UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For
the quarterly period ended
For the transition period from _____________ to _____________
Commission
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Securities registered pursuant to Section 12(b) of the Act: None
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
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| Smaller reporting company | |||
| (Do not check if a smaller reporting company) | Emerging growth company |
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As of April 11, 2022, there were shares of the registrants common stock, $0.0001 par value, outstanding.
REVIV3 PROCARE COMPANY
INDEX
-i-
FORWARD-LOOKING STATEMENTS
Except for any historical information contained herein, the matters discussed in this quarterly report on Form 10-Q contain certain forward-looking statements within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under Managements Discussion and Analysis of Financial Condition and Results of Operations.
These forward-looking statements generally can be identified by the use of forward-looking terminology, such as may, will, expect, intend, estimate, anticipate, believe, continue or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, managements beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Important factors that may cause actual results to differ from projections include, for example:
| ● | the success or failure of managements efforts to implement our business plan; |
| ● | our ability to fund our operating expenses; |
| ● | our ability to compete with other companies that have a similar business plan; |
| ● | the effect of changing economic conditions impacting our plan of operation; |
| ● | The scope and duration of the COVID-19 outbreak and its impact on global economic systems; and |
| ● | our ability to meet the other risks as may be described in future filings with the Securities and Exchange Commission (the SEC). |
Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this quarterly report on Form 10-Q.
When considering these forward-looking statements, you should keep in mind the cautionary statements in this quarterly report on Form 10-Q and in our other filings with the SEC. We cannot assure you that the forward-looking statements in this quarterly report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.
-ii-
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REVIV3 PROCARE COMPANY
INDEX TO FINANCIAL STATEMENTS
FEBRUARY 28, 2022
CONTENTS
-1-
| REVIV3 PROCARE COMPANY |
| BALANCE SHEETS |
| February 28 | May 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| OTHER ASSETS: | ||||||||
| Inventory, non-current | ||||||||
| Property and equipment, net | ||||||||
| Deposits | ||||||||
| Right of use assets, net | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Customer deposits | ||||||||
| Due to related party | ||||||||
| Equipment payable, current | ||||||||
| Loan payable, current | ||||||||
| Lease liability, current | ||||||||
| Total Current Liabilities | ||||||||
| LONG TERM LIABILITIES: | ||||||||
| Equipment payable | ||||||||
| Loan payable | ||||||||
| Lease liability, non- current | ||||||||
| Total Long Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (see Note 10) | ||||||||
| STOCKHOLDERS EQUITY: | ||||||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | ||||||||
| Common stock, $ par value: shares authorized; shares issued, issuable and outstanding as of February 28, 2022 and May 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | $ | $ | ||||||
See accompanying notes to these unaudited financial statements.
F-1
| REVIV3 PROCARE COMPANY |
| STATEMENTS OF OPERATIONS |
| (UNAUDITED) |
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| February 28, | February 28, | February 28, | February 28, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Marketing and selling expenses | ||||||||||||||||
| Compensation and related taxes | ||||||||||||||||
| Professional and consulting expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Gain on debt settlement | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense and other finance charges | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense), Net | ( | ) | ||||||||||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER COMMON SHARE - Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See accompanying notes to these unaudited financial statements.
F-2
| REVIV3 PROCARE COMPANY |
| STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY |
| FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2022 AND 2021 |
| (UNAUDITED) |
| For the nine months ended February 28, 2022 | ||||||||||||||||||||||||||||
| Common Stock | Total | |||||||||||||||||||||||||||
| Preferred Stock | Issued And Issuable | Additional Paid-in | Accumulated | Stockholders | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, May 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss for the nine months ended February 28, 2022 | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, February 28, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| For the three months ended February 28, 2022 | ||||||||||||||||||||||||||||
| Common Stock | Total | |||||||||||||||||||||||||||
| Preferred Stock | Issued And Issuable | Additional Paid-in | Accumulated | Stockholders | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, November 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss for the three months ended February 28, 2022 | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, February 28, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| For the nine months ended February 28, 2021 | ||||||||||||||||||||||||||||
| Common Stock | Total | |||||||||||||||||||||||||||
| Preferred Stock | Issued And Issuable | Additional Paid-in | Accumulated | Stockholders | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, May 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||
| Shares to be issued for services | — | — | ||||||||||||||||||||||||||
| Net loss for the nine months ended February 28, 2021 | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, February 28, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| For the three months ended February 28, 2021 | ||||||||||||||||||||||||||||
| Common Stock | Total | |||||||||||||||||||||||||||
| Preferred Stock | Issued And Issuable | Additional Paid-in | Accumulated | Stockholders | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, November 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||
| Shares to be issued for services | — | — | ||||||||||||||||||||||||||
| Net loss for the three months ended February 28, 2021 | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, February 28, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to these unaudited financial statements.
F-3
| REVIV3 PROCARE COMPANY |
| STATEMENTS OF CASH FLOWS |
| (UNAUDITED) |
| For the Nine Months Ended | ||||||||
| February 28, | February 28, | |||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Bad debts | ||||||||
| Stock based compensation | ||||||||
| Gain on debt settlement | ( | ) | ( | ) | ||||
| Non cash lease expense | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Lease liability | ( | ) | ||||||
| Customer deposits | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from loan payable | ||||||||
| Repayment of equipment financing | ( | ) | ( | ) | ||||
| Advances from a related party, net | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE/(DECREASE) IN CASH | ( | ) | ||||||
| CASH - Beginning of period | ||||||||
| CASH - End of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
See accompanying notes to these unaudited financial statements.
F-4
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
Note 1 – Organization
Reviv3 Procare Company (the Company) was incorporated in the State of Delaware on May 21, 2015, as a reorganization of Reviv3 Procare, LLC which was organized on July 31, 2013. The Company is engaged in the manufacturing, marketing, sale and distribution of professional quality hair and skin care products throughout the United States, Canada, Europe and Asia.
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The unaudited financial statements for the three and nine months ended February 28, 2022, and 2021 have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the management, all adjustments necessary to present fairly our financial position, results of operations, and cash flows as of February 28, 2022, and 2021, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. The unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys annual report on Form 10-K for the year ended May 31, 2021. The results of operations for the three and nine months ended February 28, 2022 are not necessarily indicative of the results to be expected for the full year.
Risk and Uncertainty Concerning COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States and the World. We are currently monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread. All of our Chinese facilities were temporarily closed for a period of time. Most of these facilities have been reopened since July 2020. Depending on the progression of the outbreak, our ability to obtain necessary supplies and ship finished products to customers may be partly or completely disrupted globally. Also, our ability to maintain appropriate labor levels could be disrupted. If the coronavirus continues to progress, it could have a material negative impact on our results of operations and cash flow, in addition to the impact on its employees. We have concluded that while it is reasonably possible that the virus could have a negative impact on the results of operations, the specific impact is not readily determinable as of the date of these financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management is focused on growing the Companys existing products offering, as well as its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying financial statements.
Going Concern
As
reflected in the accompanying financial statements, the Company had an accumulated deficit of $
F-5
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Use of estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates made by management include, but are not limited to, the allowance for doubtful accounts, inventory valuations and classifications, the useful life of property and equipment, the valuation of deferred tax assets, the value of stock-based compensation, valuation of lease liabilities and related right of use assets and the fair value of non-cash common stock issuances.
Cash and cash equivalents
The Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation.
Accounts receivable and allowance for doubtful accounts
The Company has a policy of providing on allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Prepaid expenses and other current assets
Prepaid
expenses and other current assets of $
Inventory
The Company values inventory, consisting of finished goods and raw materials, at the lower of cost and net realizable value. Cost is determined using an average cost method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its net realizable value. The Company evaluates its current level of inventory considering historical sales and other factors and, based on this evaluation, classifies inventory markdowns in the statement of operations as a component of cost of goods sold. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the statement of operations.
F-6
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Revenue recognition
The Company follows Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers. This revenue recognition standard has a five steps 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 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 Companys products is typically recorded as a reduction in revenues. See Note 12 for revenue disaggregation disclosures.
Cost of Sales
The primary components of cost of sales include the cost of the product and shipping fees.
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 $
Marketing, selling and advertising
Marketing, selling and advertising costs are expensed as incurred.
Customer Deposits
Customer deposits consisted of prepayments from customers to the Company. The Company will recognize the prepayments as revenue upon delivery of products in compliance with its revenue recognition policy.
Fair value measurements and fair value of financial instruments
The Company adopted Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Companys 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 entitys own assumptions. |
F-7
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Boards (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.
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 assets estimated fair value and its book value. The Company did not record any impairment loss during the nine months ended February 28, 2022 and 2021.
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 non-employee services received in exchange for an award of equity instruments over the period the employee or non-employee 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, non-employee and director services received in exchange for an award based on the grant-date fair value of the award.
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 February 28, 2022 and 2021, the Company had no potentially dilutive securities outstanding related to common stock.
Lease Accounting
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02), which requires lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance (ASC Topic 840). Under the new guidance, codified as ASC Topic 842, the lease liability must be measured initially based on the present value of future lease payments, subject to certain conditions. The right-of-use asset must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense generally is flat (straight-line) throughout the life of the lease. For finance leases, periodic expense declines over the life of the lease. The new standard, as amended, provides an option for entities to use the cumulative-effect transition method. As permitted, the Company adopted ASC Topic 842 effective June 1, 2019. The adoption of ASC Topic 842 did not have a material impact on the Companys financial statements.
The Company renewed lease for its corporate headquarters commencing December 1, 2019, under lease agreements classified as an operating lease. Please see Note 10 – Leases below for more information about the Companys leases.
F-8
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entitys Own Equity (ASU 2020-06), which simplifies the accounting for certain convertible instruments. Among other things, under ASU 2020-06, the embedded conversion features no longer must be separated from the host contract for convertible instruments with conversion features not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. ASU 2020-06 also eliminates the use of the treasury stock method when calculating the impact of convertible instruments on diluted Earnings per Share. For the Company, the provisions of ASU 2020-06 are effective for its fiscal year beginning on June 1, 2024. Early adoption is permitted, subject to certain limitations. The Company is evaluating the potential impact of adoption on its financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12, among other things, (a) eliminates the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income (or a gain) from other items, (b) eliminates the exception to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss for the year, (c) requires than an entity recognize a franchise tax (or a similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, and (d) requires than an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation for the interim period that includes the enactment date. For public companies, these amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted ASU 2019-12 effective June 1, 2021 and based on its preliminary evaluation it does not believe adoption had a material impact on its unaudited 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.
Note 3 – Accounts Receivable, net
Accounts receivable, consisted of the following:
| February 28, 2022 | May 31, 2021 | |||||||
| Accounts Receivable | $ | $ | ||||||
| Less: Allowance for doubtful debts | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The
Company recorded bad debt expense of $
F-9
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
Note 4 – Inventory
Inventory consisted of the following:
At
February 28, 2022 and May 31, 2021, inventory held at third party locations amounted to $
| February 28, 2022 | May 31, 2021 | |||||||
| Finished Goods | $ | $ | ||||||
| Raw Materials | $ | $ | ||||||
| $ | $ | |||||||
| Less: Inventory, non-current | $ | ( | ) | $ | ( | ) | ||
| Current Inventory | $ | $ | ||||||
As
of February 28, 2022 and May 31, 2021, the Company had an allowance of $
Note 5 – Property and Equipment
Property and equipment, stated at cost, consisted of the following:
| Estimated Life | February 28, 2022 | May 31, 2021 | ||||||||
| Furniture and Fixtures | 5 years | $ | $ | |||||||
| Computer Equipment | 3 years | |||||||||
| Plant Equipment | 5-10 years | |||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
Depreciation
expense amounted to $
Note 6 – Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses comprised of the following:
| February 28, 2022 | May 31, 2021 | |||||||
| Trade Payables | $ | $ | ||||||
| Credit Cards | ||||||||
| Accrued Interest and Other | ||||||||
| $ | $ | |||||||
Note 7 – Equipment 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 at February 28, 2022
and May 31, 2021, the balance outstanding on the loan was $
F-10
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
The amounts of loan payments due in the next two years ended February 28, are as follows:
| Total | ||||
| 2022 | $ | |||
| 2023 | $ | |||
| $ | ||||
Note 8 – Loan Payable
During the year ended May 31, 2020, a commercial bank granted to the Company a loan (the Loan) in the amount of $12,900, which is administered under the authority and regulations of the U.S. Small Business Administration pursuant to the Paycheck Protection Program (the PPP) of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The Loan was evidenced by a note dated May 8, 2020, bore interest at an annual rate of 1.0% and matured on May 8, 2022. The Note may be prepaid without penalty, at the option of the Company, at any time prior to maturity. Proceeds from loans granted under the CARES Act are intended to be used for payroll, costs to continue employee group health care benefits, rent, utilities, and certain other qualified costs (collectively, qualifying expenses). The Company intends to use the loan proceeds for qualifying expenses. The Companys borrowings under the Loan may be eligible for loan forgiveness if used for qualifying expenses incurred during the covered period, as defined in the CARES Act, except that the amount of loan forgiveness is limited to the amount of qualifying expenses incurred during the 8-week period commencing on the loan effective date. In addition, the amount of any loan forgiveness may be reduced if there is a decrease in the average number of full-time equivalent employees of the Company during the covered period, compared to the comparable period in the prior calendar year. The Companys indebtedness, after any such loan forgiveness, is payable in 18 equal monthly installments commencing on November 8, 2020, with all amounts due and payable by the maturity. The Company did not pay any instalment of the loan and recorded an accrued interest of $120 on the loan during the year ended May 31, 2021. On March 19, 2021 the loan was forgiven by the US Small Business Administration and the Company recorded a gain on debt forgiveness of $13,020.
During the year ended May 31, 2020, a commercial bank granted to the Company a loan (the Loan) in the amount of $150,000, which is administered under the authority and regulations of the U.S. Small Business Administration pursuant to the Economic Injury Disaster Loan Program (the EIDL) of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The Loan, which is evidenced by a note dated May 18, 2020, bears interest at an annual rate of 3.75% and is payable installments of $731 per month, beginning May 18, 2021 until May 13, 2050. The Company has to maintain a hazard insurance policy including fire, lightning, and extended coverage on all items used to secure this loan to at least 80% of the insurable value. Proceeds from loans granted under the CARES Act are intended to be used for payroll, costs to continue employee group health care benefits, rent, utilities, and certain other qualified costs (collectively, qualifying expenses). The Company intends to use the loan proceeds for qualifying expenses. The Companys borrowings under the loan are eligible for up to $10,000 of loan forgiveness. The Company received a loan forgiveness for $10,000 during the nine months ended February 28, 2022. During the nine months ended February 28, 2022, the Company received additional $10,000 of borrowings under the program. The Company recorded an accrued interest of $10,254 and $5,923, as of February 28, 2022 and May 31, 2021, respectively. The Company has not paid any instalment of the loan as of February 28, 2022 and the loan is currently in default.
On February 7, 2021, a commercial bank granted to the Company a loan (the Loan) in the amount of $6,300, which is administered under the authority and regulations of the U.S. Small Business Administration pursuant to the Second Draw Paycheck Protection Program (the PPP) of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The Loan, which is evidenced by a note dated February 7, 2021, bears interest at an annual rate of 1.0% and matures on February 6, 2026. The Note may be prepaid without penalty, at the option of the Company, at any time prior to maturity. Proceeds from loans granted under the CARES Act are intended to be used for payroll, costs to continue employee group health care benefits, rent, utilities, and certain other qualified costs (collectively, qualifying expenses). The Company intends to use the loan proceeds for qualifying expenses. The Companys borrowings under the Loan may be eligible for loan forgiveness if used for qualifying expenses incurred during the covered period, as defined in the CARES Act. The Companys indebtedness, after any such loan forgiveness, is payable in 54 equal monthly installments commencing on September 7, 2021, with all amounts due and payable by the maturity. The Company recorded an accrued interest of $62 and $0, as of February 28, 2022 and May 31, 2021, respectively. The Company has not paid any instalment of the loan as of February 28, 2022 and the loan is currently in default.
F-11
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
During the nine-month period ended February 28, 2022, the Company received $25,000 in grant awards pursuant to the California Small Business Covid-19 Relief Grant Program. This grant was recorded as other income in the accompanying unaudited financial statements as no repayment is required to be made.
| February 28, 2022 | May 31, 2021 | |||||||
| Second Draw Paycheck Protection Program (PPP- 2) | $ | $ | ||||||
| Economic Injury Disaster Loan Program (EIDL) | $ | $ | ||||||
| Total | $ | $ | ||||||
| Less: Current portion | $ | $ | ||||||
| Non-current portion | $ | $ | ||||||
The amounts of loan payments due in the upcoming years ended February 28, are as follows:
| Total | ||||
| 2022 | $ | |||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| Thereafter | $ | |||
| $ | ||||
Note 9 – Stockholders Equity
Shares Authorized
The authorized capital of the Company consists of shares of common stock, par value $ per share and shares of preferred stock, par value $ 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.
F-12
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
Common Stock
As of February 28, 2022, shares of common stock were issued and outstanding.
No shares were issued during the nine months period ended February 28, 2022.
During
the nine months period ended February 28, 2021, the Company issued shares to a consultant for past services. The shares
were valued at the fair market value of the $
During
the nine months ended February 28, 2021, the Company issued shares to a consultant for services. The shares were valued
at the fair market value of the $
During the nine months ended February 28, 2021, the Company recorded $ for 60,000 shares to be issued to an attorney for past services. The shares were valued at the fair market value, which expense was recognized immediately. The shares were issued in March 2021.
Note 10 – Commitments and contingencies
Leases
As
discussed in Note 2 above, the Company adopted ASU No. 2016-02, Leases on June 1, 2019, which require lessees to report
on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating
leases under the prior guidance.
The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (ROU) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Companys right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Companys obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value.
The Company reviews the impairment of ROU assets consistent with the approach applied for the Companys other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Companys ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.
Lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not result in a remeasurement of lease liabilities. The Companys lease agreements do not contain any residual value guarantees or restrictive covenants.
Pursuant to the new standard, the Company recorded an initial lease liability of $235,748 and an initial right of use asset in the same amount. During the three months ended February 28, 2022 and 2021, the Company recorded a lease expense in the amount of $23,559 and $23,559, respectively. During the nine months ended February 28, 2022 and 2021, the Company recorded a lease expense in the amount of $70,676 and $70,676, respectively. As of February 28, 2022, the lease liability balance was $69,714 and the right of use asset balance was $67,144. A lease term of three years and a discount rate of 12% was used.
F-13
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
Supplemental balance sheet information related to leases was as follows:
| Assets | February 28, 2022 | |||
| Right of use assets | $ | |||
| Accumulated reduction | ( | ) | ||
| Operating lease assets, net | $ | |||
| Liabilities | ||||
| Lease liability | $ | |||
| Accumulated reduction | ( | ) | ||
| Total lease liability, net | ||||
| Current portion | ( | ) | ||
| Non-current portion | $ | |||
Maturities of operating lease liabilities were as follows as of February 28, 2022:
| Operating Lease | ||||
| Year 1 | $ | |||
| Total | $ | |||
| Less: Imputed interest | $ | ( | ) | |
| Present value of lease liabilities | $ | |||
Contingencies
On November 23, 2020, the Company was served a copy of a complaint filed by Jacksonfill, LLC in the Fourth Circuit Court for Duval County, Florida. The complaint alleges breach of Agreement for non-payments for certain products against the Company. The allegations arise from alleged discrepancies discovered by the Company in the manufacturing of certain product. The Company has retained counsel and intends to vigorously defend the allegations. The product was delivered to the Company. However, the Company believes that the product was defective. The amount of the claim of $204,182 has been recorded as accounts payable, in the accompanying financial statements as of February 28, 2022.
Note 11 – Related Party Transactions
The Companys Chief Executive Officer, from time to time, provided advances to the Company for working capital purposes. At February 28, 2022 and May 31, 2021, the Company had a payable to the officer of $61,659 and $54,304, respectively. These advances are due on demand and non-interest bearing.
Note 12 – 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
Companys account at this institution is insured by the Federal Deposit Insurance Corporation (FDIC) up to
$
F-14
REVIV3 PROCARE COMPANY
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
Concentration of Revenue, Product Line, and Supplier
During
the three months ended February 28, 2022 sales to
During
the three months ended February 28, 2022, sales to customers outside the United States represented approximately
During the nine months ended February 28, 2022, sales by product line which each represented over 10% of sales consisted of approximately 16% from sale of fragrance shampoo and conditioner, 27% from sales of bundled packages, 10% from sales of prep shampoo and conditioner and 27% from sale of introductory kit (shampoo, conditioner and treatment spray). During the three months ended February 28, 2022, sales by product line which each represented over 10% of sales consisted of approximately 10% from sales of hair moisturizer and conditioner, 13% from sales of prep cleanser and shampoo, 19% from sale of introductory kit (shampoo, conditioner and treatment spray) and 42% from sale of bundled packages. During the nine months ended February 28, 2021, sales by product lines which each represented over 10% of sales consisted of approximately 35% from sale of introductory kit (shampoo, conditioner and treatment spray) and 28% from sale of fragrance shampoo and conditioner. During the three months ended February 28, 2021, sales by product lines which each represented over 10% of sales consisted of approximately 43% from sale of introductory kit (shampoo, conditioner and treatment spray), 19% from sale of prep cleanser and shampoo and 11% from sale of moisturizer and conditioner.
During the nine months ended February 28, sales by product line comprised of the following:
| For the Nine Months ended | ||||||||
| Hair Care Products | February 28, 2022 | February 28, 2021 | ||||||
| Shampoos and Conditioners | % | % | ||||||
| Ancillary Products | % | % | ||||||
| Total | % | % | ||||||
At
February 28, 2022, accounts receivable from
The
Company purchased inventories and products from
Note 13 – Subsequent Events
Subsequent to the period, on March 21, 2022, the Board adopted a stock option plan to grant 5,000,000 shares of Common Stock to officers and key employees of the corporation.
F-15
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the condensed financial statements and notes thereto included in Item 1 in this Quarterly Report on Form 10-Q.
Our Managements Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words that, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks that might be detailed from time to time in our filing with the Securities and Exchange Commission. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q.
Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in herein and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
Reviv3 Procare Company is engaged in the manufacturing, marketing, sale and distribution of professional quality hair and skin care products under various trademarks and brands. We have adopted and used the trademarks of our products for distribution throughout the United States, Canada, Europe, and Asia pursuant to the terms of twelve exclusive distribution agreements with various parties throughout our targeted market. Our manufacturing operations are outsourced and fulfilled by our co-packers and manufacturing partners. Currently, we produce seven products with sixteen separate stock-keeping units (SKUs) and look to expand our product lines over the next twelve months.
Jumpstart Our Business Startups Act of 2012 (JOBS Act)
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an emerging growth company, we intend to rely on certain of these exemptions from, without limitation, (i) providing an auditors attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year following the fifth anniversary of the closing of this offering, (b) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (c) the last day of our fiscal year in which we are deemed to be a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or Exchange Act (which would occur if the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or (d) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.
-2-
Results of Operations
For the Nine months Ended February 28, 2022 Compared to the Nine months Ended February 28, 2021
Sales for the nine months ended February 28, 2022 and 2021 were $1,809,472 and $1,277,480, respectively. Sales for the nine months ended February 28, 2022 increased by $531,992 or 42% over the same comparable period in 2021, primarily due to increase in sales generated from our direct- to-consumer sales.
Cost of sales consisted primarily of cost of product, freight-in costs, distribution and merchant fees. Cost of sales for the nine months ended February 28, 2022 and 2021 was $611,305 and $477,578 respectively. Cost of sales as a percentage of sales for the nine months ended February 28, 2022 and 2021 was 34% and 37%, respectively. Cost of sales as a percentage of sales decreased in 2022 for the respective periods as compared to the same comparable periods in 2021 primarily due to our continued expansion in the direct sales to consumer segment, which has higher profit margins. This reduction in cost of sales was countered by higher freight in cost due to supply chain constraints.
Gross profit for the nine months ended February 28, 2022 and 2021 was $1,198,167 and $799,902 respectively. Gross profit as a percentage of sales for the nine months ended February 28, 2022 was 66% as compared to 63% for the same comparable period in 2021. The increase in gross profit for the nine months ended February 28, 2022 was primarily attributable to the increase sales of products in the traditionally higher margin direct to consumer segment.
Operating expenses consisted of marketing and selling expenses, professional and consulting fees, compensation to employees and other general and administrative expenses. Operating expenses for the nine months ended February 28, 2022 and 2021 were $1,315,379 and $934,411, respectively. Operating expenses for the nine months ended February 28, 2022 increased in amount by $380,968 or 41% over the comparable period in 2021. This increase is primarily due to increase in marketing and advertising expense to promote the Companys product line and brand in the direct- to-consumer channels and higher shipping charges. Operating expenses as a percentage of sales for the nine months ended February 28, 2022 and 2021 remained constant at 73%.
Other income (expense) consisted of gain on loan forgiveness, interest income, interest expense and other finance charges. Interest income for the nine months ended February 28, 2022 and 2021 was $28 and $31, respectively. Interest expense and finance changes for the nine months ended February 28, 2022 and 2021 were $4,968 and $4,461, respectively, primarily due to interest expense related to business credit card financing charges. The Company also received $25,000 pursuant to covid relief grant fund and $10,000 as EIDL loan forgiveness.
As a result of the above, we reported a net loss of $87,152 compared to a net loss of $122,626 for the nine months ended February 28, 2022 and 2021, respectively.
For the Three months Ended February 28, 2022 Compared to the Three months Ended February 28, 2021
Sales for the three months ended February 28, 2022 and 2021 were $476,384 and $364,966, respectively. Sales for the three months ended February 28, 2022 increased by $111,418 or 31% over the same comparable period in 2021, primarily due to increase in sales generated from our direct to consumer and distribution sales.
-3-
Cost of sales consisted primarily of cost of product, freight-in costs, distribution and merchant fees. Cost of sales for the three months ended February 28, 2022 and 2021 was $134,609 and $93,491 respectively. Cost of sales as a percentage of sales for the three months ended February 28, 2022 and 2021 was 28% and 26%, respectively. Cost of sales as a percentage of sales increased in 2022 for the respective periods as compared to the same comparable periods in 2021. This increase in cost of sales was primarily due to increase in freight-out costs due to the increased number of shipments in the direct sales to consumer sales and higher freight in cost due to supply chain constraints.
Gross profit for the three months ended February 28, 2022 and 2021 was $341,775 and $271,475 respectively. Gross profit as a percentage of sales for the three months ended February 28, 2022, was 72% as compared to 74% for the same comparable period in 2021. The decrease in gross profit for the three months ended February 28, 2022 was primarily attributable to the increase in freight in cost due to supply chain constraints.
Operating expenses consisted of marketing and selling expenses, professional and consulting fees, compensation to employees and other general and administrative expenses. Operating expenses for the three months ended February 28, 2022 and 2021 were $439,276 and $392,503, respectively. Operating expenses for the three months ended February 28, 2022, increased in amount by $46,773 or 12% over the comparable period in 2021. This increase is primarily due to increase in marketing and advertising expense to promote the Companys product line and brand in the direct- to-consumer channels and due to increase in delivery charges. Operating expenses as a percentage of sales for the three months ended February 28, 2022 and 2021 were 92% and 108%, respectively.
Other income (expense) consisted of gain on debt forgiveness, interest income, interest expense and other finance charges. Interest income for the three months ended February 28, 2022 and 2021 was $10 and $12, respectively. Interest expense and finance changes for the three months ended February 28, 2022 and 2021 were $1,823 and $1,757, respectively, primarily due to interest expense related to business credit card financing charges. The Company recognized $16,313 gain on debt forgiveness during the three months ended February 28, 2021. There was no such gain recognized for the same comparable period in the current year.
As a result of the above, we reported a net loss of $99,314 and $106,460 for the three months ended February 28, 2022 and 2021, respectively.
Liquidity and Capital Resources
We are an emerging growth company and currently engaged in our initial product sales and development. We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during the fiscal year 2022. We believe our current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet our working capital requirements in the short term. We continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in the short-term to invest in revenue growth. We have and will continue to generate sufficient cash for our operational needs, including any required debt payments, for at least one year from the date of issuance of the accompanying financial statements. Management is focused on growing the Companys existing products offering, as well as its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying financial statements.
-4-
Cash Flows
Operating Activities
Net cash flows used in operating activities for the nine months ended February 28, 2022 was $90,873, attributable to a net loss of $87,152, depreciation of $6,603, bad debt expense of $3,012, gain on debt forgiveness of $35,000 and net change in operating assets and liabilities of $21,665 primarily due to decrease in accounts receivable and inventory, offset by a decrease in accounts payable and accrued expenses, customer deposits and an increase in prepaid expenses. Net cash flows provided by operating activities for the nine months ended February 28, 2021 was $74,212, attributable to a net loss of $122,626, gain on debt forgiveness of $16,313, depreciation of $7,622, bad debts expense of $574, stock based compensation expense of $66,400, non-cash lease expense of $1,714, and net change in operating assets and liabilities of $136,841 primarily due to a decrease in accounts receivable and increase in accounts payable, offset by an increase in inventory and prepaid expenses and other current assets and decrease in customer deposits.
Investing Activities
Net cash flows used by investing activities for the nine months ended February 28, 2022 and 2021 was $0 and $15,408 respectively, attributable to purchase of property and equipment during the nine-month period ended February 28, 2021.
Financing Activities
Net cash flows provided by financing activities for the nine months ended February 28, 2022 and 2021, amounted to $39,881 and $24,231, respectively. For the nine months ended February 28, 2022, we received $35,000 in covid relief loan funds, we received advances from a related party of $7,356 and we repaid $2,475 towards equipment financing. For the nine months ended February 28, 2021, we received advances from a related party of $20,406, proceeds from loan payable of $6,300 and repaid $2,475 towards equipment financing.
As a result of the activities described above, we recorded a net decrease in cash of $50,992 for the nine months ended February 28, 2022 and an increase in cash of $83,035 for the nine months ended February 28, 2021.
We currently have no external sources of liquidity, such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.
We are dependent on our product sales to fund our operations and may require the sale of additional common stock to expand our operations. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans, and/or financial guarantees.
If we are unable to raise the funds required to fund our operations, we will seek alternative financing through other means, such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities. We have not located any sources for these funds and may not be able to do so in the future. We expect that we will seek additional financing in the future. However, we may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.
-5-
Critical Accounting Policies
The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require the most difficult, subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These critical accounting policies relate to revenue recognition, impairment of intangible assets and long-lived assets, inventory, stock compensation, and evaluation of contingencies. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial condition or results of operations.
Significant Accounting Policies
See the footnotes to our unaudited financial statements for the nine months ended February 28, 2022, included with this quarterly report.
Impact of COVID-19
For over two years, the effects of a new coronavirus (COVID-19) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the nine months ended February 28, 2022 was limited, in all material respects, on our sales in Europe and in China where the Chinese government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
To the extent that COVID-19 continues or worsens, governments may impose additional restrictions or additional governments may impose restrictions. The result of COVID-19 and those restrictions could result in a number of adverse impacts to our business, including but not limited to additional disruption to the economy and consumers willingness and ability to spend, temporary or permanent closures by businesses that consume our products, such as salons and spas, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. As a result, it may be challenging to obtain and process raw materials and supply chains to support our business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Also, governments may impose other laws, regulations or taxes which could adversely impact our business, financial condition or results of operations. Further, if our customers businesses or incomes are similarly affected, they might delay or reduce purchases from us. The potential effects of COVID-19 also could impact us in a number of other ways including, but not limited to, reductions to our profitability, laws and regulations affecting our business, the availability of future borrowings, the cost of borrowings, and credit risks of our customers and counterparties.
Given the evolving health, economic, social, and governmental environments, the potential impact that COVID-19 could have on our business remains uncertain and could be significant.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of February 28, 2022, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses in our internal control over financial reporting which we identified and previously reported in the Annual Report on Form 10-K for the year ended May 31, 2021: (1) insufficient number of qualified accounting personnel governing the financial close and reporting process, (2) lack of independent directors, and (3) lack of proper segregation of duties.
We expect to be materially dependent upon third parties to provide us with accounting and consulting services for the foreseeable future. We believe this will be sufficient to remediate the material weaknesses related to our accounting discussed above. We plan to recruit independent directors in the near future to oversee, establish and maintain adequate internal controls over financial reporting. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses in our disclosure controls and procedures will not result in errors in our financial statements which could lead to a restatement of those financial statements. A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the quarter ended February 28, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
On November 23, 2020, the Company was served a copy of a complaint filed by Jacksonfill, LLC in the Fourth Circuit Court for Duval County, Florida. The complaint alleges breach of Agreement for non-payments for certain products against the Company. The allegations arise from alleged discrepancies discovered by the Company in the manufacturing of certain product. The Company has retained counsel and intends to vigorously defend the allegations. The amount of the claim of $204,182 has been recorded as accounts payable, in the accompanying unaudited financial statements as of February 28, 2022.
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ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide risk factors. Please refer to our registration statement under Form S-1 for more information regarding risks related to the securities of the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
(a) Not applicable.
(b) During the quarter ended February 28, 2022, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.
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ITEM 6. EXHIBITS
| Exhibit | Filed | |||
| Number | Exhibit Description | herewith | ||
| 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||
| 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||
| 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||
| 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||
| 101.INS | XBRL Instance | X | ||
| 101.SCH | XBRL Taxonomy Extension Schema | X | ||
| 101.CAL | XBRL Taxonomy Extension Calculation | X | ||
| 101.DEF | XBRL Taxonomy Extension Definition | X | ||
| 101.LAB | XBRL Taxonomy Extension Labels | X | ||
| 101.PRE | XBRL Taxonomy Extension Presentation | X |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| REVIV3 PROCARE COMPANY | ||
| Date: April 11, 2022 | ||
| By: | /s/ Jeff Toghraie | |
| Jeff Toghraie | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
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