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.
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.
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.
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.
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.
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.
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.
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
|
|
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.
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.
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.
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.
(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