Company.
On July 16, 2019, the closing price of our common stock as reported on the OTCQB market was $1.00 per share.
Securities outstanding and holders of record
On July 16, 2019, the total common shares issued and outstanding were 41,285,881, and we had 91 shareholders of record of our common stock.
Dividend Policy
We have never paid any cash dividends on our common stock. We anticipate that we will retain funds and future earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors that our Board of Directors deems relevant. There are no dividend restrictions that limit our ability to pay cash dividends on our common stock in our Articles of Incorporation or Bylaws.
Penny stock regulations and restrictions on marketability
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading, (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws, (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price, (d) contains a toll-free telephone number for inquiries on disciplinary actions, (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks, and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock, (b) the compensation of the broker-dealer and its salesperson in the transaction, (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock, and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
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In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling their shares of our common stock.
Securities authorized for issuance under equity compensation plans
We have not adopted any equity compensation plans and accordingly, we have not authorized any shares for issuance under an equity compensation plan.
Transfer Agent
West Coast Stock Transfer
721 N. Vulcan Ave. Ste. 205
Encinitas, CA 92024.
(619) 664-4780
www.westcoaststocktransfer.com
Recent Sales of Unregistered Securities
On May 13, 2019, the Company issued to a third-party investor 8,334 shares of common stock at $0.60 per share and received cash proceeds of $5,000.
The securities set forth above were sold pursuant to exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering. No general advertising or solicitation was used and the investors were purchasing the common stock for investment purposes only, without a view to resale. All issued securities were affixed with appropriate legends restricting sales and transfers.
ITEM 6. SELECTED FINANCIAL DATA.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with our financial statements and the notes thereto included in this Report beginning on page F-1. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
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Significant Accounting Policies
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. 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 deferred tax assets, the value of stock-based compensation, and the fair value of non-cash common stock issuances. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position. We believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others.
Emerging Growth Company
We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
- have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
- comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
- submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
- disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.
In addition, Section 107 of the JOBS Act also 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 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 elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
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Results of Operations
For the years ended May 31, 2019 and 2018
Our results of operations are summarized below.
| Year Ended May 31, 2019 | Year Ended May 31, 2018 | |||||||
| Net sales | $ | 992,670 | $ | 933,218 | ||||
| Cost of sales | $ | 553,017 | $ | 576,246 | ||||
| Gross profit | $ | 439,653 | $ | 356,972 | ||||
| Total operating expenses | $ | 589,283 | $ | 695,817 | ||||
| Loss from operations | $ | (149,640 | ) | $ | (338,845 | ) | ||
| Net loss | $ | (149,975 | ) | $ | (342,539 | ) | ||
Net sales increased by $59,452 or 6.4% for the year ended May 31, 2019, as compared to the year ended May 31, 2018, primarily due to the organic increase in our direct sales to consumer segment.
Cost of sales includes primarily the cost of products and freight-in costs. For the year ended May 31, 2019, the overall cost of sales decreased by $23,229 or 4.0%, as compared to the comparable period in 2018. Cost of sales as a percentage of net revenues for the year ended May 31, 2019 was 55.7% as compared to 61.7% for the comparable period in 2018. The overall decrease in cost of sales is primarily attributable to the Company’s increased efficiencies in procurement and manufacturing systems.
Gross profit for the years ended May 31, 2019 and 2018 was 44.3% and 38.3%, respectively. The increase in gross profit margin is primarily attributable to the overall reduction in cost of sales due to negotiated product costs during the year ended May 31, 2019 as compared to the same comparable period in 2018, and our increased focus on the direct sales to consumer channels.
Operating expenses for the years ended May 31, 2019 and 2018 were $589,293 and $695,817, respectively. Operating expenses are costs related to marketing and selling expenses, compensation and related taxes, professional and consulting fees, and general and administrative costs. Operating expenses as a percentage of net revenues for the year ended May 31, 2019 were 59.4% as compared to 74.6% for the comparable period in 2018. Operating expenses decreased by $106,534 or 15.3% primarily due to a reduction of $99,684 in consulting expenses related to business advisory services by independent consultants, reduction of $31,226 in legal and accounting fees, and increase in operational efficiencies by better managing the operations of the Company. Our operating expense decreases were partially offset by increase of $16,366 in rent expense and $18,921 in expenses related to our public filings.
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Liquidity and Capital Resources
For the Years ended May 31, 2019 and 2018
The following table provides detailed information about our net cash flows:
For the Ended | For the Ended | |||||||
| Cash Flows | ||||||||
| Net cash used in operating activities | $ | (175,040 | ) | $ | (468,490 | ) | ||
| Net cash used in investing activities | (14,361 | ) | (4,123 | ) | ||||
| Net cash provided by financing activities | 307,710 | 283,610 | ||||||
| Net change in cash | $ | 118,309 | $ | (189,003 | ) | |||
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 fiscal year 2020. This raises substantial doubt about our ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Operating Activities
For the Years ended May 31, 2019 and 2018
Net cash used in operating activities for the year ended May 31, 2019 was $175,040, attributable to a net loss of $149,975 offset by depreciation expense of $5,933, bad debts expense of $5,452, gain on inventory obsolescence of $1,551, stock based compensation expense of $5,000, and a net decrease in operating assets and liabilities of $39,899 primarily due to increase in accounts receivable offset by decrease in inventory and accounts payable and accrued expenses.
Net cash used in operating activities for the year ended May 31, 2018 was $468,490, attributable to a net loss of $342,539 offset by depreciation expense of $3,029, bad debt expense of $1,962, inventory obsolescence of $5,562, stock-based compensation expense $32,089, and by net decrease in operating assets and liabilities of $168,593 primarily from an increase in inventory and increase in accounts payable and accrued expenses.
Investing Activities
For the Years ended May 31, 2019 and 2018
Net cash used in investing activities for the year ended May 31, 2019 was $14,361 primarily due to the purchase of property and equipment of $13,887 and intangible assets of $474.
Net cash used in investing activities for the year ended May 31, 2018 was $4,123 consisting of purchase of property and equipment.
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Financing Activities
For the Years ended May 31, 2019 and 2018
Net cash provided by financing activities for the year ended May 31, 2019 was $307,710 primarily attributable to the net cash proceeds from sale of common stock of $309,000, and repayment of equipment financing of $1,290.
Net cash provided by financing activities for the year ended May 31, 2018 was $283,610 primarily attributable to the net cash proceeds from sale of common stock of $283,400 and cash received as advance from a related party of $210.
We currently have no external sources of liquidity or credit arrangements with financial institutions 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 maintain 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.
Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Please see our Financial Statements and Exhibits under Item 15 below.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no disagreements on accounting and financial disclosures from the inception of our Company through the date of this Form 10-K. Salberg & Company, P.A., our independent registered public accounting firm, has audited our financial statements for the fiscal years ended May 31, 2019 and 2018, respectively.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the "Evaluation"), under the supervision and with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures ("Disclosure Controls") as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms due to material weaknesses in our internal controls described below.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
CEO and CFO Certifications
Appearing immediately following the Signatures section of this report there are Certifications of the CEO and the CFO. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which you are currently reading is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
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Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our management assessed the effectiveness of our internal control over financial reporting as of May 31, 2019. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework issued in 2013. Based on our assessment, we believe that, as of May 31, 2019, our internal control over financial reporting was not effective based on those criteria.
Management's assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:
| - | Insufficient number of qualified accounting personnel governing the financial close and reporting process |
| - | Lack of independent directors |
| - | Lack of proper segregation of duties |
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during the fiscal year ended May 31, 2019, which have affected, or are reasonably likely to affect, our internal control over financial reporting.
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Officers and Directors
Our officers are elected by the board of directors to a term of one (1) year and serves until their successor is duly elected and qualified, or until they are removed from office. The board of directors has no nominating, auditing or compensation committees.
The names, ages and positions of our present officers and director are set forth below:
| NAME | AGE | POSITION | ||||
| Jeff Toghraie | 51 | Chief Executive Officer and Chairman | ||||
| Christopher Go | 45 | Interim Chief Financial Officer and Secretary | ||||
| Jeff Brown | 36 | Chief Operating Officer | ||||
| Donald Starace | 64 | President | ||||
| Nancy Hundt | 50 | Director | ||||
Background of officers and directors
Jeff Togharie – Chairman of the Board of Directors, Chief Executive Officer
Jeff Toghraie has been the Chairman of our board since 2015 and our Chief Executive Officer since 2016. Mr. Toghraie is currently the Managing Director of Intrepid Global Advisors, one of our principal shareholders. Mr. Toghraie joined Intrepid Global Advisors in 2010 and is a principal of that firm. During the past 5 years, Mr. Toghraie has been involved with various privately held development stage companies as a director and/or advisory positions.
Jeff Brown – Chief Operating Officer
Jeff Brown, our Chief Operating Officer, joined the Company in March of 2017. From 2015 to 2017, Mr. Brown held consulting positions at Polar Solar Inc., a company responsible for making commercial solar panels available to the residential market and Mind Fitness Lab, a technology company that developed and distributed mobile applications for mental health professionals. From 2012 to 2015, he was the President of RNA Pro, a company that distributed agricultural supplements. Mr. Brown holds an MBA from Pepperdine University and received his bachelor’s degree from University of California, Irvine.
Christopher Go – Interim Chief Financial Officer and Secretary
Christopher Go has served as our interim Chief Financial Officer since April 9, 2019 and Corporate Secretary since 2015. From 2009-2012, Mr. Go was the Vice-President of Operations for TEN Media, a funded food safety & traceability platform involving Walmart, Safeway, Cal-Marine, Dutch Farms, USDA, FDA & Yucaipa Companies. From 1996-1998, Mr. Go was staff architect for WAT&G.
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Donald Starace – President
Mr. Starace has been the President of Reviv3 Procare since February 2015. Mr. Starace has over forty years of dedicated service in the beauty industry. Mr. Starace started his career in some of New York’s most prestigious salons, followed by ten years at Nioxin Research Labs and subsequently Proctor & Gamble in Sales and Education. Mr. Starace owned and operated various businesses through his career including roles in starting the Bank of New Jersey, which currently holds 10 locations, and has assets over $865 million. He was one of the initial investors for the bank and was very influential in raising capital. He also facilitated bringing Taiff (Brazil) professional appliances to the hair industry in the U.S. and Canada. Mr. Starace most recently was appointed as a member of the Board of Adjustments for the Borough of Fort Lee, New Jersey.
Nancy Hundt - Director
Nancy Hundt has served as a director of Reviv3 Procare since May of 2015. Ms. Hundt has a diverse background in the retail industry and has served as a representative of the American Board of Opticianery, an optical industry retail group. Ms. Hundt serves as a consultant and a retail sales expert, and has served over the last five years as Chief Operating Officer of Academy Optical, Inc.
Conflicts of Interest
We believe that our current officers and directors will not be subject to conflicts of interest. No policy has been implemented or will be implemented to address conflicts of interest.
Involvement in Certain Legal Proceedings
We are not aware of any pending or threatened legal proceedings in which the aforementioned individuals are involved.
During the past ten years, no member of our management team or board of directors have not been the subject of the following events:
| 1) | A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; |
| 2) | Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| 3) | The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities; |
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| i) | Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; |
| ii) | Engaging in any type of business practice; or |
| iii) | Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws; |
| 4) | The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity; |
| 5) | Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated; |
| 6) | Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; |
| 7) | Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: |
| i) | Any Federal or State securities or commodities law or regulation; or |
| ii) | Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or |
| iii) | Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| 8) | Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
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Corporate Governance
Our officers and directors, Jeff Toghraie and Nancy Hundt are not “independent directors” as the term is used in Item 7(d) (3) (iv) (B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule 4200(a) (15) of the NASDAQ Marketplace Rules because they are employed by the company.
We do not have any standing audit, nominating and compensation committees of the board of directors, or committees performing similar functions. We do not currently have a Code of Ethics applicable to our principal executive, financial or accounting officer. All Board actions have been taken by Written Action rather than formal meetings.
Audit Committee and Audit Committee Financial Expert
We do not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on its board of directors. All current members of the board of directors lack sufficient financial expertise for overseeing financial reporting responsibilities. We have not yet employed an audit committee financial expert due to the inability to attract such a person. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive for the Company. Further, because we are expanding our commercial operations at the present time, we believe the services of a financial expert are not warranted.
We intend to establish an audit committee of the Board of Directors, which will consist of independent directors. The audit committee's duties will be to recommend to our board of directors the engagement of an independent registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in our opinion, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of the code of ethics was filed as Exhibit 14.1 on our Form S-1 Registration Statement as filed with the Securities and Exchange Commission on October 7, 2010.
Disclosure Committee and Charter
We do not have a disclosure committee and disclosure committee charter. We plan to establish a Disclosure Committee and will operate under a charter. The purpose of a disclosure committee would be to provide assistance to the Principal Executive Officer and the Principal Financial Officer in fulfilling their responsibilities regarding the identification and disclosure of material information about us and the accuracy, completeness and timeliness of our financial reports.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, or written representations that no other reports were required, and to the best of our knowledge, we believe that all of our officers, directors, and owners of 10% or more of our common stock filed all required Forms 3, 4, and 5.
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ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid by us for the last two fiscal years ended May 31, 2019 and 2018, to our officers. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. The compensation discussed addresses all compensation awarded to, earned by, or paid to our named executive officers.
Summary Compensation Table
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
|
Name and Principal Position [1] |
Year |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Change in Pension Value & Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Totals ($) | |||||||||||||||||||||||||||
| Jeff Toghraie | 2019 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| 2018 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Jeff Brown | 2019 | 50,000 | — | — | — | — | — | — | 50,000 | |||||||||||||||||||||||||||
| 2018 | 47,080 | — | — | — | — | — | — | 47,080 | ||||||||||||||||||||||||||||
| Donald Starace | 2019 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| 2018 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Christopher Go | 2019 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| 2018 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
The following table sets forth the compensation paid by us to our directors for the fiscal year ending May 31, 2019. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. The compensation discussed addresses all compensation awarded to, earned by, or paid to our named director.
Director Compensation Table
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||||||||||||||||
| Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) | |||||||||||||||||||||
| Jeff Toghraie | — | — | — | — | — | — | — | |||||||||||||||||||||
| Nancy Hundt | — | — | — | — | — | — | — | |||||||||||||||||||||
All compensation received by our officers and directors has been disclosed.
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We have/not paid any compensation to our directors in fiscal years 2019 and 2018.
There are no stock option, retirement, pension, or profit sharing plans for the benefit of our officers and directors.
Director Independence
None of directors are deemed independent as a matter of law.
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance at this time.
Indemnification
Under our Articles of Incorporation and Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a law suit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Delaware.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against policy, as expressed in the Act and is, therefore, unenforceable.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the ownership, as of the date of this annual report, of our common stock by each person known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock, our directors, and our executive officers as a group. The persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control.
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within sixty (60) days through the conversion or exercise of any convertible security, warrant, option or other right. More than one (1) person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within sixty (60) days, by the sum of the number of shares outstanding as of such date. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown.
|
Title of Class |
Name/Position |
Beneficial Ownership |
Percentage Of Class |
| Executive Beneficial Owners | |||
| Common | Jeff Toghraie/Chairman and CEO (1) | 9,294,000 | 22.51% |
| Common | Jeff Brown | 9,000 | 0.02% |
| Common | Christopher Go/Interim CFO, Secretary (2) | 1,025,709 | 2.48% |
| Common | Nancy Hundt (3) | 2,600,000 | 6.30% |
| All Officers and Directors | 12,928,709 | 31.31% | |
| Non-Executive Beneficial Owners | |||
| Common | Axon Capital Management, Inc. (4) | 3,535,000 | 8.56% |
| Common | Charter Capital Partners (5) | 3,600,000 | 8.72% |
| Common | Shircoo, Inc. (6) | 13,385,000 | 32.42% |
| All Non-Executive Beneficial Owners | 20,520,000 | 49.70% | |
| All Beneficial Owners | 33,448,709 | 81.01% | |
| (1) | Jeff Toghraie, our Chairman and CEO, is the sole beneficiary of Intrepid Global Advisors, which holds 9,294,000 shares of common capital stock of the Company. |
| (2) | Christopher Go, our interim CFO and Secretary, is the Managing Partner of Titan HG, LLC, which holds 1,025,709 shares of common capital stock of the Company. |
| (3) | Nancy Hundt holds the shares personally, residing at 31569 Lindero Canyon Rd., #3, Westlake Village, CA 91361 |
| (4) | Sam Toghraie who is the brother of Jeff Toghraie, our Chairman and CEO, is a partner at Axon Capital Management, Inc. Axon Capital Management, Inc. has offices at 5490 Whister Ct., Chino Hills, CA 91709 |
| (5) | Charter Capital Partners is managed by its Managing Partner, Parvan Riazi. Charter Capital Partners maintains offices at 1964 Laurel Wood Ct., Thousand Oaks, CA 91362 |
| (6) | Shircoo, Inc. is managed by Max Toghraie, its Managing Partner who is the brother of our Chairman and CEO, Jeff Toghraie. Shircoo, Inc. maintains offices at 2350 E. Allview Terrace, Los Angeles, CA 90068 |
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Future sales by existing stockholders
Rule 144 of the Securities Act of 1933, as amended, (the "Act") is available for the resale of our shares of common stock because we are no longer categorized as a "shell company" as that term is defined in Reg. 405 of the Act. A "shell company" is a corporation with no or nominal assets or its assets consist solely of cash, and no or nominal operations.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The Company’s Chief Executive Officer, from time to time, provided advances to the Company for working capital purposes. At May 31, 2019 and 2018, the Company had a payable to the officer of $0 and $210, respectively. These advances were short-term in nature and non-interest bearing.
On September 29, 2017, the Company sold 375,000 shares of its common stock to an affiliated company at $0.40 per common share for proceeds of approximately $150,000. The affiliated company is managed by the brother of the Company’s Chief Executive Officer.
During the year ended May 31, 2018, the Company paid $10,100 to an affiliated company for advisory services rendered. The affiliated company is managed by the Company’s Chief Executive Officer.
During the year ended May 31, 2018, the Company paid a total of $15,430 to an affiliated company for advisory services rendered. The related party is an affiliated company managed by the brother of the Company’s Chief Executive Officer.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees
All of the services provided and fees charged by Salberg & Company, P.A. (“Salberg”), were approved by our Board who also acted as the Audit Committee. The following table shows us the fees paid to Salberg, our principal accountant for the years ended May 31, 2019 and 2018 were:
| Year Ended May 31, 2019 | Year Ended May 31, 2018 | |||||||
| Audit fees (1) | $ | 42,500 | $ | 42,500 | ||||
| Audit related fees (2) | 2,300 | 3,400 | ||||||
| Tax fees | — | — | ||||||
| All other fees | — | — | ||||||
| Total | $ | 44,800 | $ | 45,900 | ||||
| (1) | Audit fees - these fees relate to the audit of our annual financial statements and the review of our interim quarterly financial statements. |
| (2) | Audit related fees - these fees relate to consulting services for filings on Form S-1. |
Our audit committee's pre-approval policies and procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1) Financial Statements
REVIV3 PROCARE COMPANY
FINANCIAL STATEMENTS
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INDEX TO FINANCIAL STATEMENTS
May 31, 2019 and 2018
CONTENTS
| Report of Independent Registered Public Accounting Firm | F-2 |
| Financial Statements: | |
| Balance Sheets - As of May 31, 2019 and 2018 | F-3 |
| Statement of Operations - For the years ended May 31, 2019 and 2018 | F-4 |
| Statement of Changes in Stockholders’ Equity - For the years ended May 31, 2019 and 2018 | F-5 |
| Statement of Cash Flows – For the years ended May 31, 2019 and 2018 | F-6 |
| Notes to Financial Statements | F-7 |
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of:
Reviv3 Procare Company
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Reviv3 Procare Company (the “Company”) as of May 31, 2019 and 2018, the related statements of operations, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended May 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2019 and 2018 and the results of its operations and its cash flows for each of the two years in the period ended May 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a net loss and cash used in operations of $149,975 and $175,040, respectively, in 2019 and has an accumulated deficit of $4,638,142 at May 31, 2019. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan in regards to these matters is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
We have served as the Company’s auditor since 2017
Boca Raton, Florida
July 17, 2019
2295 NW Corporate Blvd., Suite 240 • Boca Raton, FL 33431-7328
Phone: (561) 995-8270 • Toll Free: (866) CPA-8500 • Fax: (561) 995-1920
www.salbergco.com • info@salbergco.com
Member National Association of Certified Valuation Analysts • Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide • Member AICPA Center for Audit Quality
F-2
REVIV3 PROCARE COMPANY
BALANCE SHEETS
| May 31, 2019 | May 31, 2018 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 346,179 | $ | 227,870 | ||||
| Accounts receivable, net | 79,588 | 29,991 | ||||||
| Inventory, net | 264,578 | 321,537 | ||||||
| Advance to suppliers | — | 3,413 | ||||||
| Prepaid expenses and other current assets | 2,993 | 3,505 | ||||||
| Total Current Assets | 693,338 | 586,316 | ||||||
| OTHER ASSETS: | ||||||||
| Intangible assets, net | 474 | — | ||||||
| Property and equipment, net | 32,803 | 8,349 | ||||||
| Deposits | 14,849 | 14,849 | ||||||
| Total Other Assets | 48,126 | 23,198 | ||||||
| TOTAL ASSETS | $ | 741,464 | $ | 609,514 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 32,471 | $ | 79,759 | ||||
| Customer deposits | 16,203 | 16,200 | ||||||
| Due to related party | 210 | 210 | ||||||
| Equipment financing payable, current | 3,300 | — | ||||||
| Total Current Liabilities | 52,184 | 96,169 | ||||||
| LONG TERM LIABILITIES: | ||||||||
| Equipment financing payable | 11,910 | — | ||||||
| Total Liabilities | 64,094 | 96,169 | ||||||
| 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; 41,285,881 shares issued and outstanding as of May 31, 2019 and 40,505,047 shares issued and outstanding as of May 31, 2018 | 4,129 | 4,051 | ||||||
| Additional paid-in capital | 5,311,383 | 4,997,461 | ||||||
| Accumulated deficit | (4,638,142 | ) | (4,488,167 | ) | ||||
| Total Stockholders' Equity | 677,370 | 513,345 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 741,464 | $ | 609,514 | ||||
See accompanying notes to financial statements.
F-3
REVIV3 PROCARE COMPANY
STATEMENTS OF OPERATIONS
| For the Year Ended | ||||||||
| May 31, 2019 | May 31, 2018 | |||||||
| SALES | $ | 992,670 | $ | 933,218 | ||||
| COST OF SALES | 553,017 | 576,246 | ||||||
| GROSS PROFIT | 439,653 | 356,972 | ||||||
| OPERATING EXPENSES: | ||||||||
| Marketing and selling expenses | 94,130 | 91,198 | ||||||
| Compensation and related taxes | 29,694 | 30,515 | ||||||
| Professional and consulting expenses | 198,344 | 352,945 | ||||||
| General and administrative | 267,125 | 221,159 | ||||||
| Total Operating Expenses | 589,293 | 695,817 | ||||||
| LOSS FROM OPERATIONS | (149,640 | ) | (338,845 | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest income | 136 | 118 | ||||||
| Interest expense and other finance charges | (471 | ) | (3,812 | ) | ||||
| Other Income (Expense), Net | (335 | ) | (3,694 | ) | ||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | (149,975 | ) | (342,539 | ) | ||||
| Provision for income taxes | — | — | ||||||
| NET LOSS | $ | (149,975 | ) | $ | (342,539 | ) | ||
| NET LOSS PER COMMON SHARE - Basic and diluted | $ | (0.00 | ) | $ | (0.01 | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and diluted | 40,926,376 | 40,257,592 | ||||||
See accompanying notes to financial statements.
F-4
REVIV3 PROCARE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED MAY 31, 2019 AND 2018
| Additional | Total | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, May 31, 2017 | — | $ | — | 39,679,047 | $ | 3,968 | $ | 4,694,144 | $ | (4,145,628 | ) | $ | 552,484 | |||||||||||||||
| Issuance of common stock for services | — | — | 80,000 | 8 | 19,992 | — | 20,000 | |||||||||||||||||||||
| Issuance of common stock for cash | — | — | 746,000 | 75 | 283,325 | — | 283,400 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (342,539 | ) | (342,539 | ) | |||||||||||||||||||
| Balance, May 31, 2018 | — | — | 40,505,047 | 4,051 | 4,997,461 | (4,488,167 | ) | 513,345 | ||||||||||||||||||||
| Issuance of common stock for cash | — | — | 768,334 | 77 | 308,923 | — | 309,000 | |||||||||||||||||||||
| Issuance of common stock for services | — | — | 12,500 | 1 | 4,999 | — | 5,000 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (149,975 | ) | (149,975 | ) | |||||||||||||||||||
| Balance, May 31, 2019 | — | $ | — | 41,285,881 | $ | 4,129 | $ | 5,311,383 | $ | (4,638,142 | ) | $ | 677,370 | |||||||||||||||
See accompanying notes to financial statements.
F-5
REVIV3 PROCARE COMPANY
STATEMENTS OF CASH FLOWS
| For the Year Ended | ||||||||
| May 31, 2019 | May 31, 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (149,975 | ) | $ | (342,539 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 5,933 | 3,029 | ||||||
| Bad debts | 5,452 | 1,962 | ||||||
| Inventory obsolescence | (1,551 | ) | 5,562 | |||||
| Stock based compensation | 5,000 | 32,089 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (55,048 | ) | 750 | |||||
| Inventory | 58,510 | (197,305 | ) | |||||
| Advance to suppliers | 3,413 | 12,722 | ||||||
| Prepaid expenses and other current assets | 512 | 2,496 | ||||||
| Accounts payable and accrued expenses | (47,286 | ) | 16,790 | |||||
| Customer deposits | — | (4,046 | ) | |||||
| NET CASH USED IN OPERATING ACTIVITIES | (175,040 | ) | (468,490 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of intangible assets | (474 | ) | — | |||||
| Purchase of property and equipment | (13,887 | ) | (4,123 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (14,361 | ) | (4,123 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Issuance of common stock for cash | 309,000 | 283,400 | ||||||
| Repayment of equipment financing | (1,290 | ) | — | |||||
| Advances from a related party | — | 210 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 307,710 | 283,610 | ||||||
| NET INCREASE (DECREASE) IN CASH | 118,309 | (189,003 | ) | |||||
| CASH - Beginning of year | 227,870 | 416,873 | ||||||
| CASH - End of year | $ | 346,179 | $ | 227,870 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 471 | $ | — | ||||
| Income taxes | $ | — | $ | — | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Issuance of common stock for prepaid services | $ | — | $ | 20,000 | ||||
| Financing of equipment | $ | 16,500 | $ | — | ||||
See accompanying notes to financial statements.
F-6
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
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
Going Concern
These financial statements have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities in the normal course of business. As reflected in the accompanying financial statements, the Company has a net loss and net cash used in operations of $149,975 and $175,040, respectively, for the year ended May 31, 2019. Additionally, the Company has an accumulated deficit of $4,638,142 at May 31, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the issuance date of this report. The ability of the Company to continue as a going concern is dependent on the Company’s ability to implement its business plan, raise capital, and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. Management intends to raise additional funds by way of a private or public offering. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use of estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates made by management include, but are not limited to, the allowance for doubtful accounts, inventory valuations, the useful life of property and equipment, 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.
F-7
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
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 $2,993 and $3,505 at May 31, 2019 and 2018, respectively, consist primarily of costs paid which will be consumed within a year. Prepaid expenses at May 31, 2019 and 2018 primarily included cash prepayments to vendors.
Advances to suppliers
Advances to a supplier represents the cash paid in advance for installment payments for the purchase of inventory. The advances to a supplier are interest free and unsecured. Upon shipment of the purchase inventory, the Company reclassifies such advances to supplier into inventory.
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-8
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
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. The Company’s contracts do not involve financing elements as payment terms with the customers are less than one year. Further, the Company allows sales returns which have been minimal historically. See Note 11 for revenue disaggregation disclosures.
Cost of Sales
The primary components of cost of sales include the cost of the product and freight-in costs.
Shipping and Handling Costs
The Company accounts for shipping and handling fees in accordance with ASC 606. While amounts charged to customers for shipping products are included in revenues, the related costs of shipping products to customers are classified in marketing and selling expenses as incurred. Shipping costs included in marketing and selling expense were $41,825 and $37,403 for the years ended May 31, 2019 and 2018, respectively.
Advertising
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.
F-9
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
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. 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 and the fair value of equipment financing payable approximates the historical cost basis since it carries a market rate of interest.
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.
F-10
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment losses during the years ended May 31, 2019 and 2018.
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.
Effective June 1, 2018, the Company adopted the proposed update to ASC 718 whereby, the accounting for share-based payments to nonemployees and employees is substantially aligned. The ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that the Company is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. The adoption of the standard did not have a material impact on the financial statements of the Company and there was no cumulative effect of the adoption.
Net loss per share of common stock
Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares during the period. Diluted net loss per share is computed using the weighted average number of common shares and potentially dilutive securities outstanding during the period. At May 31, 2019 and 2018, the Company had no potentially dilutive securities outstanding.
F-11
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“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. 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 will generally be flat (straight-line) throughout the life of the lease. For finance leases, periodic expense will decline (similar to capital leases under prior rules) over the life of the lease. As initially issued, the new standard required adoption using a modified retrospective transition method. As amended, the new standard also provides an option for entities to use the cumulative-effect transition method. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. As permitted, the Company adopted ASC Topic 842 effective June 1, 2019 using the optional cumulative-effect transition method. The adoption of ASC Topic 842 did not have a material impact on the Company’s financial statements or on its internal control over financial reporting and there was no cumulative effect adjustment.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure requirements on fair value measurements under ASC Topic No. 820, Fair Value Measurement, as amended (“ASC 820”). For public companies, ASU 2018-13 removes (a) the prior requirement to disclose the amount and reason for transfers between Level 1 and Level 2 of the fair value hierarchy (please see Note 3 below for discussion of the three-level hierarchy for measuring fair value), (b) the policy for timing of transfers between levels, and (c) the valuation processes used for level 3 fair value measurements. For public companies, ASU 2018-13 also adds, among other things, a requirement to disclose the range and weighted average of significant unobservable inputs used in Level 3 fair value measurements. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption was permitted upon issuance of ASU 2018-13. The Company has not adopted ASU 2018-13 and, based on its preliminary assessment, does not believe the impact of adoption will be material 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-12
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 3 – Accounts Receivable
Accounts receivable, consisted of the following:
| May 31, 2019 | May 31, 2018 | |||||||
| Accounts Receivable | $ | 82,365 | $ | 32,733 | ||||
| Less: Allowance for doubtful debts | (2,777 | ) | (2,742 | ) | ||||
| $ | 79,588 | $ | 29,991 | |||||
The Company recorded bad debt expense of $5,452 and $1,962 during the years ended May 31, 2019 and 2018, respectively.
Note 4 – Inventory
Inventory consisted of the following:
| May 31, 2019 | May 31, 2018 | |||||||
| Finished Goods | $ | 69,256 | $ | 113,134 | ||||
| Raw Materials | 195,322 | 208,403 | ||||||
| $ | 264,578 | $ | 321,537 | |||||
At May 31, 2019 and 2018, inventory held at third party locations amounted to $13,176 and $64,485, respectively. At May 31, 2019 and 2018, inventory in transit amounted to $3,450 and $0, respectively. During the year ended May 31, 2018, Management abandoned $3,285 of inventory held at a former distributor at a foreign location outside of the United States as it was not cost efficient to import the inventory back into the United States. The $3,285 is included in cost of sales for the year ended May 31, 2018.
During fiscal 2019 and 2018, the Company wrote down inventory for obsolescence of $0 and $5,562, respectively, which is included in cost of sales. During 2019, the Company recovered $1,551 of previously written off inventory.
Note 5 – Property and Equipment
Property and equipment, stated at cost, consisted of the following:
| Estimated Life | May 31, 2019 | May 31, 2018 | ||||||||
| Furniture and Fixtures | 5 years | $ | 5,759 | $ | 5,759 | |||||
| Computer Equipment | 3 years | 17,392 | 7,495 | |||||||
| Plant Equipment | 5-10 years | 20,490 | — | |||||||
| Less: Accumulated Depreciation | (10,838 | ) | (4,905 | ) | ||||||
| $ | 32,803 | $ | 8,349 | |||||||
Depreciation expense amounted to $5,933 and $3,029 for the years ended May 31, 2019 and 2018, respectively.
F-13
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 6 – Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses comprised of the following:
| May 31, 2019 | May 31, 2018 | |||||||
| Trade Payables | $ | 14,610 | $ | 41,320 | ||||
| Accrued Freight | — | 22,532 | ||||||
| Credit Cards | 14,407 | 15,521 | ||||||
| Other | 3,454 | 386 | ||||||
| $ | 32,471 | $ | 79,759 | |||||
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 instalment payments of $317 comprising of principal payment of $275 and interest payment of $42. As of May 31, 2019, the balance outstanding on the loan was $15,210 of which $3,300 is payable within one year and the balance $11,910 is payable after one year. The Company recorded an interest expense of $167 on the loan in the accompanying financial statements.
The amounts of loan payments due in the next five years ended May 31, are as follows:
| 2020 | $ | 3,300 | ||||
| 2021 | 3,300 | |||||
| 2022 | 3,300 | |||||
| 2023 | 3,300 | |||||
| 2024 | 2,010 | |||||
| $ | 15,210 |
F-14
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 8 – 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
In June 2017, the Company issued an aggregate of 80,000 shares of the Company’s common stock to various consultants pursuant to consulting agreements related to marketing and business advisory services. The term of the consulting agreements ranges from 2 months to 6 months. The Company valued these common shares at the fair value of $20,000 based on the sale of common stock in the recent private placements at $0.25 per common share. In connection with the issuance of these common shares, the Company recorded stock-based compensation of $20,000.
On September 26, 2017, the Company sold 100,000 shares of its common stock at $0.25 per common share for proceeds of $25,000.
Between September 27, 2017 and October 2, 2017, the Company sold an aggregate of 271,000 shares of its common stock at $0.40 per common share for proceeds of $108,400.
On September 29, 2017, the Company sold 375,000 shares of its common stock to an affiliated company at $0.40 per common share for proceeds of $150,000. The affiliated company is managed by the brother of the Company’s Chief Executive Officer.
During 2018, the Company recognized $12,089 of stock compensation expense amortized from grants which occurred in 2017.
On October 17, 2018, the Company issued to a third-party investor 250,000 shares of common stock at $0.40 per share and received cash proceeds of $100,000.
On November 26, 2018, the Company issued to third party investors 510,000 shares of common stock at $0.40 per share and received cash proceeds of $204,000.
On November 30, 2018, the Company issued 12,500 shares of its common stock to a consultant for services provided to the Company. The shares were valued at their fair value of $0.40 per share or $5,000, based on the Company’s then recent common stock sales.
On May 13, 2019, the Company issued to a third-party investor 8,334 shares of common stock at $0.60 per share and received cash proceeds of $5,000.
As of May 31, 2019, 41,285,881 shares of common stock were outstanding.
F-15
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 9 – Commitments and Contingencies
In September 2016, the Company executed a lease agreement in connection with its office and warehouse facility in California under operating leases for a period of 37 months commencing in October 2016 and expiring in October 2019. The Company shall pay a monthly base rent starting at $6,782 plus a pro rata share of operating expenses. The base rent is subject to an annual increase beginning in October 2017 as defined in the lease agreement. Rent expense amounted to $94,869 and $78,503 for the years ended May 31, 2019 and 2018, respectively. Future minimum rental payments required under this operating lease are as follows:
| Total | 1 Year | 2-3 Year | Thereafter | |||||||||||||
| Operating Lease | $ | 36,266 | $ | 36,266 | $ | — | $ | — | ||||||||
| Total | $ | 36,266 | $ | 36,266 | $ | — | $ | — | ||||||||
In November 2017, the Company had executed an Agreement with a third party located in Hong Kong, China, whereby the third party shall promote, market, distribute and resell the Company’s products to end-user consumers through direct online sales or third party e-commerce platforms in the following territories: Hong Kong, Macau, and the People’s Republic of China. The term of the agreement was for 36 months from the effective date. Parties shall have the right to terminate this agreement, with or without cause, upon 60 days prior written notice. For services provided in connection with this agreement, the Company shall pay the third party 16.5% of the gross revenues generated from sales channels initiated and subsequently maintained by the third party or $3,300 per month, whichever is greater. In February 2018, the Company terminated this Agreement.
Note 10 – Related Party Transactions
The Company’s Chief Executive Officer, from time to time, provided advances to the Company for working capital purposes. At May 31, 2019 and 2018, the Company had a payable to the officer of $210. These advances are due on demand and non-interest bearing.
On September 29, 2017, the Company sold 375,000 shares of its common stock to an affiliated company at $0.40 per common share for proceeds of approximately $150,000. The affiliated company is managed by the brother of the Company’s Chief Executive Officer.
During the year ended May 31, 2018, the Company paid $10,100 to an affiliated company for advisory services rendered. The affiliated company is managed by the Company’s Chief Executive Officer.
During the year ended May 31, 2018, the Company paid a total of $15,430 to an affiliated company for advisory services rendered. The related party is an affiliated company managed by the brother of the Company’s Chief Executive Officer.
F-16
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 11 – Concentrations
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable and cash deposits, investments and cash equivalents instruments. The Company maintains its cash in bank deposits accounts. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At May 31, 2019 and 2018, the Company held cash of approximately $102,454 and $0, respectively, in excess of federally insured limits. The Company has not experienced any losses in such accounts through May 31, 2019.
Concentration of Revenue, Product Line, and Supplier
During the year ended May 31, 2019 sales to two customers represented approximately 54% of the Company’s net sales at 44% and 10%. During the year ended May 31, 2018 sales to three customers represented approximately 67% of the Company’s net sales at 45%, 11% and 11%
During the year ended May 31, 2019 sales to customers outside the United States represented approximately 26% which consisted of 19% from Canada, 3% from Hong Kong, 3% from Italy and 1% from United Kingdom, for the year ended May 31, 2018, sales to customers outside the United States represented approximately 28% which consisted of 21% from Canada and 7% from Italy.
During the year ended May 31, 2019, sales by product line which each represented over 10% of sales consisted of approximately 14% from sales of hair shampoo, 39% from sales of hair shampoo and conditioner, 10% from sale of moisturizer and conditioner and 17% from sale of introductory kit (shampoo, conditioner and treatment spray). During the year ended May 31, 2018, sales by product line which each represented over 10% of sales consisted of approximately 34% from sales of hair shampoo, 29% from sales of hair shampoo and conditioner, 13% from sale of hair treatment and repair products and 19% from sale of introductory kit (shampoo, conditioner and treatment spray).
During the year ended May 31, 2019, sales by product line comprised of the following:
| Product | Amount | |||
| Prep Cleanser and Shampoo | $ | 140,659 | ||
| Moisturizer and Conditioner | 96,530 | |||
| Treatment Spray | 48,969 | |||
| Cellular Complex | 45,470 | |||
| Hair Masque | 34,959 | |||
| Thickening Spray | 29,131 | |||
| Introductory Kit | 170,894 | |||
| Fragrance Shampoo and Conditioner | 382,438 | |||
| Thermal Protect | 20,570 | |||
| Bundle | 20,759 | |||
| Others | 2,291 | |||
| Total | $ | 992,670 | ||
As of May 31, 2019, accounts receivable from five customers represented approximately 94% at 30%, 23%, 14%, 14% and 13%, and at May 31, 2018 from four customers represented approximately 60% at 34%, 14% and 12% of the accounts receivable, respectively.
The Company purchased inventories and products from three vendors totaling approximately $311,500 (76% of the purchases at 38%, 27% and 11%) and one vendor totaling $412,000 (60% of the purchases) during the years ended May 31, 2019 and 2018, respectively.
F-17
REVIV3 PROCARE COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2019 AND 2018
Note 12 – Income taxes
The Company has incurred aggregate net operating losses of approximately $1,100,000 for income tax purposes as of May 31, 2019. The net operating loss carries forward for United States income taxes, which may be available to reduce future years’ taxable income. Management believes that the realization of the benefits from these losses appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as necessary.
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income were as follows:
| For the Year Ended May 31, | ||||||||
| 2019 | 2018 | |||||||
Expected Federal tax benefit computed at statutory rate of 34% | $ | — | $ | (116,500 | ) | |||
Expected Federal tax benefit computed at statutory rate of 21% | (31,500 | ) | — | |||||
Expected state tax benefit of 9% | (13,500 | ) | (30,800 | ) | ||||
| Change in Federal tax rate at 21% | — | 125,500 | ||||||
| Non-deductible expenses: Stock-based compensation | 1,500 | 13,800 | ||||||
| Increase in valuation allowance | 43,500 | 8,000 | ||||||
| Net income tax benefit | — | $ | — | |||||
The Company has a deferred tax asset which is summarized as follows at:
Deferred tax assets:
| May 31, 2019 | May 31, 2018 | |||||||
| Net operating loss carryover | $ | 333,000 | $ | 289,600 | ||||
| Less: valuation allowance | (333,000 | ) | (289,600 | ) | ||||
| Net deferred tax asset | $ | — | $ | — | ||||
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act decreases the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The impact of the re-measurement on the Corporation’s net deferred tax asset, as of May 31, 2018, was an approximately $125,500 decrease in deferred tax assets, with a corresponding decrease in the Company’s valuation allowance, and no impact on income tax expense. The Act also includes a number of other provisions including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses, the repeal of the Alternative Minimum Tax regime and the repeal of the domestic production activities deduction. These provisions are not expected to have a material effect on the Corporation.
Given the significant complexity of the Act and anticipated additional implementation guidance from the Internal Revenue Service, further implications of the Act may be identified in future periods.
The Company provided a valuation allowance equal to the deferred income tax asset at May 31, 2019 and 2018 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The increase in the allowance was $43,400 in fiscal 2019 and $8,000 in fiscal 2018.
Additionally, the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforward that expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.
The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2016, 2017, 2018 and 2019 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
F-18
(a)(2) Financial Statement Schedules
All schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.
(a)(3) Exhibits
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Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 17th day of July 2019.
| REVIV3 PROCARE COMPANY | ||
| (the "Registrant") | ||
| BY: | /s/Jeff Toghraie | |
| Jeff Toghraie | ||
| Chief Executive Officer (principal executive officer) | ||
| BY: | /s/Christopher Go | |
| Christopher Go | ||
|
Interim Chief Financial Officer and Secretary (principal accounting officer and principal financial officer) | ||
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
| /s/Jeff Toghraie | Chairman of the Board of Directors | July 17, 2019 |
| Jeff Toghraie | ||
| /s/Nancy Hundt | Member of the Board of Directors | July 17, 2019 |
| Nancy Hundt | ||
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