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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D. C. 20549

 

FORM 10-K

 

   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE FISCAL YEAR ENDED MAY 31, 2022

 

OR

 

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

 

FOR THE TRANSITION PERIOD FROM TO

 

Commission file number: 000-56351

 

REVIV3 PROCARE COMPANY

(Exact name of registrant as specified in its charter)

 

Delaware   47-4125218
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

   

9480 Telstar Avenue, Unit 5,

El Monte, CA 91731

(Address of Principal Executive Offices, including zip code)

 

(888) 638-8883 

(Registrant’s telephone number including area code)

 

Securities registered pursuant to Section 12(b) of the Act:      

Title of each class  Trading symbol(s)  Name of each exchange on which registered
None  N/A  N/A

  

Securities registered pursuant to section 12(g) of the Act: Common stock, par value $0.0001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

YES ☐  No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: 

YES ☐  No

 

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

 

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

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated Filer Smaller reporting company
    Emerging growth company

 

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

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

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

 

As of November 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates was $1,737,432. For purposes of this computation, all officers, directors and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the registrant.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

    Shares Outstanding
Title of Class   August 8, 2022
Common Stock   114,969,774

 

Documents incorporated by reference: None

 

 

 

 

 

Table of Contents

 

PART I 1
ITEM 1. DESCRIPTION OF BUSINESS. 1
ITEM 1A. RISK FACTORS. 5
ITEM 1B. UNRESOLVED STAFF COMMENTS. 5
ITEM 2. PROPERTIES. 5
ITEM 3. LEGAL PROCEEDINGS. 5
ITEM 4. MINE SAFETY DISCLOSURES. 5
   
PART II 6
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. 6
ITEM 6. [RESERVED] 7
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 8
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 12
ITEM 9A. CONTROLS AND PROCEDURES. 12
ITEM 9B. OTHER INFORMATION. 14
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. 14
   
PART III 15
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. 15
ITEM 11. EXECUTIVE COMPENSATION. 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 22
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. 23
   
PART IV F-1
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. F-1
ITEM 16. FORM 10-K SUMMARY 25
   
SIGNATURES 26

 

-i-

Cautionary Note Regarding Forward-Looking Information

 

This Report on Form 10-K, in particular Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements represent our expectations, beliefs, intentions or strategies concerning future events, including, but not limited to, any statements regarding our assumptions about financial performance; the continuation of historical trends; the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations; and the economy in general or the future of the beauty and hair care industry and the hearing protection and ear bud business, all of which were subject to various risks and uncertainties.

 

There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements, many of which are outside of our control. They include: the duration of the COVID-19 pandemic and its effect on our business operations, financial results and financial position and on the industries in which we operate and the global economy generally, as well as the potential impact on our vendors in China; the impact of unstable market and general economic conditions on our business, financial condition and stock price, including inflationary cost pressures, decreased discretionary consumer spending, supply chain disruptions and constraints, labor shortages, ongoing economic disruption, including the effects of the Ukraine-Russia conflict and ongoing impact of COVID-19, and other downturns in the business cycle or the economy; our financial performance and liquidity, including our ability to successfully generate sufficient revenue to support our operations; our ability to raise additional funds or obtain other forms of financing on acceptable terms, or at all; our ability to repay our outstanding loans; our ability to successfully implement and achieve all anticipated benefits from our restructuring, simplification and modernization initiatives; risks related to our operations and international markets, such as fluctuations in currency exchange rates, different regulatory environments, trade barriers and sanctions, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations, including those related to climate change; our ability to protect and defend our intellectual property; continuity and security of information technology infrastructure and the potential impact of cybersecurity breaches or disruptions to our management information systems; competition; our ability to retain our management and employees and the potential impact of ongoing labor shortages; demands on management resources; availability and cost of the raw materials we use to manufacture our products, including the impacts of inflationary cost pressures and ongoing supply chain disruptions and constraints, which have been, and may continue to be, exacerbated by the Russia-Ukraine conflict and the COVID-19 pandemic; additional tax expenses or exposures; product liability claims; the potential outcome of any legal or regulatory proceedings; integrating acquisitions and achieving the expected savings and synergies, including our recent acquisition of hearing protection and ear bud businesses; global or regional catastrophic events, including the effects of natural disasters, which may be worsened by the impact of climate change; demand for and market acceptance of our products, as well as our ability to successfully anticipate consumer trends; business divestitures; labor relations; the potential impact of environmental, social and governance matters; and implementation of environmental remediation matters.

 

When used in this Report on Form 10-K and other reports, statements, and information we have filed with the Securities and Exchange Commission (“Commission” or “SEC”), in our press releases, presentations to securities analysts or investors, in oral statements made by or with the approval of an executive officer, the words or phrases “believes,” “may,” “will,” “expects,” “should,” “could,” “would,” “continue,” “anticipates,” “intends,” “will likely result,” “estimates,” “projects” or similar expressions and variations thereof are intended to identify such forward-looking statements. However, any statements contained in this Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Furthermore, such forward-looking statements speak only as of the date of this Form 10-K. We caution that these statements by their nature involve risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict.

 

We do not assume the obligation to update any forward-looking statement, except as required by applicable law. You should carefully evaluate such statements in light of factors described in this annual report. In this Form 10-K, Reviv3 Procare Company (“Reviv3 Procare,” the “Company,” “we,” “us,” and “our”) has identified important factors that could cause actual results to differ from expected or historic results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete list of all potential risks or uncertainties.

 

-ii-

PART I

 

ITEM 1. DESCRIPTION OF BUSINESS.

 

General

 

Reviv3 Procare is engaged in the manufacturing, marketing, sale and distribution of professional quality hair and skin care products under various trademarks and brands, and has adopted and used the trademark products for distribution throughout the United States, Canada, Europe and Asia pursuant to the terms of 12 exclusive distribution agreements with various parties throughout our targeted markets. Our manufacturing operations are outsourced and fulfilled through our co-packers and manufacturing partners. The Company purchased inventories and products from four vendors totaling approximately $343,015 (97% of the purchases at 10%, 23%, 30% and 34%) during the year ended May 31, 2022. Currently, we produce 7 products with 16 separate stock keeping units (“SKUs”) and plan to expand our product lines over the next 12 months.

 

The personal care product industry boasts roughly 750 companies that generate a combined annual revenue of more than $40 billion. The 50 largest companies comprise almost 70% of the entire revenue. Still, we believe the market will bear competition from small companies able to offer specialized products or cater to particular niche markets.

 

Makeup, deodorant and nail products comprise 33% of health and beauty care industry revenue. Hair care products generate 25% of personal care product revenue, while creams and lotions comprise 21%. Perfumes, mouthwashes, shaving preparations and other products make up the remaining revenue for beauty skin care product revenues.

 

Reviv3 Procare stands for skin health and benefits of healthy scalp and hair follicles. Currently, we sell our hair and skincare products under the Reviv3 Procare brand which includes 7 distinct products. Our Reviv3 System is a series of products which are meant to be used together or on a stand-alone basis. The hair care products consist of PREP shampoo, PRIME conditioner, and TREAT maintenance care. We also sell an introductory kit which includes all three Reviv3 System products. In addition, we have products dedicated to hair treatment and repair. Currently we have 3 products in our treatment and repair line. BOOST is designed to deliver nutrients and increase circulation to the scalp, MEND Deep Hair Repair Mask for added moisture and PROTECT, a heat protectant product to prevent damage from irons and dryers. We also have a stand-alone Thickening Spray for giving hair more volume and body.

 

On May 1, 2022, Reviv3 Procare Company entered into an Asset Purchase Agreement with Axil & Associated Brands Corp. (“Axil”), a Delaware corporation, and a leader in hearing protection and enhancement products, for the acquisition of both the hearing protection business of Axil consisting of ear plugs and ear muffs, and Axil’s ear bud business. These businesses constituted substantially all of the business operations of Axil. The acquisition did not include Axil’s hearing aid line of business, which Axil will continue to operate following the completion of the acquisition. The acquisition was completed subsequently on June 16, 2022.

 

AXIL creates high-tech hearing and audio innovations to provide cutting-edge solutions for people with varied applications across many industries. AXIL designs, innovates, engineers, manufactures, markets and services specialized systems in hearing enhancement, hearing protection, wireless audio, and communication. AXIL distributes its products through direct-to-consumer eCommerce channels and local, regional, and national retail chains. AXIL serves the sporting goods market, military, federal agents, law enforcement, tactical, fitness, outdoor, industrial, sporting, and stadium events. AXIL focuses primarily on US markets, followed by Canada, Europe, Australia, New Zealand, and Africa.

 

-1-

Competition

 

Hair care and cosmetics markets are highly competitive and there are many companies offering similar products in the market today. We believe we are able to compete directly with these companies and products by offering quality products which will distinguish our performance and develop brand loyalty.

 

Top Brands/Market Leaders

 

  Nioxin: https://www.nioxin.com

 

  PhytoWorx

 

  Keranique: https://keranique.com

 

  Ultrax Labs: https://ultraxlabs.com

  

Large Names

 

  Aveda Invati: http://www.aveda.com

 

  Propecia (Merck & Co.) http://www.merck.com

 

  Bosley: https://www.bosley.com

 

  Dr. Reddy’s Laboratories-Mintop

 

Other Competitors

 

  Mediceutical Labs

 

  Lipogaine: http://www.lipogaine.com

 

  Just Natural: http://www.justnaturalskincare.com

 

  Revita: https://www.dslaboratories.com

 

  Majestic Pure: https://majesticpure.com

 

  Zenagen: http://www.zenagen.com

 

  Kevin Murphy: http://kevinmurphy.com.au

 

  PURA D’OR https://www.purador.com

 

Procerin

 

FoliRevita

 

Kroning’s Signature

 

Neugaine

 

Hairgenics

   

-2-

Patents and Trademarks

 

We currently hold four trademarks properly registered in their respective jurisdiction. Specifically, we hold a trademark for “Reviv3 Procare” issued on November 1, 2016 as well as trademark for our logo that was registered on October 20, 2015. We also have our original logo trademarked for the Reviv3 Procare brand registered on March 17, 2015. In addition, we have registered the name “Reviv3 Procare” in the Russian Federation, issued on June 13, 2017. On March 26, 2019, we filed an application for trademark “LANU” for our new product line, which was registered on May 5, 2020.

 

We do not have any additional trademarks, but as we establish new product lines, we will immediately file for trademark protection. Our formulas are proprietary, but we have not yet taken steps to establish a patent for our processes, formulations or products.

 

Governmental Regulation

 

Currently there are no governmental regulations which materially affect our operations.

 

Customers

 

Two customers accounted for 15% and 16%, respectively, of our net sales in the year ended May 31, 2022. No other individual customer accounted for 10% or more of our net sales in the year ended May 31, 2022. We expect that these two customers along with small number of other customers, will, in the aggregate, continue to account for a large portion of our net sales in the future. As is customary in the industry, none of our customers is under any obligation to continue purchasing products from us in the future.

 

The beauty industry is known to be resilient during economic downturns - even faring well during the Great Recession of 2008. Though consumers tend to be more price conscious during those times, they do not stop spending. In today’s environment of rising per capita incomes, the beauty business continues to be booming, although sales may be negatively impacted by rising inflation and associated decreased consumer discretionary spending.

 

The global hair care market size is projected to reach $111.98 billion by 2026, exhibiting a compound annual growth rate (“CAGR”) of 5.2% during the forecast period. Rising incidence of hair problems in urban areas is expected to be the central growth driver for the hair maintenance market, finds Fortune Business Insights™ in its recent report, titled ”Hair Care Market Size, Share & Industry Analysis, By Products (Hair Colorants, Shampoo, Conditioner, Hair Oil, and Others), By Distribution Channel (Supermarket/ Hypermarkets, Specialty Stores, Online Stores, and Others), and Regional Forecast, 2019 – 2026”. Urban spaces are a hotbed for pollution and extreme weather changes, which has led to long-term health hazards for humans and for the environment. Compounding to this is the expanding number of people in the working age group of 15 to 60 years, which has raised the overall stress quotient in big cities. A study published in the Journal of Clinical and Diagnostic Research in 2018 revealed that 60.3% of the working-class males reported that they are suffering from a hair loss problem, while 17.1% said that have a dandruff problem. Thus, growing prevalence of hair-related issues is emerging as one of the leading hair care market trends. The report states that the value of this market stood at $75.33 billion in 2018.

 

We obtained the statistical data, market data and other industry data and forecasts described in this report from publicly available information, including industry publications. Industry publications generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy and completeness of the information. Similarly, while we believe that the statistical data, industry data and forecasts are reliable, we have not independently verified the data. We have not sought the consent of the sources to refer to their reports appearing or incorporated by reference in this report. We did not commission any third party for collecting or providing data used in this report.

 

-3-

Market and Revenue Generation

 

Reviv3 Procare is focused on expanding its business-to-business salon sales through its network of domestic and international distributors. We are also continuing our focus on direct-to-consumer marketing programs through our own ecommerce site and various third-party online platforms. In addition, we are exploring other revenue channels such as co-branding and private-label manufacturing.

 

Employees

 

We currently have eight (8) full time employees, including our officers and a director. There are no formal employment agreements in place. Our employees are not represented by a labor union or other collective bargaining groups, and we consider relations with our employees to be good. We have currently engaged seventeen (17) individuals as outside consultants for sales, marketing and design. No formal agreements are in place.

 

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. We have recently implemented a stock options plan in order to attract, retain and reward personnel through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. The safety, health and wellness of our employees is a top priority. 

 

Seasonality and Cyclical Nature of our Business

 

We do not believe our business is subject to substantial seasonal fluctuations. We may experience lower sales in difficult economic scenarios, but we do not foresee the seasonality of our products to be a significant factor. In the future, seasonality trends could however have a material impact on our financial condition and results of operations, but we are not currently aware of the total impact that could affect our business.

 

Impact of COVID-19

 

During the year ended May 31, 2020, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the year ended May 31, 2022, was limited, in all material respects, but we did experience some impact due to the government mandated measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in efforts to mitigate the spread of COVID-19.

 

The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our future operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors, as well as within our vendors’ facilities. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.

 

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.

 

Our Office and Corporate History

 

Our principal executive office is located at 9480 Telstar Avenue, El Monte, CA 91731. Our telephone number is (888) 638-8883. Reviv3 Procare 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. We maintain a website at reviveprocare.com, the contents of which are not part of or incorporated by reference into this Form 10-K or any other report or document we file with the SEC. Any reference to our website is intended to be an inactive textual reference only.

 

-4-

ITEM 1A. RISK FACTORS.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Not applicable.

 

ITEM 2. PROPERTIES.

 

We currently lease approximately 7,200 square feet of office and warehouse space at 9480 Telstar Avenue, Unit 5, El Monte, CA 91731 as our principal offices. We lease our offices pursuant to a written lease dated in September 2019. The term of our lease is from December 1, 2019 and expires on December 31, 2022.  Our current monthly base rent is $7,852. We believe these facilities are in good condition and satisfy our operational requirements. We intend to seek additional leased space, which will include some warehouse facilities, as our business efforts increase.

 

ITEM 3. 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. 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. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, we do not record an accrual, consistent with applicable accounting guidance. In the opinion of management, while the outcome of such claims and disputes cannot be predicted with certainty, our ultimate liability in connection with these matters is not expected to have a material adverse effect on our results of operations, financial position or cash flows, and the amounts accrued for any individual matter are not material. However, legal proceedings are inherently uncertain. As a result, the outcome of a particular matter or a combination of matters may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

 
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 products. The Company has retained counsel and intends to vigorously defend the allegations.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

-5-

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

As of May 31, 2022, the Company’s common stock was quoted on the OTCQB operated by OTC Markets Group, Inc. under the symbol “RVIV.” The trading volume for our common stock is relatively limited. An active trading market may not continue to provide adequate liquidity for our existing stockholders or for persons who may acquire our common stock in the future. No assurance can be given that an active trading market for the Company’s common stock will develop or be maintained.

 

The range of high and low closing bid quotations for the Company’s common stock during each quarter of the calendar years ended May 31, 2022, and 2021, is shown below, as quoted by http://finance.yahoo.com. Prices are inter-dealer quotations, without retail mark-up, markdown or commissions and may not represent actual transactions.

 

Stock Quotations

 

Quarter Ended  High   Low 
August 31, 2020   0.24    0.0049 
November 30, 2020   0.2499    0.075 
February 28, 2021   0.62    0.0801 
May 31, 2021   0.8749    0.201 
August 31, 2021   0.5275    0.2001 
November 30, 2021   0.325    0.1011 
February 28, 2022   0.20    0.10 
May 31, 2022   0.30    0.0551 

 

The future sale of the Company’s presently outstanding “unregistered” and “restricted” common stock by present members of management and persons who own more than five percent of the Company’s outstanding voting securities may have an adverse effect on the trading price of the Company’s common stock.

 

Securities outstanding and holders of record

 

On May 31, 2022, the total common shares issued and outstanding were 41,945,881 and we had 93 shareholders of record of our common stock.

 

Dividend Policy

 

We have never paid any cash dividends on our common stock. We anticipate that we will retain funds and future earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors that our Board of Directors deems relevant. There are no dividend restrictions that limit our ability to pay cash dividends on our common stock in our Articles of Incorporation or Bylaws, except that no dividends or other distributions may be declared or paid on the common stock unless and until dividends at the same rate have been paid or declared and set apart upon our outstanding Series A Preferred Stock.

 

-6-

Penny stock regulations and restrictions on marketability

 

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading, (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws, (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price, (d) contains a toll-free telephone number for inquiries on disciplinary actions, (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks, and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock, (b) the compensation of the broker-dealer and its salesperson in the transaction, (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock, and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling their shares of our common stock.

 

Stock Transfer Agent

 

West Coast Stock Transfer 

721 N. Vulcan Ave. Ste. 106 

Encinitas, CA 92024. 

(619) 664-4780 

www.westcoaststocktransfer.com

 

Recent Sales of Unregistered Securities

 

On May 10, 2022, the Company issued to two Company officers non-statutory stock options to purchase, in the aggregate, upto 5,300,000 shares of common stock, at an exercise price of $0.09 per share, which have an expiration date of April 20, 2032. These options were issued pursuant to an exemption from the registration requirements of the Securities Act, as provided by Rule 701, Regulation D and/or Section 4(a)(2) of the Securities Act, as applicable.

 

ITEM 6. [RESERVED]

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion should be read in conjunction with our financial statements and the notes thereto included in this Report beginning on page F-1. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Significant Accounting Policies

 

Our discussion and analysis of our results of operations, liquidity and capital resources are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Significant estimates made by management include, but are not limited to, the allowance for doubtful accounts, inventory valuations and classifications, the useful life of property and equipment, the valuation of lease liabilities and related right of use assets, the valuation of deferred tax assets, the value of stock-based compensation, and the fair value of non-cash common stock issuances. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position. We believe that the significant accounting policies and assumptions described below and in Note 2 to the consolidated financial statements may involve a higher degree of judgment and complexity than others.

 

Accounts receivable and allowance for doubtful accounts

 

The Company has a policy of providing an 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.

 

Revenue recognition

 

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

 

Going Concern

 

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $182,903 and $297,755, respectively, for the years ended May 31, 2022 and 2021. Additionally, the Company had an accumulated deficit of $5,291,567 at May 31, 2022. 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.

 

-8-

Emerging Growth Company

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

  have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

  comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

  submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

 

  disclose certain executive compensation related items such as comparisons of the CEO’s compensation to median employee compensation.

  

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

Results of Operations

 

For the years ended May 31, 2022 and 2021

 

Our results of operations are summarized below.

 

   Year
Ended
May 31,
2022
   Year
Ended
May 31,
2021
 
Net sales  $2,336,257   $1,633,609 
Cost of sales  $828,586   $599,701 
Gross profit  $1,507,671   $1,033,908 
Total operating expenses  $1,719,074   $1,354,962 
Loss from operations  $(211,403)  $(321,054)
Net loss  $(182,903)  $(297,755)

 

Net sales increased by $702,648 or 43% for the year ended May 31, 2022, as compared to the year ended May 31, 2021, primarily due to the increase in our direct sales to consumer segment.

 

Cost of sales includes primarily the cost of products and freight-in costs. For the year ended May 31, 2022, the overall cost of sales increased by $228,885 or 38.2%, as compared to the comparable period in 2021. Cost of sales as a percentage of net revenues for the year ended May 31, 2022 was 35.5% as compared to 36.7% for the comparable period in 2021. The overall decrease in cost of sales, as a percentage of sales, is primarily attributable to the Company’s increased efficiencies in procurement and manufacturing systems, and reduction in product cost.

 

-9-

Gross profit, as a percentage of sales, for the years ended May 31, 2022 and 2021 was 64.5% and 63.3%, respectively. The increase in gross profit, as a percentage of sales, is primarily attributable to our continued increased focus on the direct sales to consumer channels, which have higher margins.

 

Operating expenses for the years ended May 31, 2022 and 2021 were $1,719,074 and $1,354,962, respectively. Operating expenses are costs related to marketing and selling expenses, compensation and related taxes, professional and consulting fees, and general and administrative costs. Operating expenses as a percentage of net revenues for the year ended May 31, 2022 were 73.6% as compared to 82.9% for the comparable period in 2021. Operating expenses increased by $364,112 or 26.9% primarily due to an increase in advertising and marketing expenses by $469,249 for displaying our products through our advertising platforms, increased delivery charges and cost of independent marketing contractors, partially offset by a decrease in professional and consulting services by $73,398. Other than an increase in advertising costs, which were aimed at procuring more customers, and reduction in consulting costs, the other operating expenses were fairly consistent.

 

Liquidity and Capital Resources

 

For the Years ended May 31, 2022 and 2021

 

The following table provides detailed information about our net cash flows: 

 

  

For the
Year 

Ended
May 31,
2022

  

For the
Year 

Ended
May 31,
2021

 
Cash Flows          
Net cash provided by (used in) operating activities  $(126,055)  $48,407 
Net cash used in investing activities   -    (15,408)
Net cash provided by financing activities   2,849    54,907 
Net change in cash  $(123,206)  $87,906 

 

We are an emerging growth company and currently engaged in our product sales and development. We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during fiscal year 2023. This raises substantial doubt about our ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan and to ultimately achieve profitable operations. Management may consider various options to raise capital, which may not be available on reasonable terms, if at all. There can be no assurances that management will be able to obtain sufficient additional funds, if needed, or that such funds, if available, will be obtained on terms satisfactory to us. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

-10-

Operating Activities

 

For the Years ended May 31, 2022 and 2021

 

Net cash used in operating activities for the year ended May 31, 2022 was $126,055, attributable to a net loss of $182,903 offset by non-cash items such as depreciation expense of $7,871, bad debts of $6,941, inventory write-off of $71,481, stock-based compensation of $21,967 and increase in non-cash gain on debt settlement of $35,000. The net loss was increased by a net decrease in operating assets and liabilities of $16,411 primarily due to increase in accounts receivable and decrease in customer deposits offset by a decrease in inventory purchases.

 

Net cash provided by operating activities for the year ended May 31, 2021 was $48,407, attributable to a net loss of $297,755 offset by non-cash items such as depreciation expense of $9,969, bad debts of $1,061, inventory write-off of $23,714, stock-based compensation of $138,800, non-cash lease expense of $1,713 and increase in non-cash gain on debt settlement of $29,333. The net loss was offset by a net increase in operating assets and liabilities of $200,238 primarily due to increase in accounts payable and collection of receivables offset by an increase in inventory purchases and decrease in customer deposits.

 

Investing Activities

 

For the Years ended May 31, 2022 and 2021

 

The Company did not invest any money in the purchase of property and equipment during the year ended May 31, 2022.

 

Net cash used in investing activities for the year ended May 31, 2021 was $15,408 primarily due to the purchase of property and equipment of $15,408.

 

Financing Activities

 

For the Years ended May 31, 2022 and 2021

 

Net cash provided by financing activities for the year ended May 31, 2022 was $2,849 primarily attributable to the cash proceeds of $35,000 of grants received from US Small Business Administration pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), offset by payments to a related party of $28,851 and repayment of equipment financing of $3,300.

 

Net cash provided by financing activities for the year ended May 31, 2021 was $54,907 primarily attributable to the cash proceeds of $6,300 of loans received from US Small Business Administration pursuant to the Paycheck Protection Program (“PPP”) of the CARES Act, advances received from a related party of $51,907, and repayment of equipment financing of $3,300.

 

As of May 31, 2022, we had the following secured loans outstanding, both of which were administered pursuant to the CARES Act: an Economic Injury Disaster Loan (“EIDL”) in the principal amount of $150,000 and a loan received pursuant to the PPP in the amount of $6,300. The Company has not paid any installments on either loan, and as of May 31, 2022 and currently, both loans are in default.

 

During June 2022, we made an acquisition of a business Axil & Associated Brands Corp., a leader in hearing protection and enhancement products for the acquisition of both the hearing protection business of Axil consisting of ear plugs and ear muffs, and Axil’s ear bud business. We purchased the business pursuant to issuances of common stock and preferred stock. We hope to increase our operating cash flows with the added revenue stream.

 

-11-

We are dependent on our product sales to fund our operations and will require additional capital in the future, such as pursuant to the sale of additional common stock or of debt securities or entering into credit agreements or other borrowing arrangements with institutions or private individuals, to maintain operations, which may not be available on favorable terms, or at all, and could require us to sell certain assets or discontinue or curtail our operations. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. In addition, pursuant to a voting agreement, effective June 16, 2022, with Axil and Intrepid Global Advisors, we are subject to certain limitations on our ability to sell our capital stock until June 2024. 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. There can be no assurance that we will be able to raise the capital we need for our operations on favorable terms, or at all. We have not located any sources for additional 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. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon our business plans. 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. 

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Please see our Financial Statements and Exhibits under Item 15 below.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

-12-

Limitations on the Effectiveness of Controls

 

Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

 

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

 

Our management assessed the effectiveness of our internal control over financial reporting as of May 31, 2022. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework issued in 2013. Based on our assessment, we believe that as of May 31, 2022, our internal control over financial reporting was effective based on those criteria.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

 

-13-

Changes in Internal Controls

 

The Company hired additional accounting personnel to govern the financial close and reporting process. Except as set forth herein, there were no changes in our internal control over financial reporting during the fourth fiscal quarter ended May 31, 2022, which have affected or are reasonably likely to affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION.

 

None. 

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

 

Not applicable. 

 

-14-

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Officers and Directors

 

Our officers are elected by the board of directors to a term of one year and serve until their successor is duly elected and qualified, or until their earlier death, resignation or removal. The board of directors has no nominating, auditing or compensation committees.

 

The names, ages and positions of our present officers and directors are set forth below:

 

NAME  AGE  POSITION
Jeff Sasan Toghraie  55  Chief Executive Officer and Chairman
       
Christopher Go  49  Chief Financial Officer and Secretary
       
Jeff Brown  40  Chief Operating Officer
       
Donald Starace  68  President
       
Nancy Hundt  54  Director

 

Background of officers and directors

 

Jeff Toghraie – Chairman of the Board of Directors, Chief Executive Officer

 

Jeff Toghraie has been the Chairman of our board since 2015 and our Chief Executive Officer since 2016. Mr. Toghraie is currently the Managing Director of Intrepid Global Advisors, one of our principal shareholders. Mr. Toghraie joined Intrepid Global Advisors in 2010 and is a principal of that firm. During the past 5 years, Mr. Toghraie has been involved with various privately held development stage companies as a director and/or in advisory positions. Mr. Toghraie was chosen as a director due to his experience with and knowledge of the Company and its operations, his background in working with development stage companies and his general business background.

 

Jeff Brown – Chief Operating Officer

 

Jeff Brown, our Chief Operating Officer, joined the Company in March of 2017. From 2015 to 2017, Mr. Brown held consulting positions at Polar Solar Inc., a company responsible for making commercial solar panels available to the residential market and Mind Fitness Lab, a technology company that developed and distributed mobile applications for mental health professionals. From 2012 to 2015, he was the President of RNA Pro, a company that distributed agricultural supplements. Mr. Brown holds an MBA from Pepperdine University and received his bachelor’s degree from University of California, Irvine.

 

Christopher Go –Chief Financial Officer and Secretary

 

Christopher Go has served as our Chief Financial Officer since April 9, 2019 and Corporate Secretary since 2015.  From 2009-2012, Mr. Go was the Vice-President of Operations for TEN Media, a funded food safety & traceability platform involving Walmart, Safeway, Cal-Marine, Dutch Farms, USDA, FDA & Yucaipa Companies. From 1996-1998, Mr. Go was staff architect for WAT&G.

 

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Donald Starace – President

 

Mr. Starace has been the President of Reviv3 since February 2015. Mr. Starace has over forty years of dedicated service in the beauty industry. Mr. Starace started his career in some of New York’s most prestigious salons, followed by ten years at Nioxin Research Labs and subsequently Proctor & Gamble in Sales and Education. Mr. Starace owned and operated various businesses through his career including roles in starting the Bank of New Jersey, which currently holds 10 locations, and has assets over $865 million. He was one of the initial investors for the bank and was very influential in raising capital. He also facilitated bringing Taiff (Brazil) professional appliances to the hair industry in the U.S. and Canada. Mr. Starace most recently was appointed as a member of the Board of Adjustments for the Borough of Fort Lee, New Jersey.

 

Nancy Hundt – Director

 

Nancy Hundt has served as a director of Reviv3 Procare since May of 2015. Ms. Hundt has a diverse background in the retail industry and has served as a representative of the American Board of Opticianry, an optical industry retail group. Ms. Hundt serves as a consultant and a retail sales expert, and has served over the last five years as Chief Operating Officer of Academy Optical, Inc. Ms. Hundt was chosen as a director due to her relevant experience in retail sales and general business background.

 

Family Relationships

 

There are no family relationships among any of our directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

We are not aware of any pending or threatened legal proceedings in which the aforementioned individuals are involved. To the best of our knowledge, none of our directors or executive officers were involved in any legal proceedings described in Item 401(f) of Regulation S-K in the past 10 years.

 

Corporate Governance

 

Our Board of Directors currently consists of two directors, one of whom is female.
 

We do not have any standing audit, nominating or compensation committees of the board of directors, or committees performing similar functions. We do not currently have a Code of Ethics applicable to our principal executive, financial or accounting officer. We believe this approach is appropriate in light of the Company’s current capital structure and level of operations, but we expect to continue to evaluate the appropriateness of adopting a Code of Ethics as our Company continues to develop. All Board actions have been taken by Written Action rather than formal meetings.

 

Audit Committee and Audit Committee Financial Expert

 

We do not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on the board of directors. All current members of the board of directors lack sufficient financial expertise for overseeing financial reporting responsibilities. We have not yet employed an audit committee financial expert due to the inability to attract such a person. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive for the Company. Further, because we are expanding our commercial operations at the present time, we believe the services of a financial expert are not warranted.

 

-16-

We intend to establish an audit committee of the Board of Directors, which will consist of independent directors. The audit committee’s duties will be to recommend to our board of directors the engagement of an independent registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in our opinion, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

 

Delinquent Section 16(a) Reports

 

Section 16(a) of the Exchange requires our officers, directors and persons who own more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. To our knowledge, based on solely a review of the copies of such reports, all Section 16 reports required to be filed during the fiscal year ended May 31, 2022 were filed untimely.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

The following table sets forth the compensation paid by us for the last two fiscal years ended May 31, 2022, and 2021, to our officers. This information includes the dollar value of base salaries, bonus awards and stock options granted, and certain other compensation, if any. The compensation discussed addresses all compensation awarded to, earned by, or paid to our named executive officers.

 

Summary Compensation Table

 

Name and Principal

Position

  Year    

Salary

($)

   

Bonus

($)

   

Stock

Awards

($)

   

Option

Awards

($)(1)

   

Non-Equity 

Incentive Plan 

Compensation

($)

   

Nonqualified

Deferred 

Compensation 

Earnings

($)

   

All Other 

Compensation

($)

   

Totals

($)

 
Jeff Toghraie     2022                         279,000                         279,000  
Chief Executive Officer and Chairman     2021                                                  
                                                                         
Jeff Brown     2022       50,000                   198,000                         248,000  
Chief Operating Officer     2021       58,750                                           58,750  
                                                                         
Donald Starace     2022                                                  
President     2021                                                  
                                                                         
Christopher Go     2022                                                  
Chief Financial Officer and Secretary     2021                                                  

 

(1)The value of option awards in this table represents the fair value of such awards granted or modified during the fiscal year, as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. The assumptions used to determine the valuation of the awards are discussed in Note 9—Stockholders’ Equity to our consolidated financial statements included herein.

 

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Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth certain information regarding outstanding equity awards held by the named executive officers as of May 31, 2022:

 

      Option Awards
Name  Grant Date 

Number of securities underlying unexercised options

(#) exercisable

 

Number of securities underlying unexercised options

(#) unexercisable

  

Option exercise price

($)

   Option expiration date
Jeff Toghraie  5/10/22     3,100,000(1)   0.09   4/20/2032
Jeff Brown  5/10/22     2,200,000(1)   0.09   4/20/2032

 

(1)These options vest and become exercisable over time, with 25% of the options vesting on September 1, 2022 and thereafter vesting 1/24th on the 1st of every month.

 

Director Compensation Table

 

The following table sets forth the compensation paid by us to our non-employee directors for the fiscal year ended May 31, 2022. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. Mr. Toghraie does not receive any separate compensation for his services as director.

 

Name   

Fees

Earned or

Paid in

Cash

($)

    

Stock

Awards

($)

    

Option

Awards

($)

    

Non-Equity

Incentive Plan

Compensation

($) 

    

Nonqualified Deferred

Compensation 

Earnings

($) 

    

All Other 

Compensation 

($)

    

Total

($)

 
Nancy Hundt                            

 

We have not paid any compensation to our non-employee directors in fiscal years 2022 and 2021.

 

There are no retirement, pension, or profit sharing plans for the benefit of our officers and directors.

 

2022 Equity Incentive Plan

 

The Board of Directors approved the Company’s 2022 Equity Incentive Plan (the “Plan”) on March 21, 2022. Under the Plan, equity-based awards may be made to employees, officers, directors, non-employee directors and consultants of the Company and its Affiliates (as defined in the plan) in the form of (i) Incentive Stock Options (to eligible employees only); (ii) Nonqualified Stock Options; (iii) Restricted Stock; (iv) Stock Awards; (v) Performance Shares; or (vi) any combination of the foregoing. The Plan will terminate upon the close of business on the day next preceding March 21, 2032, unless terminated earlier in accordance with the terms of the Plan. The Board serves as the Plan administrator and may amend or terminate the Plan without stockholder approval, subject to certain exceptions.

 

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The total number of shares initially authorized for issuance under the Plan was 10 million shares. The Plan provides for an annual increase on April 1 of each calendar year, beginning in 2022 and ending in 2031, subject to Board approval prior to such date. Such increase may be equal to the lesser of (i) 4% of the total number of shares of the Company’s common stock outstanding on May 31 of the immediately preceding fiscal year and (ii) such smaller number of shares as determined by the Board. The number of shares authorized for issuance under the Plan will not change unless the Board affirmatively approves an increase in the number of shares authorized for issuance prior to April 1 of the applicable year. Shares surrendered or withheld to pay the exercise price of a stock option or to satisfy tax withholding requirements will not be added back to the number of shares available under the Plan. To the extent that any shares of common stock awarded or subject to issuance or purchase pursuant to awards under the Plan are not delivered or purchased, or are reacquired by the Company, for any reason, including a forfeiture of restricted stock or failure to earn performance shares, or the termination, expiration or cancellation of a stock option, or any other termination of an award without payment being made in the form of shares of common stock will be added to the number of shares available for awards under the Plan. The number of shares available for issuance under the Plan will be adjusted for any increase or decrease in the number of outstanding shares of common stock resulting from payment of a stock dividend on common stock, a stock split or subdivision or combination of shares of common stock, or a reorganization or reclassification of common stock, or any other change in the structure of shares of common stock, as determined by the Board. Shares available for awards under the Plan will consist of authorized and unissued shares.

 

Two types of options may be granted under the Plan: (1) Incentive Stock Options which may only be issued to eligible employees of the Company and are required to have the exercise price of the option not less than the fair market value of the common stock on the grant date, or, in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, 110% of the fair market value of the common stock at the grant date; and (2) Non-qualified Stock Options which may be issued to participants under the Plan and which may have an exercise price less than the fair market value of the common stock on the grant date, but not less than par value of the stock.

 

The Board may grant or sell restricted stock to participants (i.e., shares that are subject to a subject to restrictions or limitations as to the participant’s ability to sell, transfer, pledge or assign such shares) under the Plan. Except for these restrictions and any others imposed by the Board, upon the grant of restricted stock, the recipient generally will have rights of a stockholder with respect to the restricted stock. During the applicable restriction period, the recipient may not sell, exchange, transfer, pledge or otherwise dispose of the restricted stock. The Board may also grant awards of common stock to participants under the Plan, as well as awards of performance shares, which are awards for which the payout is subject to achievement of such performance objectives established by the Board. Performance shares may be settled in cash.

 

Each equity-based award granted under the Plan will be evidenced by an award agreement that specifies the terms of the award and such additional limitations, terms and conditions as the Board may determine, consistent with the provisions of the Plan.

 

Upon the occurrence of a change in control, unless otherwise provided in an award agreement: (i) all outstanding stock options will become immediately exercisable in full; (ii) all outstanding performance shares will vest in full as if the applicable performance conditions were achieved in full, subject to certain adjustments, and will be paid out as soon as practicable; and (iii) all restricted stock will immediately vest in full. The Plan defines a change in control as (i) the adoption of a plan of merger or consolidation of the Company with any other corporation or association as a result of which the holders of the voting capital stock of the Company as a group would receive less than 50% of the voting capital stock of the surviving or resulting corporation; (ii) the approval by the Board of an agreement providing for the sale or transfer (other than as security for obligations of the Company) of substantially all the assets of the Company; or (iii) in the absence of prior Board approval, the acquisition of more than 20% of the Company’s voting capital stock by any person within the meaning of Rule 13d-3 under the Exchange Act (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company).

 

Subject to the Plan’s terms, the Board has full power and authority to determine whether, to what extent and under what circumstances any outstanding award will be terminated, canceled, forfeited or suspended. Awards to that are subject to any restriction or have not been earned or exercised in full by the recipient will be terminated and canceled if such recipient is terminated for cause, as determined by the Board in its sole discretion.

 

Pursuant to the Plan, on May 10, 2022, the Company issued to two Company officers non-statutory stock options to purchase, in the aggregate, up to 5,300,000 shares of its Common Stock, at an exercise price of $0.09 per share and expiring on April 20, 2032. The options vest over time with 25% of the options vesting on September 1, 2022 and thereafter vesting 1/24th on the 1st of every month. None of the options are vested as of May 31, 2022. 

 

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Indemnification

 

Our Amended and Restated Certificate of Incorporation and our Bylaws, subject to certain provisions of Delaware Law, contain provisions which require or allow us to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably believed was in the best interest of the Company. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following tables set forth the ownership, as of August 8, 2022, of our common stock by each person known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock, our directors, our named executive officers, and our directors and executive officers as a group. The persons named have sole voting and investment power with respect to such shares, except as otherwise noted.  

 

On June 16, 2022, the Company and its wholly owned subsidiary Reviv3 Acquisition Corporation completed the acquisition of both (i) the hearing protection business of Axil, consisting of ear plugs and ear muffs, and (ii) Axil’s ear bud business pursuant to the Asset Purchase Agreement, dated May 1, 2022, as amended on June 15, 2022, by and among the Company, Reviv3 Acquisition Corporation, Axil and certain stockholders of Axil. One of the stockholders of Axil is Intrepid Global Advisors (“Intrepid”). As of June 16, 2022, Intrepid held 4.68% of the outstanding common stock of Axil and 22.33% of the outstanding common stock of the Company. Jeff Toghraie, Chairman and Chief Executive Officer of the Company, is a managing director of Intrepid. The acquisition purchase price consisted of (a) 73,183,893 shares of the Company’s common stock and (b) 250,000,000 shares of the Company’s non-voting Series A Preferred Stock (the “Preferred Shares”), which are convertible into shares of Company common stock on a one-to-one ratio. Pursuant to a lock up in the Asset Purchase Agreement, the Preferred Shares may not be converted or transferred for a period of two years following the closing of the acquisition. In addition, under the Asset Purchase Agreement, no holder of Preferred Shares may convert such shares into a number of shares of Company common stock that would cause the holder to beneficially own more than 5% of the Company’s common stock, as determined in accordance with Sections 13(d) and (g) of the Exchange Act.

 

In addition, in connection with the Asset Purchase Agreement, the Company, Intrepid, and Axil entered into a voting agreement, effective as of June 16, 2022, pursuant to which, among other things: (i) the Company agreed not to issue new capital stock of the Company for two years following the closing of the Asset Purchase Agreement without the approval of both Axil and Intrepid, subject to certain exceptions; and (ii) Axil irrevocably appointed the Chief Executive Officer and Secretary of the Company as proxies of Axil, to vote with respect to all shares of capital stock beneficially owned by Axil for the two years following the closing of the Asset Purchase Agreement.

 

The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within sixty (60) days through the conversion or exercise of any convertible security, warrant, option or other right. More than one (1) person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within sixty (60) days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person as the right to acquire voting or investment power within sixty (60) days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. 

 

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Except as otherwise indicated below, the address of each beneficial owner is c/o Reviv3 Procare Company, 9480 Telstar Avenue, Unit 5, El Monte, California 91731.

 

Title of Class   Name/Position   Beneficial Ownership    

Percentage 

Of Class 

 
Executive Officers and Directors                
Common   Jeff Toghraie/Chairman and CEO (1)     8,955,875       7.73 %
Common   Jeff Brown/Chief Operating Officer (7)     927,750       0.80 %
Common   Christopher Go/ CFO, Secretary (2)     1,025,709       0.89 %
Common   Donald Starace/President (8)     898,838       0.78 %
Common   Nancy Hundt/Director (3)     2,145,455       1.87 %
    All Officers and Directors     13,953,627       11.98 %
                     
Non-Executive Beneficial Owners                
Common   Axon Capital Management, Inc. (4)           720,000               0.63 %
Common   Shircoo, Inc. (5)     13,385,000       11.64 %
Common   Axil & Associated Brands Corp.(6)     73,183,893       63.65 %

 

(1) Jeff Toghraie, our Chairman and CEO, is the sole beneficiary of Intrepid Global Advisors, which holds 8,084,000 shares of common capital stock of the Company. Includes 871,875 shares of common stock underlying stock options that are exercisable within 60 days of August 8, 2022.

 

(2) Christopher Go, our CFO and Secretary, is the Managing Partner of Titan HG, LLC, which holds 1,025,709 shares of common capital stock of the Company.

 

(3) Nancy Hundt holds the shares personally, residing at 31569 Lindero Canyon Rd., #3, Westlake Village, CA 91361

 

(4) Sam Toghraie who is the brother of Jeff Toghraie, our Chairman and CEO, is a partner at Axon Capital Management, Inc.  Axon Capital Management, Inc. has offices at 5490 Whister Ct., Chino Hills, CA 91709

  

(5) Shircoo, Inc. is managed by Max Toghraie, its Managing Partner who is the brother of our Chairman and CEO, Jeff Toghraie.  Shircoo, Inc. maintains offices at 2350 E. Allview Terrace, Los Angeles, CA 90068

 

(6)On June 16, 2022, the Company and its wholly owned subsidiary Reviv3 Acquisition Corporation completed the acquisition of both (i) the hearing protection business of Axil, consisting of ear plugs and ear muffs, and (ii) Axil’s ear bud business pursuant to the Asset Purchase Agreement, dated May 1, 2022, as amended on June 15, 2022, by and among the Company, Reviv3 Acquisition Corporation, Axil and certain stockholders of Axil. The acquisition purchase price consisted of (a) 73,183,893 shares of the Company’s common stock and (b) 250,000,000 shares of the Company’s Preferred Shares, which are convertible into shares of Company common stock on a one-to-one ratio. The number of shares included in the table does not include the Preferred Shares, as pursuant to a lock up in the Asset Purchase Agreement, the Preferred Shares may not be converted or transferred for a period of two years following the closing of the acquisition. In addition, under the Asset Purchase Agreement, no holder of Preferred Shares may convert such shares into a number of shares of Company common stock that would cause the holder to beneficially own more than 5% of the Company’s common stock, as determined in accordance with Sections 13(d) and (g) of the Exchange Act.

 

In addition, in connection with the Asset Purchase Agreement, the Company, Intrepid, and Axil entered into a voting agreement, effective as of June 16, 2022, pursuant to which, among other things: (i) the Company agreed not to issue new capital stock of the Company for two years following the closing of the Asset Purchase Agreement without the approval of both Axil and Intrepid, subject to certain exceptions; and (ii) Axil irrevocably appointed the Chief Executive Officer and Secretary of the Company as proxies of Axil, to vote with respect to all shares of capital stock beneficially owned by Axil for the two years following the closing of the Asset Purchase Agreement.

 

-21-

 

(7)Includes 618,750 shares of common stock underlying stock options that are exercisable within 60 days of August 8, 2022.

 

(8)Donald Starace is the Principal of DRS, LLC with offices at 1590 Anderson Ave., #14J, Fort Lee, New Jersey 07024, which holds 898,838 shares of common stock of the Company.

 

Securities authorized for issuance under equity compensation plans

 

The following table sets forth equity compensation plan information as of May 31, 2022:

 

Plan category  

Number of securities to be issued upon exercise of outstanding options, warrants and rights

(a)

 

Weighted-average exercise price of outstanding options, warrants and rights

(b)

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

(c)

Equity compensation plans approved by security holders     $  
Equity compensation plans not approved by security holders(1)   5,300,000     0.09   4,700,000
Total   5,300,000   $ 0.09   4,700,000

 

(1)On March 21, 2022, the Board of Directors approved the Plan. The total number of shares available under the plan as of May 31, 2022 was 10,000,000 shares. The Plan provides for an annual increase on April 1 of each calendar year, beginning in 2022 and ending in 2031, subject to Board approval prior to such date. Such increase may be equal to the lesser of (i) 4% of the total number of shares of the Company’s common stock outstanding on May 31 of the immediately preceding fiscal year and (ii) such smaller number of shares as determined by the Board. The number of shares authorized for issuance under the Plan will not change unless the Board affirmatively approves an increase in the number of shares authorized for issuance prior to April 1 of the applicable year. For additional information regarding the Plan, see Item 11. Executive Compensation—2022 Equity Incentive Plan.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Director Independence

 

Because we are quoted on the OTCQB and not listed on a national securities exchange, we are currently not subject to certain corporate governance requirements that apply to exchange-listed companies. For purposes of evaluating the independence of our directors, our Board of Directors uses the rules of the SEC and Nasdaq Stock Market (“Nasdaq”). Our directors, Jeff Toghraie and Nancy Hundt are not “independent directors” as defined under applicable SEC rules and regulations and the Nasdaq listing requirements and rules because they are employed by the Company.

 

Related Party Transactions

 

The following is a description of transactions or series of transactions since June 1, 2020, to which we were or will be a party, in which:

 

the amount involved in the transaction exceeds the lesser of (i) $120,000 or (ii) 1% of the average of our total assets at year end for the last two completed fiscal years; and

 

in which any of our executive officers, directors, director nominees or holders of 5% or more of any class of our voting capital stock, or any immediate family member of any of the foregoing, had or will have a direct or indirect material interest.

 

The Company’s Chief Executive Officer has, from time to time, provided advances to the Company for working capital purposes. At May 31, 2022, and 2021, the Company had a payable to the officer of $25,452 and $54,304 respectively. These advances were short-term in nature and non-interest bearing.

 

-22-

On June 16, 2022, the Company and its wholly owned subsidiary Reviv3 Acquisition Corporation completed the acquisition of both (i) the hearing protection business of Axil, consisting of ear plugs and ear muffs, and (ii) Axil’s ear bud business pursuant to the Asset Purchase Agreement, dated May 1, 2022, as amended on June 15, 2022, by and among the Company, Reviv3 Acquisition Corporation, Axil and certain stockholders of Axil. One of the stockholders of Axil is Intrepid. As of June 16, 2022, Intrepid held 4.68% of the outstanding common stock of Axil and 22.33% of the outstanding common stock of the Company. Jeff Toghraie, Chairman and Chief Executive Officer of the Company, is a managing director of Intrepid. The acquisition purchase price consisted of (a) 73,183,893 shares of the Company’s common stock and (b) 250,000,000 shares of the Company’s non-voting Preferred Shares, which are convertible into shares of Company common stock on a one-to-one ratio. Pursuant to a lock up in the Asset Purchase Agreement, the Preferred Shares may not be converted or transferred for a period of two years following the closing of the acquisition. In addition, under the Asset Purchase Agreement, no holder of Preferred Shares may convert such shares into a number of shares of Company common stock that would cause the holder to beneficially own more than 5% of the Company’s common stock, as determined in accordance with Sections 13(d) and (g) of the Exchange Act.

 

In addition, in connection with the Asset Purchase Agreement, the Company, Intrepid, and Axil entered into a voting agreement, effective as of June 16, 2022, pursuant to which, among other things: (i) the Company agreed not to issue new capital stock of the Company for two years following the closing of the Asset Purchase Agreement without the approval of both Axil and Intrepid, subject to certain exceptions; and (ii) Axil irrevocably appointed the Chief Executive Officer and Secretary of the Company as proxies of Axil, to vote with respect to all shares of capital stock beneficially owned by Axil for the two years following the closing of the Asset Purchase Agreement.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Fees

 

All of the services provided and fees charged by Salberg & Company, P.A. (“Salberg”), were approved by our Board, as we do not have an Audit Committee. The following table shows us the fees paid to Salberg, our principal accountant for the years ended May 31, 2022 and 2021 were: 

 

   Year Ended
May 31,
2022
   Year Ended
May 31,
2021
 
Audit fees (1)  $49,200   $44,200 
Audit related fees        
Tax fees        
All other fees        
Total  $49,200   $44,200 

 

(1) Audit fees - these fees relate to the audit of our annual financial statements and the review of our interim quarterly financial statements.

  

The SEC requires that before our independent registered public accounting firm is engaged by us to render any auditing or permitted non-audit related service, the engagement be either (i) approved by our Audit Committee or (ii) entered into pursuant to pre-approval policies and procedures established by the Audit Committee, provided that the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service, and such policies and procedures do not include delegation of the Audit Committee’s responsibilities to management. We do not have an Audit Committee. Our Board pre-approves all services provided by our independent registered public accounting firm.

 

-23-

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

(a)(1) Financial Statements 

REVIV3 PROCARE COMPANY AND SUBSIDIARY

 

CONSOLIDATED FINANCIAL STATEMENTS

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

May 31, 2022 and 2021

 

CONTENTS

 

Report of Independent Registered Public Accounting Firm (PCAOB ID: 106) F-2
   
Financial Statements:  
   
Consolidated Balance Sheets - As of May 31, 2022 and 2021 F-4
   
Consolidated Statements of Operations - For the years ended May 31, 2022 and 2021 F-5
   
Consolidated Statements of Changes in Stockholders’ Equity - For the years ended May 31, 2022 and 2021 F-6
   
Consolidated Statements of Cash Flows – For the years ended May 31, 2022 and 2021 F-7
   
Notes to Consolidated Financial Statements F-8

 

F-1

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of:

Reviv 3 Procare Company

 

Opinion on the Financial Statements

 

We have audited the accompanying Consolidated balance sheets of Reviv3 Procare Company and subsidiary (the “Company”) as of May 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended May 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of May 31, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the two years in the period ended May 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a net loss and net cash used in operating activities of $182,903 and $126,055 respectively, for the fiscal year ended May 31, 2022. The Company has an accumulated deficit of $5,291,567 at May 31, 2022. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan regarding these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

 

F-2

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

 

/s/ Salberg & Company, P.A. 

 

SALBERG & COMPANY, P.A.

We have served as the Company’s auditor since 2017.

Boca Raton, Florida

August 25, 2022

 

2295 NW Corporate Blvd., Suite 240 ● Boca Raton, FL 33431-7328
Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920
www.salbergco.com ● info@salbergco.com
Member National Association of Certified Valuation Analysts ● Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality

 

F-3

REVIV3 PROCARE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

           
   May 31,   May 31, 
   2022   2021 
ASSETS          
CURRENT ASSETS:          
Cash  $373,731   $496,937 
Accounts receivable, net   105,921    90,877 
Inventory, net   323,388    450,978 
Prepaid expenses and other current assets   -    2,430 
           
Total Current Assets   803,040    1,041,222 
           
OTHER ASSETS:          
Inventory, non-current   -    39,874 
Property and equipment, net   29,145    37,016 
Deposits   16,277    16,277 
Right of use assets, net   45,453    128,375 
           
Total Other Assets   90,875    221,542 
           
TOTAL ASSETS  $893,915   $1,262,764 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES:          
Accounts payable and accrued expenses  $458,263   $458,962 
Customer deposits   16,522    106,949 
Due to related party   25,452    54,304 
Equipment payable, current   3,300    3,300 
Loans payable, current   156,300    4,261 
Lease liability, current   47,166    84,635 
           
Total Current Liabilities   707,003    712,411 
           
LONG TERM LIABILITIES:          
Equipment payable   2,200    5,500 
Loans payable   -    152,039 
Lease liability, non- current   -    47,166 
           
Total Long Term Liabilities   2,200    204,705 
           
Total Liabilities   709,203    917,116 
           
Commitments and contingencies (see Note 10)        
           
STOCKHOLDERS’ EQUITY:          
Preferred stock, $0.0001 par value; 300,000,000 shares authorized; none issued and outstanding        
Common stock, issued and issuable, $0.0001 par value: 450,000,000 shares authorized; 41,945,881 and 41,945,881 shares issued and outstanding as of May 31, 2022 and 2021, respectively   4,195    4,195 
Additional paid-in capital   5,472,084    5,450,117 
Accumulated deficit   (5,291,567)   (5,108,664)
           
Total Stockholders’ Equity   184,712    345,648 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $893,915   $1,262,764 

 

See accompanying notes to these consolidated financial statements.

 

F-4

REVIV3 PROCARE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

           
   For the Years Ended 
   May 31,   May 31, 
   2022   2021 
Sales  $2,336,257   $1,633,609 
           
Cost of sales   828,586    599,701 
           
Gross profit   1,507,671    1,033,908 
           
OPERATING EXPENSES:          
Marketing and selling expenses   1,199,305    730,056 
Compensation and related taxes   15,129    36,817 
Professional and consulting expenses   232,774    306,172 
General and administrative   271,866    281,917 
           
Total Operating Expenses   1,719,074    1,354,962 
           
LOSS FROM OPERATIONS   (211,403)   (321,054)
           
OTHER INCOME (EXPENSE):          
Gain on debt settlement   35,000    29,333 
Interest income   36    44 
Interest expense and other finance charges   (6,536)   (6,078)
           
Other Income (Expense), Net   28,500    23,299 
           
LOSS BEFORE PROVISION FOR INCOME TAXES   (182,903)   (297,755)
           
Provision for income taxes        
           
NET LOSS  $(182,903)  $(297,755)
           
NET LOSS PER COMMON SHARE - Basic and diluted  $(0.00)  $(0.01)
           
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:          
Basic and diluted   41,945,881    41,566,484 

 

See accompanying notes to these consolidated financial statements.

 

F-5

 REVIV3 PROCARE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED MAY 31, 2022 AND 2021

                                    
       Common Stock   Additional       Total  
   Preferred Stock   Issued And Issuable   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
                             
Balance, May 31, 2020   -   $-    41,285,881   4,129    $5,311,383   (4,810,909)  504,603 
                                    
Shares issued for consulting   -    -    440,000    44    66,356    -    66,400 
                                    
Shares issued for legal services   -    -    60,000    6    25,194    -    25,200 
                                    
Shares to be issued for consulting   -    -    160,000    16    47,184    -    47,200 
                                    
Net loss for the year ended May 31, 2021   -    -    -    -    -    (297,755)   (297,755)
                                    
Balance, May 31, 2021   -    -    41,945,881    4,195    5,450,117    (5,108,664)   345,648 
                                    
Stock options expense   -    -    -    -    21,967    -    21,967 
                                    
Net loss for the year ended May 31, 2022   -    -    -    -    -    (182,903)   (182,903)
                                    
Balance, May 31, 2022             -   $          -    41,945,881   $4,195   $5,472,084   $(5,291,567)  $184,712 

 

See accompanying notes to these consolidated financial statements.

 

F-6

REVIV3 PROCARE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

           
   For the Years Ended 
   May 31,   May 31, 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(182,903)  $(297,755)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation   7,871    9,969 
Bad debts   6,941    1,061 
Inventory obsolescence   71,481    23,714 
Stock based compensation   21,967    138,800 
Gain on debt forgiveness   (35,000)   (29,333)
Non cash lease expense   (1,713   1,713 
Change in operating assets and liabilities:          
Accounts receivable   (21,985)   90,263 
Inventory   95,983    (226,442)
Prepaid expenses and other current assets   2,430    11,278 
Accounts payable and accrued expenses   (701)   346,545 
Customer deposits   (90,426)   (21,406)
           
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   (126,055)   48,407 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of property and equipment   -    (15,408)
           
NET CASH USED IN INVESTING ACTIVITIES   -    (15,408)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from loan payable   35,000    6,300 
Repayment of equipment financing   (3,300)   (3,300)
Advances (payments) from a related party   (28,851)   51,907 
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   2,849    54,907 
           
NET INCREASE (DECREASE) IN CASH   (123,206)   87,906 
           
CASH - Beginning of year   496,937    409,031 
           
CASH - End of year  $373,731   $496,937 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid during the period for:          
Interest  $500   $500 
Income taxes  $   $ 

 

See accompanying notes to these consolidated financial statements.

 

F-7

 REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

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. In March 2022, the Company incorporated a subsidiary “Reviv3 Acquisition Corporation”.

 

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The consolidated financial statements for the years ended May 31, 2022 and 2021 have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and include the accounts of the Company and its consolidated subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

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 vendor 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 consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company obtained two loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and one loan under the Economic Injury Disaster Loan Program (the “EIDL”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). See Note- 8 Loans payable. Management is focused on growing the Company’s existing products offering, as well as its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying consolidated financial statements.

 

Going Concern

 

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $182,903 and $297,755, respectively, for the years ended May 31, 2022 and 2021. The Company used cash in operations of $126,055 in fiscal 2022. Additionally, the Company had an accumulated deficit of $5,291,567 at May 31, 2022. 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 consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

F-8

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

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

 

Use of estimates

 

The preparation of the consolidated 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 consolidated 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 lease liabilities and related right of use assets, the valuation of deferred tax assets, the value of stock-based compensation, fair value of securities issued for business combinations, fair value of assets acquired and liabilities assumed in business combinations 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 an 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 $0 and $2,430 at May 31, 2022 and 2021, respectively, consisted primarily of a cash prepayment to vendors which was amortized in 2022.

 

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. The Company continuously evaluates the levels of inventory held and any inventory held above the expected level of sales in the next twelve months, is classified as non- current inventory.

 

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-9

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

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

 

Cost of Sales

 

The primary components of cost of sales include the cost of the product and 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 $214,517 and $133,396 for the years ended May 31, 2022 and 2021, respectively.

 

Marketing, selling and advertising

 

Marketing, selling and advertising costs are expensed as incurred.

 

Customer Deposits

 

Customer deposits consisted of prepayments from customers to the Company. The Company will recognize the prepayments as revenue upon delivery of products in compliance with its revenue recognition policy.

 

Fair value measurements and fair value of financial instruments

 

The Company adopted Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

F-10

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

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

 

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

 

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

 

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

 

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

 

Business Combinations

 

For all business combinations (whether partial, full or step acquisitions), the Company records 100% of all assets acquired and liabilities assumed of the acquired business, generally at their fair values.

 

Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: (1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or (2) if the contingent consideration is classified as a liability, the changes in fair value and accretion costs are recognized in earnings. The increases or decreases in the fair value of contingent consideration can result from changes in anticipated revenue levels and changes in assumed discount periods and rates.

  

Goodwill

 

Goodwill is comprised of the purchase price of business combinations in excess of the fair value assigned at acquisition to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment for its reporting units on an annual basis, or when events occur, or circumstances indicate the fair value of a reporting unit is below its carrying value.

 

The Company performs its annual goodwill impairment assessment on May 31st of each year or as impairment indicators dictate.

 

F-11

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

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

 

When evaluating the potential impairment of goodwill, management first assesses a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company’s reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the quantitative impairment testing methodology primarily using the income approach (discounted cash flow method).

 

Under the quantitative method we compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, then the amount of impairment to be recognized is recognized as the amount by which the carrying amount exceeds the fair value.

 

When required, we arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by specifically identified assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results. 

 

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 consolidated 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 consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

 

F-12

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

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 loss during the years ended May 31, 2022 and 2021.

 

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 consolidated 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.

 

For non-employee stock option based awards, the Company follows ASU 2018-7, which substantially aligns share based compensation for employees and non-employees.

 

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, 2022 and 2021, the Company had 5,300,000 options outstanding which were potentially dilutive securities, however they were excluded from the computation since their impact would be antidilutive.

 

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 Company renewed lease for its corporate headquarters commencing December 1, 2019, under lease agreements classified as an operating lease. Please see Note 10 – ‘Commitments and Contingencies’ under “Leases” below for more information about the Company’s leases.

 

F-13

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

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 Entity’s 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 consolidated 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 such adoption did not have a material impact on its consolidated financial statements.

 

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU requires contract assets and contract liabilities (e.g. deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers”. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in purchase accounting. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating the impact the adoption of this ASU would have on the Company’s consolidated 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 consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

F-14

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 3 – Accounts Receivable, net

 

Accounts receivable, consisted of the following:

          
   May 31, 2022   May 31, 2021 
Accounts Receivable  $115,741   $93,756 
Less: Allowance for doubtful debts   (9,820)   (2,879)
Accounts receivable, net  $105,921   $90,877 

 

The Company recorded bad debt expense of $6,941 and $1,061 during the years ended May 31, 2022 and 2021, respectively.

 

Note 4 – Inventory, net

 

Inventory consisted of the following:

          
   May 31, 2022   May 31, 2021 
Finished Goods  $29,249   $15,056 
Raw Materials  294,139   475,796 
 Inventory, net  $323,388   $490,852 
Less: Inventory, non-current  -  (39,874)
Current Inventory  $323,388   $450,978 

 

At May 31, 2022 and 2021, inventory held at third party locations amounted to $16,940 and $23,401, respectively. At May 31, 2022 and 2021, there was no inventory in- transit.

 

During the years ended May 31, 2022 and 2021, the Company created an allowance of $71,481 and $23,714, respectively, on slow moving inventory included in cost of sales. The Company also reclassed some slow-moving inventory, comprising of bottles and packaging as non-current inventory in 2021 which were subsequently written off at May 31, 2022. As of May 31, 2022 and 2021, slow moving inventory amounted to $0 and $39,874, respectively.

 

Note 5 – Property and Equipment

 

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

               
   Estimated Life   May 31, 2022   May 31, 2021 
Furniture and Fixtures   5 years   $5,759   $5,759 
Computer Equipment   3 years    17,392    17,392 
Plant Equipment   5-10 years    45,128    45,128 
Less: Accumulated Depreciation        (39,134)   (31,263)
        $29,145   $37,016 

 

Depreciation expense amounted to $7,871 and $9,969 for the years ended May 31, 2022 and 2021, respectively.

 

F-15

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 6 – Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses comprised of the following:

          
   May 31, 2022   May 31, 2021 
Trade Payables  $435,714   $436,138 
Credit Cards   2,966    11,115 
Other   19,583    11,709 
Accounts Payable and Accrued Expenses  $458,263   $458,962 

 

During the year ended May 31, 2020, the Company recorded $18,313 as expense and liability for fair market value of shares to be issued to a consultant as remuneration, in the accompanying consolidated financials. During the year ended May 31, 2021, the Company entered into a settlement agreement with the consultant and paid him $2,000 as full and final settlement. The Company recorded a gain on debt settlement of $16,313 in the year ended May 31, 2021.

 

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 installment payments of $317 comprising of principal payment of $275 and interest payment of $42. As at May 31, 2022 and 2021, the balance outstanding on the loan was $5,500 and $8,800, respectively, of which $3,300 is payable within one year and the balance is payable after one year. The Company recorded an interest expense of $500 and $500, during the years ended May 31, 2022 and 2021, on the loan in the accompanying consolidated financial statements.

 

The amounts of loan payments due in the next two years ended May 31, are as follows:

     
   Total 
2023  $3,300 
2024  2,200 
Equipment Payable, Net  $5,500 

 

F-16

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 8 – Loans Payable

 

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 Company received a loan forgiveness for $10,000 during the year ended May 31, 2022. During the year ended May 31, 2022, the Company received additional $10,000 of borrowings under the program. The Company recorded an accrued interest of $11,684 and $5,923, as of May 31, 2022 and 2021, respectively. The Company has not paid any installment of the loan as of May 31, 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 Company’s borrowings under the Loan may be eligible for loan forgiveness if used for qualifying expenses incurred during the “covered period,” as defined in the CARES Act. The Company’s 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 $75 and $0, as of May 31, 2022 and May 31, 2021, respectively. The Company has not paid any installment of the loan as of May 31, 2022 and the loan is currently in default.

 

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 forgiven by the US Small Business Administration in March 2021 and the Company recorded a gain on debt forgiveness of $13,020 during the year ended May 31, 2021.

 

During the year ended May 31, 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 consolidated financial statements as no repayment is required to be made.

 

Loans Payable as of May 31, 2022 and 2021

        
   2022   2021 
         
Second Draw Paycheck Protection Program (PPP- 2)  $6,300   6,300 
Economic Injury Disaster Loan Program (EIDL)  150,000    150,000 
Total  $156,300   $156,300 
Less: Current portion   (156,300   (4,261)
Non-current portion  $-   $152,039 

 

The amounts of loan payments due in the next year ended May 31, are as follows:

     
   Total 
2023  $156,300 
   $156,300 

 

F-17

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 9 – Stockholders’ Equity

 

Shares Authorized

 

As of May 31, 2022, the authorized capital of the Company consisted 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. On June 13, 2022, the Company amended its amended and restated certificate of incorporation to increase the number of authorized common stock, par value $0.0001 common stock per share, from 100,000,000 to 450,000,000 and to increase the number of authorized preferred stock, par value $0.0001 per share, from 20,000,000 to 300,000,000.

 

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.

 

The holders of shares of Series A Preferred Stock shall have no rights to dividends with respect to such shares. No dividends or other distributions shall be declared or paid on the Common Stock unless and until dividends at the same rate shall have been paid or declared and set apart upon the Series A Preferred Stock, based upon the number of shares of Common Stock into which the Series A Preferred Stock may then be converted. Upon the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive out of the assets of the Company the sum of $0.0001 per share before any payment or distribution shall be made on our shares of Common Stock. The Series A Preferred Stock shall not be subject to redemption at the option, election or request of the Corporation or any holder or holders of the Series A Preferred Stock. Each share of Series A Preferred Stock is convertible at the option of the holder thereof, at any time after the second anniversary of the date of the first issuance of the shares of Series A Preferred Stock into one fully paid and nonassessable share of Common Stock provided, however, that the holder may not convert that number of shares of Series A Preferred Stock which would cause the holder to become the beneficial owner of more than 5% of the Corporation’s Common Stock as determined in accordance with Sections 13(d) and (g) of the Securities and Exchange Act of 1934 and the applicable rules and regulations thereunder. 

 

Common Stock

 

As of May 31, 2022, 41,945,881 shares of common stock were issued and outstanding. 

 

No shares were issued during the year ended May 31, 2022.

 

During the year ended May 31, 2021, the Company issued 200,000 shares to a consultant for past services. The shares were valued at the fair market value of the $16,000, which expense was recognized immediately.

 

During the year ended May 31, 2021, the Company issued 240,000 shares to a consultant for investor relation services under an initial three months agreement. The shares were valued at the fair market value of $50,400, based on the quoted trading price on grant date of $0.21 per share, which expense was recognized over the term of the three months period. The agreement automatically renews on a month-to-month basis. The Company also recorded shares to be issued of $47,200 for the fair value of 160,000 shares to be issued to the same consultant for investor relation services performed through May 31, 2021, based on the quoted trading price on each grant date of $0.29 and $0.30 per share.

 

During the year May 31, 2021, the Company recorded $25,200 for 60,000 shares issued to an attorney for past services. The shares were valued at the fair market value, which expense was recognized immediately.

 

F-18

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 9 – Stockholders’ Equity (continued)

 

Stock Options

 

The Board of Directors approved the Company’s 2022 Equity Incentive Plan (the “Plan”) on March 21, 2022. Under the Plan, equity-based awards may be made to employees, officers, directors, non-employee directors and consultants of the Company and its Affiliates (as defined in the plan) in the form of (i) Incentive Stock Options (to eligible employees only); (ii) Nonqualified Stock Options; (iii) Restricted Stock; (iv) Stock Awards; (v) Performance Shares; or (vi) any combination of the foregoing. The Plan will terminate upon the close of business on the day next preceding March 21, 2032, unless terminated earlier in accordance with the terms of the Plan. The Board serves as the Plan administrator and may amend or terminate the Plan without stockholder approval, subject to certain exceptions.

 

The total number of shares initially authorized for issuance under the Plan was 10.0 million shares. The Plan provides for an annual increase on April 1 of each calendar year, beginning in 2022 and ending in 2031, subject to Board approval prior to such date. Such increase may be equal to the lesser of (i) 4% of the total number of shares of the Company’s common stock outstanding on May 31 of the immediately preceding fiscal year and (ii) such smaller number of shares as determined by the Board. The number of shares authorized for issuance under the Plan will not change unless the Board affirmatively approves an increase in the number of shares authorized for issuance prior to April 1 of the applicable year. Shares surrendered or withheld to pay the exercise price of a stock option or to satisfy tax withholding requirements will not be added back to the number of shares available under the Plan. To the extent that any shares of common stock awarded or subject to issuance or purchase pursuant to awards under the Plan are not delivered or purchased, or are reacquired by the Company, for any reason, including a forfeiture of restricted stock or failure to earn performance shares, or the termination, expiration or cancellation of a stock option, or any other termination of an award without payment being made in the form of shares of common stock will be added to the number of shares available for awards under the Plan. The number of shares available for issuance under the Plan will be adjusted for any increase or decrease in the number of outstanding shares of common stock resulting from payment of a stock dividend on common stock, a stock split or subdivision or combination of shares of common stock, or a reorganization or reclassification of common stock, or any other change in the structure of shares of common stock, as determined by the Board. Shares available for awards under the Plan will consist of authorized and unissued shares.

 

Two types of options may be granted under the Plan: (1) Incentive Stock Options, which may only be issued to eligible employees of the Company and are required to have exercise price of the option not less than the fair market value of the common stock on the grant date, or, in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, 110% of the fair market value of the common stock on the grant date; and (2) Non-qualified Stock Options, which may be issued to participants under the Plan and which may have an exercise price less than the fair market value of the common stock on the grant date, but not less than par value of the stock.

 

The Board may grant or sell restricted stock to participants (i.e., shares that are subject to a subject to restrictions or limitations as to the participant’s ability to sell, transfer, pledge or assign such shares) under the Plan. Except for these restrictions and any others imposed by the Board, upon the grant of restricted stock, the recipient generally will have rights of a stockholder with respect to the restricted stock. During the applicable restriction period, the recipient may not sell, exchange, transfer, pledge or otherwise dispose of the restricted stock. The Board may also grant awards of common stock to participants under the Plan, as well as awards of performance shares, which are awards for which the payout is subject to achievement of such performance objectives established by the Board. Performance shares may be settled in cash.

 

Each equity-based award granted under the Plan will be evidenced by an award agreement that specifies the terms of the award and such additional limitations, terms and conditions as the Board may determine, consistent with the provisions of the Plan.

 

Upon the occurrence of a change in control, unless otherwise provided in an award agreement: (i) all outstanding stock options will become immediately exercisable in full; (ii) all outstanding performance shares will vest in full as if the applicable performance conditions were achieved in full, subject to certain adjustments, and will be paid out as soon as practicable; and (iii) all restricted stock will immediately vest in full. The Plan defines a change in control as (i) the adoption of a plan of merger or consolidation of the Company with any other corporation or association as a result of which the holders of the voting capital stock of the Company as a group would receive less than 50% of the voting capital stock of the surviving or resulting corporation; (ii) the approval by the Board of an agreement providing for the sale or transfer (other than as security for obligations of the Company) of substantially all the assets of the Company; or (iii) in the absence of prior Board approval, the acquisition of more than 20% of the Company’s voting capital stock by any person within the meaning of Rule 13d-3 under the Exchange Act (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company).

 

F-19

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 9 – Stockholders’ Equity (continued)

 

Subject to the Plan’s terms, the Board has full power and authority to determine whether, to what extent and under what circumstances any outstanding award will be terminated, canceled, forfeited or suspended. Awards to that are subject to any restriction or have not been earned or exercised in full by the recipient will be terminated and canceled if such recipient is terminated for cause, as determined by the Board in its sole discretion.

 

Pursuant to the Plan, on May 10, 2022, the Company issued to two Company officers non-statutory stock options to purchase, in the aggregate, up to 5,300,000 shares of its Common Stock, at an exercise price of $0.09 per share and expiring on April 20, 2032. The options vest over time with 25% of the options vesting on September 1, 2022 and thereafter vesting 1/24th on the 1st of every month. None of the options are vested as of May 31, 2022.

 

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term and expected dividend yield rate over the expected option term. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award.

 

The Company utilizes the simplified method to estimate the expected life for stock options granted to employees. The simplified method was used as the Company does not have sufficient historical data regarding stock option exercises. The expected volatility is based on historical volatility. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected life of the related option at the time of the grant. Dividend yield is based on historical trends. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased. 

 

The Company computed the aggregate grant date fair value of $477,000 using the black-scholes option pricing model, which is being recorded as stock-based compensation expense over the vesting period. During the year ended May 31, 2022, the Company recorded a stock-based compensation expense of $21,967 for these options, in the accompanying consolidated financial statements.

 

The black- scholes options pricing model used the following assumptions:

 

Risk free interest rate- 2.99%

 

Expected life – 5.75 years

 

Expected volatility - 447%

 

Expected dividend - 0%

 

The following table summarizes the activity relating to the Company’s stock options held by Officers:

               
   Number of Options   Weighted Average Exercise Price   Weighted Average Remaining Term 
             
Outstanding at June 1, 2021   -    -    - 
Granted   5,300,000   $0.09   9.92 
Exercised   -    -    - 
Outstanding at May 31, 2022   5,300,000   $0.09   9.92 
Less: Unvested at May 31, 2022   (5,300,000  $0.09   9.92 
Vested at May 31, 2022   -    -    - 

 

F-20

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 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 has a lease agreement in connection with its office and warehouse facility in California under an operating lease which expired in October 2019. On December 1, 2019, the Company signed an extension of the lease for 3 years. The rent will be $7,567 per month for the first year and increase by a certain amount each year.

 

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

 

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

 

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

 

Pursuant to the new standard, the Company recorded an initial lease liability of $235,748 and an initial right of use asset in the same amount. During the years ended May 31, 2022 and 2021, the Company recorded a lease expense in the amount of $94,235 and $94,235, respectively. As of May 31, 2022, the lease liability balance was $47,166 and the right of use asset balance was $45,453. A lease term of three years and a discount rate of 12% was used.

 

Supplemental balance sheet information related to leases was as follows:

 

          
   May 31,
2022
   May 31,
2021
 
Assets          
Right of use assets  $235,748   $235,748 
Accumulated reduction   (190,295)   (107,373)
Operating lease assets, net  $45,453   $128,375 
           
Liabilities          
Lease liability  $235,748   $235,748 
Accumulated reduction   (188,582)   (103,947)
Total lease liability, net   47,166    131,801 
Current portion   (47,166)   (84,635)
Non-current portion  $-   $47,166 

 

F-21

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 10 – Commitments and Contingencies (continued)

 

Maturities of operating lease liabilities were as follows as of May 31, 2022: 

     
Operating Lease     
2023  $48,831 
      
Total  $48,431 
Less: Imputed interest  (1,665)
Present value of lease liabilities  $47,166 

 

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 products were defective. The amount of the claim of $204,182 has been recorded as accounts payable, in the accompanying consolidated financial statements as of May 31, 2022 and 2021.

 

Note 11 – Related Party Transactions

 

The Company’s Chief Executive Officer, from time to time, provided advances to the Company for working capital purposes. At May 31, 2022 and 2021, the Company had a payable to the officer of $25,452 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 Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At May 31, 2022 and 2021, the Company held cash of approximately $123,871 and $224,395, respectively, in excess of federally insured limits. The Company has not experienced any losses in such accounts through May 31, 2022 and 2021.

 

Concentration of Revenue, Product Line, and Supplier

 

During the year ended May 31, 2022 sales to two customers, which each represented over 10% of our total sales, aggregated to approximately 31% of the Company’s net sales at 15% and 16%. During the year ended May 31, 2021 sales to two customers, which each represented over 10% of our total sales, aggregated to approximately 34% of the Company’s net sales at 12% and 22%.

 

During the year ended May 31, 2022 sales to customers outside the United States represented approximately 16% which consisted of 14% from Canada and 2% from Italy and during the year ended May 31, 2021 sales to customers outside the United States represented approximately 24% which consisted of 19% from Canada and 5% from Italy.

 

During the year ended May 31, 2022, sales by product line which each represented over 10% of sales consisted of approximately 10% from sales of hair shampoo, 12% from sales of hair shampoo and conditioner, 25% from sale of introductory kit (shampoo, conditioner and treatment spray) and 29% from sale of bundle packs (shampoo, conditioner and spray). During the year ended May 31, 2021, sales by product line which each represented over 10% of sales consisted of approximately 11% from sales of hair shampoo, 21% from sales of hair shampoo and conditioner and 38% from sale of introductory kit (shampoo, conditioner and treatment spray).

 

F-22

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 12 – Concentrations (continued)

 

During the year ended May 31, sales by product line comprised of the following: 

          
   For the Years ended 
Hair Care Products  May 31, 2022   May 31, 2021 
Shampoos and Conditioners   84%   85%
Ancillary Products   16%   15%
Total   100%   100%

 

At May 31, 2022, accounts receivable from four customers represented approximately 74% at 11%, 12%, 14% and 37%.; and at May 31, 2021, accounts receivable from four customers represented approximately 83% at 11%, 12%, 25% and 35%.

 

The Company purchased inventories and products from four vendors totaling approximately $343,015 (97% of the purchases at 10%, 23%, 30% and 34%) and three vendors totaling approximately $404,512 (89% of the purchases at 19%, 27% and 43%) during the years ended May 31, 2022 and 2021, respectively.

 

Note 13 – Income taxes

 

The Company has incurred aggregate net operating losses of approximately $1,527,000 for income tax purposes as of May 31, 2022. 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,
 
   2022   2021 
Tax benefit computed at statutory rate of 21%  $(38,410)  $(65,529)
State tax benefit of 9%   (15,289)   (25,626)
True up to prior year tax return  (46,109)   2,096 
Non-deductible expenses: Stock-based compensation   6,590    41,640 
Non deductible expense: Other   2,082    7,114 
Non taxable: Covid related grants/loan forgiveness   (10,500)   (3,906)
Increase (decrease) in valuation allowance   101,636    41,211 
Net income tax benefit  $   $ 

 

F-23

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 13 – Income taxes (continued)

 

The Company has a deferred tax asset which is summarized as follows at:

 

Deferred tax assets:

          
   May 31, 2022   May 31, 2021 
Net operating loss carryover  $452,824   $351,188 
Less: valuation allowance   (452,824)   (351,188)
Net deferred tax asset  $   $ 

 

The Company provided a valuation allowance equal to the deferred income tax asset at May 31, 2022 and 2021 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The increase in the allowance was $101,636 in fiscal 2022 and $41,211 in fiscal 2021.

 

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 2019, 2020 and 2021 Corporate Income Tax Returns are subject to Internal Revenue Service examination. 

 

Note 14 – Subsequent Events

 

Amendment to Certificate of Incorporation

 

On June 13, 2022, the Company amended its amended and restated certificate of incorporation to increase the number of authorized common stock, par value $0.0001 per share, from 100,000,000 to 450,000,000 and to increase the number of authorized preferred stock, par value $0.0001 per share, from 20,000,000 to 300,000,000.

 

Business Combination

 

On June 16, 2022, the Company completed the acquisition of the majority of the business of Axil & Associated Brands Corp. (“Axil”), providing for the acquisition of their hearing protection business and ear bud business, pursuant to the Asset Purchase Agreement dated May 1, 2022 and amended on June 15, 2022. The business constitutes substantially all of the business operations of Axil but does not include Axil’s hearing aid line of business.

 

One of the stockholders of Axil is Intrepid Global Advisors. As of June 16, 2022, Intrepid held 4.68% of the outstanding common stock of Axil and 22.33% of the outstanding common stock of the Company. Jeff Toghraie, Chairman and Chief Executive Officer of the Company is a managing director of Intrepid.

 

As consideration for the Asset Purchase, Axil received a total of 323,183,893 shares of the Company which comprised of (a) 73,183,893 shares of the Company’s common stock and (b) 250,000,000 shares of the Company’s non-voting Series A Preferred Stock, which are convertible into shares of Company common stock on a one-to-one ratio. The Preferred Shares may not be converted or transferred for a period of two years following the closing of the acquisition. Thereafter, no holder of Preferred Shares may convert such shares into a number of shares of Company common stock that would cause the holder to beneficially own more than 5% of the Company’s common stock, as determined in accordance with Sections 13(d) and (g) of the Securities Exchange Act of 1934 (the “Exchange Act”). The purchase price was computed to be approximately $4,007,480 based on a fair value of $0.0124 per share on the date of acquisition.

 

F-24

REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021

 

Note 14 – Subsequent Events (continued) 

 

The Company is utilizing the Axil Assets to expand into the hearing enhancement business through its newly incorporated subsidiary.

 

The acquisition is accounted for by the Company in accordance with the acquisition method of accounting pursuant to ASC 805 “Business Combinations” and pushdown accounting is applied to record the fair value of the net assets acquired by the Company. Under this method, the purchase price is allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Any excess of the amount paid over the estimated fair values of the identifiable net assets acquired will be allocated to goodwill.

 

The following is a summary of the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

     
Purchase consideration  $4,007,480 
Tangible assets acquired and liabilities assumed at preliminary fair value     
Cash  $853,704 
Accounts receivables   412,026 
Inventory   1,523,947 
Prepaid expenses   1,861,075 
Other assets   50,893 
Accounts payables   (285,865)
Deferred revenues   (948,981)
Other liabilities   (218,122)

Net tangible assets acquired

  $3,248,677 
Identifiable intangible assets     
Customer relationships  $68,000 
Tradenames   275,000 
Website   100,000 

Total Identifiable intangible assets

  $443,000 
Consideration paid  $4,007,480 
Total net assets acquired   3,691,677 
Preliminary goodwill purchased  $315,803 

 

We completed the accounting and preliminary valuations of the assets acquired, liabilities assumed and, accordingly, the estimated fair values are provisional pending the final valuations which will not exceed one year in accordance with ASC 805.

 

Pro Forma Information (Unaudited)

 

The unaudited pro forma condensed combined financial statements are based on Reviv3 Procare Company and Axil & Associated Brands Corp.’s unaudited historical consolidated financial statements as adjusted to give effect to the Asset Purchase Agreement. The unaudited pro forma combined statements of operations for the twelve months ended May 31, 2022 for Reviv3 Procare Company and twelve months ended March 31, 2022 for Axil & Associated Brands Corp., give effect to the Asset Purchase Agreement as if it had occurred on June 1, 2021.

 

Schedule of proforma information     
   May 31, 
   2022 
Revenue  $18,356,862 
Net Loss  $(3,212,320)
Loss per common share  $(0.03)

 

The pro forma financial information is not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that result in the future. 

 

F-25

(b) Exhibits

 

            Incorporated by reference
Exhibit       Filed        Period       Filing
Number   Exhibit Description   herewith   Form   Ending   Exhibit   date
2.1+   Asset Purchase Agreement, dated as of May 1, 2022, among Reviv3 Procare Company, Reviv3 Acquisition Corporation, Axil & Associated Brands Corp., and Certain Stockholders of Axil & Associated Brands Corp.       8-K       10.1   6/22/2022
2.2   Amendment Number 1 to Asset Purchase Agreement, effective as of June 10, 2022, among Reviv3 Procare Company, Reviv3 Acquisition Corporation, Axil & Associated Brands Corp., and Certain Stockholders of Axil & Associated Brands Corp.       8-K       10.2   6/22/2022
3.1   Amended and Restated Certificate of Incorporation       S-1       3.3   10/6/2017
3.2   Bylaws       S-1       3.2   10/6/2017
3.3   Certificate of Amendment to the Amended and Restated Certificate of Incorporation   X                
4.1   Description of the Company’s Registered Securities   X                
4.2   Form of common stock Certificate of REVIV3 PROCARE COMPANY       S-1/A       4.2   11/17/2017
10.1   Contribution Agreement between Reviv3 Procare, LLC and Reviv3 Procare Company, dated June 1, 2015       S-1       10.1   10/6/2017
10.2   Lease Agreement between Reviv3 Procare Company and the Realty Associates Fund VIII, L.P. dated September 28, 2016       S-1/A       10.2   11/17/2017
10.2.1    First Amendment to Lease Agreement between Reviv3 Procare Company and ACEM, LLC, as successor-in-interest to the Realty Associates Fund VIII, L.P. dated September 12, 2019   X