UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 20222023
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐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 | (I.R.S. Employer |
901 S Fremont Avenue, Unit 158, Alhambra, CA | 91803 (Zip Code) | |
| (Address of Principal Executive Offices) |
9480 Telstar Avenue, Unit 5,
El Monte, CA91731
(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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ¨
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, 2021,2022 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 $1,737,4325,037,204..13. 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 | ||||
| Common Stock | |||||
Documents incorporated by reference: None
Table of Contents
Cautionary Note Regarding Forward-Looking Information
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Cautionary Note Regarding Forward-Looking Information
This Annual 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;conflict; 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 Annual Report on Form 10-K and other reports, statements, and information we have filed with the Securities and Exchange Commission (“Commission” or “SEC”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,“expect,” “should,” “could,” “would,” “continue,” “anticipates,“anticipate,” “intends,“intend,” “will likely result,“likely,” “estimates,“estimate,” “projects”“project,” “plan,” “design,” “potential” or similar expressions and variations thereof are intended to identify such forward-looking statements. However, any statements contained in this Annual 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 Annual Report on 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 Annual Report on Form 10-K, Reviv3 Procare Company (“Reviv3 Procare,” the “Company,” “we,” “us,” and “our”) has identified importantmaterial 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.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
Reviv3 Procare is engaged in the manufacturing, marketing, sale and distribution of high-tech, innovative hearing and audio enhancement and protection products that provide cutting-edge solutions for people with varied applications across many industries and professional quality hair and skin care products under various trademarks and brands. The Company is not, and has not been at any time, a shell company. On June 16, 2022 we completed the acquisition of substantially all of the assets of Axil & Associated Brands Corp. (“AXIL”), a leader in hearing and audio enhancement and protection. We operate on a fiscal year ending May 31.
Our Segments
Following the AXIL acquisition, we conduct our business through two operating segments: hearing enhancement and protection, and hair care and skin care. See Note 15 to our Consolidated Financial Statements in this report for financial information for these segments. We concentrate on attracting new customers and retaining existing customers to increase our total revenue. For the fiscal year ended May 31, 2023, the hearing protection and enhancement segment and the hair care and skin care segment accounted for 93.0% and 7.0% of our revenue, respectively.
Our Strategy
The Company’s overall business strategy is to establish market awareness of our products through our direct-to-consumer campaigns. We believe the increase in awareness will allow the Company to increase distribution and gain customers through our distribution partners’ retail establishments, with the goal of helping us achieve growth in market share and diversify our sales channels.
Hearing Enhancement and Protection Segment
Following the June 16, 2022 AXIL acquisition and under the AXIL and related brands, we create high-tech, innovative hearing and audio enhancement and protection products to provide cutting-edge solutions for people with varied applications across many industries, including ear plugs, ear muffs and ear buds. Following the acquisition, the Company shifted its primary business focus to the sale of our premium audio enhancement and protection products sold under the AXIL brand. The Company designs, innovates, engineers, manufactures, markets and services specialized systems in hearing enhancement, hearing protection, wireless audio, and communication. We distribute our products through direct-to-consumer eCommerce channels and local, regional, and national retail chains. We serve the sporting goods market, military, federal agents, law enforcement, tactical, fitness, outdoor, industrial, sporting, and stadium events. We focus primarily on the U.S. markets, followed by Canada, Europe, Australia, New Zealand, and Africa.
Currently, through our hearing protection and enhancement segment we produce 22 products with 32 different stock keeping unit (“SKUs”) and have plans to continue expanding the product lines. The product line includes ear buds, ear muffs, ear plugs, outdoor speakers and ear care items. Some of the products incorporate Bluetooth technology that we continually developed to enhance the hearing experience while protecting the ears. AXIL engages product design services to align consumer preferences with the brand image, ensuring that all product lines will correlate. The majority of sales occur through direct-to-consumer via www.goaxil.com, third party platforms, dealers and distributors. Our intellectual property portfolio in this segment includes 3 active patents globally. For more information about our intellectual property see “—Intellectual Property” below.
Our products in this segment include GS Xtreme® sound enhancement and hearing protection ear buds, XCOR® True Wireless, digital ear buds with touch control, TRACKR™ Blu advanced sound enhancement, hearing protection, and Bluetooth audio earmuffs and X-PRO passive ear protection.
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Our hearing protection and enhancement segment continues to grow as it enters into new distribution and licensing agreements. Our target markets include industrial, construction, farm and agriculture, aviation, forestry, and recreational markets (such as fitness, hiking, biking, auto racing, target shooting, hunting, power sports, power tools, motorcycling, stadium and concert events).
Hearing Enhancement and Protection Marketing and Sales:
AXIL is growing the business as it continues to enter into new distribution and licensing agreements. There is focus on public safety and security markets, as well as entertainment venues. AXIL’s sales are primarily driven through paid advertising and growth is expected to continue. The Company continues to expand our marketing footprint in organic social, affiliate, and search engine optimization. In addition to online sales, there is opportunity to increase distribution and retail sales. As a result, the business is currently allocating resources and intends to increase the sales team depending on available capital performance and opportunities.
Hearing Enhancement and Protection Competition:
The hearing enhancement and protection products are in a distinct market that overlaps between the consumer electronics and the hearing protection device sectors. We believe the global hearing protection devices market is growing due to the greater awareness of hearing loss and published statistics stating that 46% of workers in the manufacturing and industrial sector have been exposed to hazardous noises. Demand for innovative products for hearing protection is rising as consumers seek devices that are both comfortable and offer superior hearing protection.
The hearing protection and enhancement segment competes with ISOtunes, Walkers, Surefire, SordinAB and others. Many of our competitors in this market have more broadly diversified product lines, well established supply and distribution systems, loyal customer bases and significant financial, marketing, research and development, and other resources. We believe our principal competitive advantages include: brand recognition; product technology and innovation; product quality and safety; price; breadth of product lines; network of technology and content partners; access to third party retailers; sales channels, distributors, retailers and OEM partners; and patent protection.
Hair Care and Skin Care Segment
Prior to the AXIL acquisition, our business consisted solely of manufacturing, marketing, sale and distribution of professional quality hair and skin care products under various trademarks and brands and has adopted and used the trademarktrademarked products for distribution throughout the United States,U.S., 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 CompanyApproximately 95% of purchased inventories and products are sourced from four3 vendors totaling approximately $343,015 (97% of$298,000 during the purchases at 10%, 23%, 30% and 34%) during thefiscal year ended May 31, 2022. 2023.
Currently, we produce 78 products with 16 separate stock keeping units (“SKUs”)SKUs and plan to expand our product lines over the next 12 months.Our intellectual property portfolio in this segment includes no patents and 1 trademark globally. For more information about our intellectual property see “—Intellectual Property” below.
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, deodorantOur hair 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.segment 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 e-commerce site and various third-party online platforms. In addition, we are exploring other revenue channels such as co-branding and private-label manufacturing.
Hair Care and Skin Care Marketing and Sales:
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.
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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
Large Names
Other Competitors
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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.
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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.
Hair Care and Skin Care Competition:
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.
The hair care and skin car segment competes with Keranique, Zenagen, Revita and others. Many of our competitors in this market have more broadly diversified product lines, well established supply and distribution systems, loyal customer bases and significant financial, marketing, research and development and other resources. We believe our principal competitive advantages include product quality, online marketing, and a drug-free solution to thinning hair.
Key Customers
For the hearing enhancement and protection segment, no customers accounted for more than 10% of our net sales in the fiscal year ended May 31, 2023. Approximately 97% of our sales was direct-to-consumer via Shopify and Amazon for the fiscal year ended May 31, 2023.
For the hair care and skin care segment, three customers accounted for 61%, 12% and 21%, respectively, of our net sales in the fiscal year ended May 31, 2023. No other individual customer accounted for 10% or more of our net sales in the fiscal year ended May 31, 2023. We expect that these three customers along with a small number of other customers will, in the aggregate, continue to account for a large portion of our hair care and skin care segment 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.
Customer Service and Support
Key elements of our customer service approach are listening to customers, empathizing with their concerns, responding timely to their requests, and following up with them to make sure any issues have been properly addressed. In order to ensure that sufficient quality of service is provided, we use a customer service platform that integrates all of our systems to provide complete and timely data, tracks all support tickets and conversations with customers. Our customer service manager performs regular monthly reviews of performance metrics and reviews processes.
Employees
Governmental Regulation
We currentlyare subject to a variety of laws, rules and regulations in numerous jurisdictions within the U.S., Canada, Europe, Australia, New Zealand, and Africa. These laws, rules and regulations cover several diverse areas including consumer health and safety, and employee health and safety. These U.S. federal, state, and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change. The compliance costs and operational burdens imposed by these laws and regulations could be significant. As a result of the often rapidly evolving changes, the application, interpretation, and enforcement of these and other laws and regulations are often uncertain and may be interpreted and applied inconsistently from jurisdiction to jurisdiction and inconsistently with our current policies and practices. We are committed to conducting our business in accordance with applicable laws, rules and regulations.
Environmental Matters: We believe that we are in compliance with applicable foreign, federal, state, and local laws, rules and regulations relating to the protection of the environment, and that continued compliance will not have eight (8) full time employees, includingany material effect on our officerscapital expenditures, earnings, or competitive position.
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Intellectual Property
We intend to protect our technology by filing patent applications for the technologies that we consider important to our business. We also rely on trademarks, trade secrets, copyrights 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,unpatented know-how to protect our proprietary rights.
We believe our intellectual property has value, and we consider relations withhave taken in the past, and will take in the future, actions we deem appropriate to protect such property from misappropriation. There can be no assurance, however, that such actions will provide meaningful protection from competition. In the absence of intellectual property protection, we may be vulnerable to competitors who attempt to copy or imitate our employeesproducts or processes.
While we believe that our patents and other proprietary rights are important to be good. We have currently engaged seventeen (17) individuals as outside consultants for sales,our business, we also believe that, due to the rapid pace of technological change in the markets we serve, the successful manufacture and sale of our products also depends upon our engineering, manufacturing, marketing and design. No formal agreements are in place.servicing skills.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integratingIt is our existing and new employees, advisors and consultants. We have recently implemented a stock options plan in orderpractice 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 wellnessrequire that all of our employees is a top priority. and third-party product development consultants assign to us all rights to inventions or other discoveries relating to our business that were made while working for us. In addition, all employees and third-party product development consultants agree not to disclose any private or confidential information relating to our technology, trade secrets or intellectual property.
SeasonalityAt May 31, 2023, we held 3 active U.S. patents and Cyclical Naturehad 2 pending U.S. patent applications covering various aspects of our Businesstechnology. Our U.S. patents expire at various times beginning in 2035 and extending through 2038. During the fiscal year ended May 31, 2023, no U.S. patents were issued and no U.S. patents expired. We do not anticipate any expiration of any of our patents in the future years will have a material impact on our business.
We have 3 federally registered trademarks for which we consider to be of material importance to our business. The registrations for these trademarks are in good standing with the U.S. Patent & Trademark Office. Our trademark registrations must be renewed at various times, and we intend to renew our trademarks, as necessary, for the foreseeable future.
In addition, we own reviveprocare.com and www.goaxil.com. As with phone numbers, we do not have, and cannot acquire any property rights to an Internet address. The regulation of domain names in the United States and in other countries is also subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we might not be able to maintain our domain names or obtain comparable domain names, which could harm our business.
Seasonality
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.
ImpactHuman Capital Management
As of COVID-19
During the year ended May 31, 2020,2023, we had 15 employees, all of whom were employed in the effectsUnited States and none employed outside the United States. None of aour employees are covered by collective bargaining agreements or work councils. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new coronavirus (“COVID-19”)employees, advisors and related actionsconsultants. Overall, we consider our employee relations to attemptbe good and believe our culture 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 duebe central to the government mandated measures, including closuressuccess of businesses, limitations on movementsthe Company.
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Health and goods,Safety: The health and the impositionsafety of other restrictive measures,our employees is of utmost importance to us. We are enhancing our safety program with additional training and internal risk and hazard assessments. We conduct policy and procedure reviews to ensure compliance with health and safety guidelines and regulatory requirements. We provide protective gear (e.g., eye protection, masks, and gloves) as required by applicable standards and as appropriate. Our goal is to achieve a level of work-related injuries as close to zero as possible through continuous investment in efforts to mitigate the spread of COVID-19.our safety program.
Hiring Practices
The occurrence of an uncontrollable event such as: We seek to recruit and hire 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 demandmost qualified people for our goods and services but our overall abilityopen positions without regard 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-19protected status (age, color, creed, disability, domestic violence victim status, gender identity, genetic predisposition or carrier status, marital status, national origin, pregnancy, race religion, sex, sexual orientation, status as a global pandemic. Governments aroundprotected veteran or as a member of any other protected group or status).
Diversity and Inclusion: Recognizing and respecting our employees’ backgrounds and experiences, and our international presence, we strive to maintain a diverse workforce and inclusive work environment everywhere we operate.
Compensation and Benefits: Our compensation and benefits program is designed to attract and reward individuals who demonstrate the world have mandated,ability and continuedesire 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.enhance our workplace culture, support our values, drive our operational and strategic goals, and create long-term value for our stockholders.
Our Office and Corporate History
Our principal executive office is located at 9480 Telstar901 Fremont Avenue, El Monte, CA 91731.Unit 158, Alhambra, California, 91803. 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.
Available Information
We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our filings with the SEC are available on the SEC’s website at www.sec.gov. We also maintain a website at reviveprocare.com and www.goaxil.com. We make available, free of charge, in the contentsInvestor Relations section of which areour website, documents we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports. We make this information available as soon as reasonably practicable after we electronically file such materials with, or furnish such information to, the SEC. The information found on our website is not part of or incorporated by reference into this Form 10-K or any other report or document we file with, or furnish to, the SEC. Any referenceCopies of such documents are available in print at no charge to any stockholder who makes a request. Such requests should be made to our website is intended to be an inactive textual reference only.corporate secretary at our corporate headquarters, 901 Fremont Avenue, Unit 158, Alhambra, California, 91803.
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ITEM 1A. RISK FACTORS.
We areAs a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act andwe are not required to provide the information underrequired by this item.Item 1A.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.None.
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ITEM 2. PROPERTIES.
We currently lease approximately 7,2003,296 square feet of office and warehouse space at 9480 Telstar901 S Fremont Avenue, Unit 5, El Monte,158, Alhambra, CA 9173191803 as our principal offices. We lease our offices pursuant to a written lease dated in September 2019.November 9, 2022. The term of our lease is frombegan on December 1, 20192022 and expires on December 31, 2022.November 30, 2024. Our current monthly base rent is $7,852.$6,098. 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.grows.
AXIL leases office and warehouse space at 120 E. 13065 S. #101, Draper, Utah, 84020 of approximately 2,750 square feet. AXIL operates on a month to month lease with current monthly base rent of $4,330. We believe AXIL’s office and warehouse are in good condition and satisfy AXIL’s operational requirements.
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.product. The Company has retained counsel, has asserted a counterclaim against Jacksonfill, LLC, and intends to vigorously defend the allegations. Other than as disclosed herein, there have been no material developments in this matter through August 12, 2023. Please see Note 11—Commitments and Contingencies to our financial statements included herein for additional information about this matter.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of May 31, 2022,2023, 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, 2022,2023, and 2021,2022, is shown below, as quoted by http://finance.yahoo.com.on the OTCQB. Prices are inter-dealer quotations, without retail mark-up, markdown or commissions and may not represent actual transactions.
Stock Quotations
| Quarter Ended | High | Low | 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 | 0.5275 | 0.2001 | ||||||||||||
| November 30, 2021 | 0.325 | 0.1011 | 0.325 | 0.1011 | ||||||||||||
| February 28, 2022 | 0.20 | 0.10 | 0.20 | 0.10 | ||||||||||||
| May 31, 2022 | 0.30 | 0.0551 | 0.30 | 0.0551 | ||||||||||||
| August 31, 2022 | 0.30 | 0.20 | ||||||||||||||
| November 30, 2022 | 0.30 | 0.20 | ||||||||||||||
| February 28, 2023 | 0.450 | 0.271 | ||||||||||||||
| May 31, 2023 | 0.60 | 0.285 | ||||||||||||||
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, 2022,2023, the total common shares issued and outstanding were 41,945,881117,076,949 and we had 93 shareholders212 stockholders 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 fundsstock 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 on our common stock in the foreseeable future. Any future determination to pay dividends on our common stock will be at the discretion of our Board of Directors (the “Board”) and will depend on our financial condition, results of operations, capital requirements, applicable restrictions in our Articles of Incorporation, applicable restrictions in our Bylaws, contractual limitations, 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.
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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,November 1, 2022, the Company issued to two Company officers non-statutory stocka former executive officer options to purchase in the aggregate, upto 5,300,000300,000 shares, of common stock, at an exercise price of $0.09 per share, which have an expiration date of75,000 vested and the remaining were forfeited when the former executive officer resigned on April 20, 2032.21, 2023. 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-1.23. 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. Please see the section entitled “Cautionary Note Regarding Forward-Looking Information” above for more information regarding the risks associated with forward-looking information.
Overview
We are engaged in the manufacturing, marketing, sale and distribution of high-tech, innovative hearing and audio enhancement and protection products that provide cutting-edge solutions for people with varied applications across many industries and professional quality hair and skin care products under various trademarks and brands.
On May 1, 2022, we entered into an Asset Purchase Agreement dated May 1, 2022 and amended on June 15, 2022 and September 8, 2022 with 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 was completed subsequently on June 16, 2022. On September 8, 2022, the Company and AXIL entered into an amendment to the Asset Purchase Agreement which eliminated the provision in the Asset Purchase Agreement requiring the Company to effectuate a reverse stock split of our Common Stock and preferred stock pursuant to the Asset Purchase Agreement within a certain period of time.
As a result of the acquisition of AXIL’s assets, the Company has two reportable segments: hair care and skin care, and hearing enhancement and protection.
Through our hearing enhancement and protection segment, we design, innovate, engineer, manufacture, market and service specialized systems in hearing enhancement, hearing protection, wireless audio, and communication. Through our hair care and skin care segment, we manufacture, market, sell, and distribute professional quality hair and skin care products.
The Company’s overall business strategy is to establish market awareness of our products through our direct-to-consumer campaigns. We believe the increase in awareness will allow the Company to increase distribution and gain customers through our distribution partners’ retail establishments, with the goal of helping us achieve growth in market share and diversify our sales channels.
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Results of Operations
For the fiscal years ended May 31, 2023 and 2022
Our results of operations are summarized below.
| Fiscal Year Ended May 31, 2023 | Fiscal Year Ended May 31, 2022 | |||||||
| Net sales | $ | 23,521,027 | $ | 2,336,257 | ||||
| Cost of sales | $ | 5,810,216 | $ | 828,586 | ||||
| Gross profit | $ | 17,710,811 | $ | 1,507,671 | ||||
| Total operating expenses | $ | 15,726,600 | $ | 1,719,074 | ||||
| Income (Loss) from operations | $ | 1,984,211 | $ | (211,403 | ) | |||
| Net income (loss) after tax | $ | 1,824,575 | $ | (182,903 | ) | |||
Net sales increased by $21,184,770 or 907% for the fiscal year ended May 31, 2023, as compared to the fiscal year ended May 31, 2022, primarily due to the increase in sales of the new line of AXIL products post-acquisition.The net sales increase was attributed to the AXIL segment of the business.
Cost of sales includes primarily the cost of products and freight-in costs. For the fiscal year ended May 31, 2023, the overall cost of sales increased by $4,981,630 or 601%, as compared to the comparable period in 2022 also due to the acquisition of the AXIL business and sales of those products. Cost of sales as a percentage of net revenues for the fiscal year ended May 31, 2023 was 24.7% as compared to 35.5% for the comparable period in 2022. 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, reduction in product cost, and the sales of higher margin AXIL products.
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Gross profit, as a percentage of sales, for the fiscal years ended May 31, 2023 and 2022 was 75.3% and 64.5%, 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, which include the AXIL product sales contribution.
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 for the fiscal years ended May 31, 2023 and 2022 were $15,726,600 and $1,719,074, respectively. Operating expenses as a percentage of net revenues for the fiscal year ended May 31, 2023 were 66.9% as compared to 73.6% for the comparable period in 2022. Operating expenses increased by $14,007,526 or 814.8% due to an increase in advertising and marketing expenses by $10,903,316 in the AXIL spend for displaying our products through various advertising platforms and the remaining $3,104,210 of other business operating expenses that are primarily attributed to the AXIL brand operations. Other than an increase in advertising costs, which were aimed at procuring more customers, and reduction in consulting costs, the other operating expenses also decreased for the Reviv3 products.
Income from operations for the fiscal year ended May 31, 2023 was $1,984,211 and loss of $211,403 for the fiscal year ended May 31, 2022. The year over year increase in income from operations of $2,195,614 was primarily driven from the sales of the AXIL products introduced after acquisition.
Net income after tax for the fiscal year ended May 31, 2023 was $1,824,575 and a loss of $182,903 for the fiscal year ended May 31, 2022. The increase of $2,007,478 for the fiscal year ended May 31, 2023 was related to the AXIL product sales and revenue growth attributable to that business.
Liquidity and Capital Resources
We are currently engaged in our product sales and development. Although we earned a net income in the fiscal year ended May 31, 2023, we have incurred operating losses in the past. We currently expect to earn net income during the current fiscal year ending May 31, 2024. We believe our current cash balances, coupled with anticipated cash flow from operating activities, will be sufficient to meet our working capital requirements for at least one year from the date of issuance of the accompanying consolidated financial statements. We intend to continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in the short-term to invest in revenue growth. As a result of the acquisition of AXIL ’s assets, we have generated and expect we will continue to generate sufficient cash for our operational needs, including any required debt payments, for at least one year from the date of issuance of the accompanying consolidated financial statements. Management is focused on growing the Company’s existing product lines, introducing new products, as well as expanding 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, including those resulting from the purchase of AXIL’s assets in June 2022, may lead to cash utilization at levels greater than recently experienced. The Company cannot provide any assurance that it will be able to raise additional capital or obtain necessary financing 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.
Cash Flows For the Fiscal Years ended May 31, 2023 and 2022
The following table provides detailed information about our net cash flows:
For the Ended | For the Ended | |||||||
| Cash Flows | ||||||||
| Net cash provided by (used in) operating activities | $ | 2,918,136 | $ | (126,055 | ) | |||
| Net cash provided by investing activities | 1,000,764 | — | ||||||
| Net cash provided by financing activities | 540,051 | 2,849 | ||||||
| Net increase (decrease) | $ | 4,458,951 | $ | (123,206 | ) | |||
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Operating Activities
For the Fiscal Years ended May 31, 2023 and 2022
Net cash provided by operating activities for the fiscal year ended May 31, 2023 was $2,918,136, attributable to a net income of $1,824,575 which was primarily driven by the AXIL acquisition and increased product revenues. The offset by non-cash items such as depreciation and amortization expense of $95,179 due to assets and intangibles acquired on acquisition, bad debts of $76,969 as related to the greater number of customers from the AXIL brand sales, inventory changes of $353,985 as higher levels from the new business line, stock-based compensation of $207,342, favorable changes in accounts payable, contract and current liabilities of $1,235,788 and increase in non-cash gain on debt settlement of $50,500. The net decrease in cash was increased by a net decrease in operating assets and liabilities of $825,203 primarily due to increase in prepaid expenses, accounts receivable and decrease in customer deposits.
Net cash used in operating activities for the fiscal 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.
Investing Activities
For the Fiscal Years ended May 31, 2023 and 2022
The Company invested $65,650 in the purchase of property and equipment and acquired $1,066,414 of cash as part of the AXIL asset acquisition during the fiscal year ended May 31, 2023. The Company did not make any material investments in the purchase of property and equipment during the fiscal year ended May 31, 2022.
Financing Activities
For the Fiscal Years ended May 31, 2023 and 2022
Net cash provided by financing activities for the fiscal year ended May 31, 2023 was $540,051 primarily attributable to the cash proceeds of $447,850 for the common stock issuance and $132,620 advances from related party, offset by repayments of equipment financing and repayment of note payable that totaled $40,419.
Net cash provided by financing activities for the fiscal 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.
As of May 31, 2023, we had the following secured loan outstanding, administered pursuant to the CARES Act: an Economic Injury Disaster Loan (“EIDL”) in the principal amount of $150,000. The Company continues to pay interest on the loan.
During June 2022, we made an acquisition of a business, AXIL, 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 are dependent on our product sales to fund our operations and may 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. We do not have any plans to seek additional financing at this time and anticipate that our existing cash equivalents and cash provided by operations will be sufficient to meet our working capital requirements. However, if the need arises for additional cash, 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 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.
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SignificantOff-Balance Sheet Arrangements
As of May 31, 2023, 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.
Critical 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 value of stock-based compensation, valuation of deferred tax assets, the value of stock-based compensation,contract liability, allowance on sales returns, business combinations, segment reporting and the fair value of non-cash common stock issuances. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position. We believe that the following significant accounting policies and assumptions 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.Customers. 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 and electronic hearing and enhancement 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.
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Emerging Growth Company
We qualifyThe five steps for revenue recognition are 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:follows:
In addition, Section 107Identify the contract with a customer. The Company generally considers completion of a sales order (which requires customeracceptance of the JOBS Act also providesCompany’s click-through terms and conditions for website sales and authorization of payment through credit card or another form of payment for sales made over the phone) or purchase orders from non-consumer customers as a customer contract provided that an emerging growth company can take advantage ofcollection is considered probable. For payments that are not made upfront by credit card, the extended transition period providedCompany assesses customer creditworthiness based on credit checks, payment history, and/or other circumstances. For payments involving third party financier payors, the Company validates customer eligibility and reimbursement amounts prior to shipping the product.
Identify the performance obligations 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 2021contract
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. Product performance obligations include shipment of products and freight-in costs. Forrelated accessories and service performance obligations include extended warranty coverage.
However, as the year ended May 31, 2022,historical redemption rate under our warranty policy has been low, the overall costoption is not accounted for as a separate performance obligation. The Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of sales increased by $228,885 or 38.2%, as comparedthe contract with the customer.
Determine the transaction price and allocation to performance obligations. The transaction price in the Company’s customer contractsconsists of both fixed and variable consideration. Fixed consideration includes amounts to be contractually billed to the comparable periodcustomer while variable consideration includes the 30-days and 60-days right of return that applies to AXIL and Reviv3 products, respectively. To estimate product returns, the Company analyzes historical return levels, current economic trends, and changes in 2021. Cost of sales ascustomer demand. Based on this information, the Company reserves a percentage of net revenuesproduct sale revenue and accounts 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,estimated impact as a percentage of sales, is primarily attributablereduction in the transaction price.
Allocate the transaction price to the Company’s increased efficienciesperformance obligations in procurement and manufacturing systems, and reduction in product cost.
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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
contract. For the Years ended May 31, 2022 and 2021contracts that contain multiple performance obligations,
The following table provides detailed information about our net cash flows:
For the Ended | For the Ended | |||||||
| 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 allocates the transaction price to continuethe performance obligations on a relative standalone selling price basis.
Recognize revenue when or 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 satisfies a performance obligation. Revenue for products is unable to continue asrecognized at a going concern.
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Operating Activities
Forpoint in time, which is generally upon shipment. Revenue for services (extended warranty) is recognized over time on a ratable basis over the Years ended May 31, 2022 and 2021warranty period.
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.
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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 areAs a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act andwe are not required to provide the information underrequired by this item.Item 7A.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Please see our Financial StatementsThe financial statements of the Company and Exhibitsthe related report of the Company’s independent registered public accounting firm thereon have been filed under Item 15 below.hereof.
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 RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (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 CommissionSEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Principal Executive Officer, and Chief Financial Officer (“CFO”) and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation, (the “Evaluation”), under the supervision and with the participation of our 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.May 31, 2023. Based on this Evaluation,evaluation of disclosure controls and procedures as of May 31, 2023, 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.
not effective.
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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 RuleRules 13a-15(f) and 15(d)-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directorsBoard 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of May 31, 2022. In making this assessment, it used the2023 using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework issued in 2013. Based on the assessment, our assessment, we believemanagement has concluded that as of May 31, 2022,2023, our internal control over financial reporting was not 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 CommissionSEC that permit us to provide only management’s report in this annual report.
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The Company plans to initiate measures to improve the effectiveness of Contents
Changesthe internal controls over financial reporting and disclosure controls and procedures. As of the filing date, we have engaged a third-party to enhance the reporting in Internal Controls
our accounting systems, as well as increase the level of review when any non-routine accounting entry is proposed. The Company hired additional accounting personnel to governoversee the financial close and reporting process. ExceptThe Company plans to hire additional staff to aid in segregation of duties to continue to improve our internal controls in the coming fiscal year. We have also started to develop an internal control structure and identify key procedures for financial reporting as set forth herein, there wererequired by Section 404 of the Sarbanes-Oxley Act of 2002 and we are currently in the process of documenting our internal control policies and procedures. We have drafted written policies and procedures that we will commence implementing during the fiscal year ending May 31, 2024. In addition, the company intends to establish controls related to corporate governance, including a Code of Business Conduct and Ethics that applies to all of our employees, including our CEO, CFO, and Board.
Changes in Internal Controls
There has been no changeschange in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Exchange Act that occurred during the fourth fiscal quarter ended May 31, 2022, which have2023 that has materially affected or areis reasonably likely to materially affect our internal control over financial reporting.Our management is currently taking corrective action to remedy the internal control weaknesses. See section entitled “Remediation” above.
ITEM 9B. OTHER INFORMATION.
None.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Officers and Directors
Our officersdirectors are elected by the board of directorsBoard to a term of one year and serve until their successor is duly elected and qualified, or until the earlier of 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 | 56 | Chief Executive Officer and Chairman | ||||
| 55 | Director | |||||
The names, ages and positions of our present officers are set forth below:
| NAME | AGE | POSITION | ||||
| Jeff Toghraie | 56 | Chief Executive Officer and Chairman | ||||
| Monica Diaz Brickell | 44 | Chief Financial Officer | ||||
| Jeff Brown | 41 | Chief Operating Officer | ||||
| Donald Starace | 69 | President | ||||
Background of executive officers and directors
Jeff Toghraie ––Chief Executive Officer and Chairman of the Board of Directors Chief Executive Officer
Jeff Toghraie has been the Chairman of our boardBoard 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.stockholders. Mr. Toghraie joined Intrepid Global Advisors in 2010 and is a principal of that firm. During the past 56 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 has been our Chief Operating Officer joined the Company insince 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-15-
Monica Diaz Brickell – Chief Financial Officer and Secretary
Christopher GoMonica Diaz Brickell has served asbeen our Chief Financial Officer since April 9, 20192023. From 2007 to 2022, Ms. Brickell served as International Tax Manager for Top Golf Callaway Brands Corp. Ms. Brickell holds a Master of Science in Accountancy and Corporate Secretary since 2015. From 2009-2012, Mr. Go wasa Bachelor of Business Administration in Accounting from the Vice-PresidentUniversity of Operations for TEN Media,Notre Dame and has an active license as 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.Certified Public Accountant in the State of California.
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Donald Starace – President
Mr.Donald Starace has been theour 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 aour 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,Board, or committees performing similar functions. We may apply to be listed on a registered national securities exchange if our Board determines it is in the best interests of our Company and our stockholders. If we become listed on a registered national securities exchange, our Board intends to form three standing committees upon the effectiveness such listing: an audit committee, a compensation committee, and a nominating and corporate governance committee. The composition of these committees will consist of independent directors consistent with applicable exchange listing requirements and SEC rules. We will adopt written charters for each of these committees and make these available on our website consistent with applicable requirements and rules. Our Board may establish other committees as it deems necessary or appropriate from time to time.
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 evaluateoperations. During the appropriateness of adopting a Code of Ethics as our Company continues to develop. Allfiscal year ended May 31, 2023, all Board actions have beenwere taken by Written Action rather thanunanimous written consent and the Board held no formal meetings.
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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.Board. All current members of the board of directorsBoard 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
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 cost relatedresult of defending or administering any pending or anticipated legal issue in connection with service to retainingus if it is determined that person acted in good faith and in a financial expert at this time is prohibitive formanner which he reasonably believed was in the best interest of the Company. Further, becauseInsofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons, we are expanding our commercial operations athave been advised that in the present time, we believeopinion of the servicesSEC, such indemnification is against public policy as expressed in the Securities Act of a financial expert are not warranted.1933 and is, therefore, unenforceable
.
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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 Act 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 of our officers, directors, and persons who own more than 10% of our common stock complied with the filing requirements of Section 16 reports16(a) of the Exchange Act during the fiscal year ended May 31, 2023 except for Jeff Toghraie, who did not file a Form 4 with respect to one transaction, Don Frank Nathaniel Vasquez, who did not file a Form 3, Intrepid Global Advisors, Inc., who did not file a Form 4 with respect to one transaction on two different occasions, and AXIL, who did not file a Form 3 and a Form 4 with respect to one transaction on seven occasions. Additionally, as of May 31, 2023, Intrepid Global Advisors, Inc. has not filed a Form 3 that was required to be filed during the fiscal year ended May 31, 2022 were filed untimely.2017.
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ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid by us for the last two fiscal years ended May 31, 2022,2023, 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 paid2022, to our named executive officers.officers (each, an “NEO”), who for the fiscal year ended May 31,2023 were Jeff Toghraie, our Chief Executive Officer and Chairman (Principal Executive Officer), Jeff Brown, our Chief Operating Officer, Monica Diaz Brickell, our Chief Financial Officer, and Meenu Jain, our former Chief Financial Officer.
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 ($) | |||||||||||||||||||||||||||
| Jeff Toghraie | 2022 | — | — | — | 279,000 | — | — | — | 279,000 | |||||||||||||||||||||||||||
| Chief Executive Officer and Chairman | 2021 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Jeff Brown | 2022 | 50,000 | — | — | 198,000 | — | — | — | 248,000 | |||||||||||||||||||||||||||
| Chief Operating Officer | 2021 | 58,750 | — | — | — | — | — | — | 58,750 | |||||||||||||||||||||||||||
| Donald Starace | 2022 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| President | 2021 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Christopher Go | 2022 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Chief Financial Officer and Secretary | 2021 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary ($) | 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 | 2023 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Jeff Brown | 2022 | 50,000 | — | — | 198,000 | — | — | — | 248,000 | |||||||||||||||||||||||||||
| Chief Operating Officer | 2023 | 98,000 | 35,000 | — | — | — | — | — | 133,000 | |||||||||||||||||||||||||||
| Meenu Jain(2) | 2023 | 81,667 | — | — | 15,000 | — | — | — | 96,667 | |||||||||||||||||||||||||||
| Former Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
| Monica Diaz Brickell(3) | 2023 | 17,500 | — | — | — | — | — | — | 17,500 | |||||||||||||||||||||||||||
| Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
| (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 | |
| (2) | Ms. Jain became our Chief Financial Officer on November 1, 2022 and resigned as our Chief Financial Officer on April 21, 2023. | |
| (3) | Ms. Diaz Brickell became our Chief Financial Officer on April 24, 2023. |
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TableOur Chief Executive Officer, Jeff Toghraie, and our Chief Operating Officer, Jeff Brown, did not have formal employment agreements with the Company in place as of ContentsMay 31, 2023. Mr. Toghraie is entitled to an annual performance bonus, health benefits and equity awards at the discretion of the Board. Mr. Brown receives a base salary of $98,000 per year and is entitled to annual performance bonus, paid vacation, optional health benefits and equity awards at the discretion of the Board.
Monica Diaz Brickell joined the Company as Chief Financial Officer in April 2023. Per her agreement with the Company, she receives a base salary of $140,000 per year and is entitled to paid vacation and optional health benefits.
We did not pay any compensation to our non-employee director during the fiscal years ended May 31, 2023 and 2022.
As of May 31, 2023, we did not have any retirement, pension, or profit sharing plans for the benefit of our executive officers and directors.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information regarding outstanding equity awards held by the named executive officers as of May 31, 2022:2023:
| Option Awards | ||||||||||||||
| Name | Grant Date | Number of securities underlying unexercised options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable | Option exercise price ($) | 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 | ||||||||
| Option Awards | ||||||||||||||||
| Name | Grant Date | Number of securities underlying unexercised options | Number of securities underlying unexercised options | Option exercise price | Option expiration date | |||||||||||
| Jeff Toghraie | 5/10/22 | 1,550,000 | 1,550,000 | (1) | 0.09 | 4/20/2032 | ||||||||||
| Jeff Brown | 5/10/22 | 1,100,000 | 1,100,000 | (1) | 0.09 | 4/20/2032 | ||||||||||
| Meenu Jain | 11/01/22 | 75,000 | (2) | — | 0.20 | 11/1/2032 | ||||||||||
| (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.
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| These options vested and become exercisable over time, with 75,000 vesting on February 1, 2023 and the remaining 225,000 options associated with this grant were forfeited on April 21, 2023 when the former executive resigned from the Company. |
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 settable sets forth the ownership, as of August 8, 2022,17, 2023, 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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noted Except as otherwise indicated below, the address of each beneficial owner is c/o Reviv3 Procare Company, 9480 Telstar901 Fremont Avenue, Unit 5, El Monte,158, Alhambra, California 91731.91083.
| Title of Class | Name/Position | Beneficial Ownership | Percentage Of Class | Name/Position | Beneficial Ownership | Percentage of Class(1) | |||||||||||||
| Executive Officers and Directors | |||||||||||||||||||
| Common | Jeff Toghraie/Chairman and CEO (1) | 8,955,875 | 7.73 | % | |||||||||||||||
| Named Executive Officers: | |||||||||||||||||||
| Common | Jeff Brown/Chief Operating Officer (7) | 927,750 | 0.80 | % | Jeff Toghraie (2) | 24,868,375 | (4) | 20.9% | |||||||||||
| Common | Christopher Go/ CFO, Secretary (2) | 1,025,709 | 0.89 | % | Jeff Brown | 1,746,595 | (5) | 1.5% | |||||||||||
| Common | Donald Starace/President (8) | 898,838 | 0.78 | % | Monica Diaz Brickell | — | * | ||||||||||||
| Common | Nancy Hundt/Director (3) | 2,145,455 | 1.87 | % | Meenu Jain (3) | 325,000 | (6) | * | |||||||||||
| All Officers and Directors | 13,953,627 | 11.98 | % | Directors: | |||||||||||||||
| Common | Nancy Hundt | 2,145,455 | 1.8% | ||||||||||||||||
| All Executive Officers and Directors as a group (six persons) | 29,659,263 | (7) | 24.6% | ||||||||||||||||
| Non-Executive Beneficial Owners | |||||||||||||||||||
| 5% Stockholders: | |||||||||||||||||||
| Common | Axon Capital Management, Inc. (4) | 720,000 | 0.63 | % | Shircoo, Inc. | 11,685,000 | (8) | 9.9% | |||||||||||
| Common | Shircoo, Inc. (5) | 13,385,000 | 11.64 | % | Intrepid Global Advisors, Inc. | 22,834,000 | (9) | 19.5% | |||||||||||
| Common | Axil & Associated Brands Corp.(6) | 73,183,893 | 63.65 | % | Don Frank Nathaniel Vasquez | 25,525,004 | (10) | 21.8% | |||||||||||
| (1) | The amounts reported by each person are as of August 17, 2023, with percentages based on 117,076,949 shares issued and | |
| (2) | Mr. Toghraie is also the Chairman of the Board. |
| (3) | Ms. Jain resigned as our Chief Financial Officer on April 21, 2023. | |
| (4) | Includes |
| (5) |
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.
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| Includes |
| (6) | Includes 75,000 shares of common stock underlying stock options that are presently exercisable. | |
| (7) | Includes 3,478,125 shares of |
| (8) | Shircoo, Inc.’s address is 2350 E. Allview Terrace, Los Angeles, CA 90068. |
| (9) | Mr. Toghraie, our Chief Executive Officer and Chairman, is the is the managing director of Intrepid. Intrepid’s address is 355 S. Grand Avenue, Suite 2450, Los Angeles, CA, 90071. | |
| (10) | Mr. Vasquez’s business address is 4700 Summerville Ln., Prosper, Texas, 75078. |
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Securities authorized for issuance under equity compensation plans
The following table sets forth equity compensation plan information as of May 31, 2022:2023:
Equity Compensation Plan Information
| 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 | |||
| 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) | ||||||||||||
| 2022 Equity Incentive Plan | 5,375,000 | $ | 0.09 | 4,625,000 | ||||||||
| Total | 5,375,000 | $ | 0.09 | 4,625,000 | ||||||||
| (1) | On March 21, 2022, the Board |
2022 Equity Incentive Plan
The Board approved the Company’s 2022 Equity Incentive Plan on March 21, 2022. Under this 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. The Board has not approved an increase in the number of shares authorized for issuance under the Plan as of May 31, 2023. 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 these Plans: (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 executive 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.
Pursuant to the Plan, on November 1, 2022, the Company issued non-statutory stock options to a former executive officer, to purchase, in the aggregate, up to 300,000 shares of its Common Stock, at an exercise price of $0.20 per share and expiring on October 31, 2032. 75,000 shares vested as of January 29, 2023, and the remaining 225,000 options were forfeited in April 2023 when the executive officer left the Company.
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,Board has determined that Nancy Hundt, is considered “independent” and Jeff Toghraie, and Nancy Hundt areChairman of the Board of Directors, is not “independent directors” as definedconsidered “independent” because he is employed by the Company under applicable SEC rules and regulations and the Nasdaq listing requirements and rules because they are employed by the Company.rules.
Related Party Transactions
The following is a description of transactions or series of transactions since June 1, 2020,2021, to which we were or will be a party, in which:
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The Company’s Chief Executive Officer, Jeff Toghraie, is the managing director of Intrepid Global Advisors (“Intrepid”). Intrepid has, from time to time, provided advances to the Company for working capital purposes. At May 31, 2022,2023, and 2021,2022, the Company had aamounts payable to the officerIntrepid of $25,452$124,378 and $54,304$25,452, respectively. These advances were short-term in nature and non-interest bearing. Additionally, pursuant to a voting agreement, effective June 16, 2022 as amended effective November 7, 2022, with AXIL and Intrepid Global Advisors, we are subject to certain limitations on our ability to sell our capital stock until June 2024.
During the fiscal year ended May 31, 2023, the Company paid $218,696 as consulting fee for product development to Weston T. Harris, a major stockholder of AXIL, and also paid $126,097 to immediate family members of the major stockholder as compensation for services relating to packaging design and affiliate marketing.
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TableDuring the fiscal year ended May 31, 2023, the Company paid $135,484 as consulting fee for inventory management and operations consulting to an immediate family member of Contentsa major stockholder of AXIL, $74,620 to an immediate family member of the major stockholder in commissions and a contractor fee, and $15,928 to an immediate member of the major stockholder as compensation for services relating to travel and event coordination.
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,AXIL, consisting of ear plugs and ear muffs, and (ii) Axil’sAXIL’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, AxilAXIL and certain stockholders of Axil.AXIL. One of the stockholders of AxilAXIL is Intrepid.Intrepid Global Advisors, Inc. As of June 16, 2022,May 31, 2023, Intrepid Global Advisors, Inc. held 4.68% of theno outstanding common stock of AxilAXIL and 22.33%19.50% 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.
FeesPre-Approval Policy
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 | ||||
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 Committeeaudit committee (or equivalent body) or (ii) entered into pursuant to pre-approval policies and procedures established by the Audit Committee,audit committee (or equivalent body), provided that the policies and procedures are detailed as to the particular service, the Audit Committeeaudit committee (or equivalent body) is informed of each service, and such policies and procedures do not include delegation of the Audit Committee’saudit committee’s (or equivalent body) responsibilities to management. We do not have an Audit Committee. Our Board pre-approves all services provided by our independent registered public accounting firm.
Fees
All of the services provided and fees charged by our independent registered public accounting firm Salberg & Company, P.A. (“Salberg”), were pre-approved by our Board, as we do not have an audit committee. The following table shows us the fees paid to Salberg, for the fiscal years ended May 31, 2023 and 2022 were:
| Fiscal Year Ended May 31, 2023 | Fiscal Year Ended May 31, 2022 | |||||||
| Audit fees (1) | $ | 117,100 | $ | 49,200 | ||||
| Audit related fees (2) | 700 | — | ||||||
| Tax fees | — | — | ||||||
| All other fees | — | — | ||||||
| Total | $ | 117,800 | $ | 49,200 | ||||
| (1) | These fees relate to the audit of our annual financial statements and the review of our interim quarterly financial statements. |
| (2) | These fees relate to audit related consulting. |
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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, 20222023 and 20212022
CONTENTS
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of:
Reviv 3Reviv3 Procare CompanyCompany.
Opinion on the Financial Statements
We have audited the accompanying Consolidatedconsolidated balance sheets of Reviv3 Procare Company and subsidiary (the “Company”) as of May 31, 20222023 and 2021,2022, 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, 2022,2023, 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, 20222023 and 2021,2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended May 31, 2022,2023, 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 noThe communication of critical audit matters.matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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Business Combinations:
As described in footnote 2 Basis of Presentation and Summary of Significant Accounting Policies “Business Combinations” and in footnote 13 “Business Combinations”, to the consolidated financial statements, the Company closed on a business acquisition in fiscal 2023. The determination of fair values for assets acquired and liabilities assumed and fair value of portions of purchase consideration requires management to make significant estimates and assumptions such as those related to forecasts of future revenues, operating margins, discount rates and equity values. Changes in these assumptions could have a significant impact on the fair values.
We identified business combinations as a critical audit matter. Auditing management’s judgments regarding the above estimates involved a high degree of subjectivity.
The primary procedures we performed to address this critical audit matter included (a) evaluated management’s process for developing its estimates, (b) evaluated if the valuation method used by management was appropriate, (c) evaluated the reasonableness of management’s forecasts by comparing them to historical information, year to date current information and/or other supporting contracts or information, (d) assessed the reasonableness of the discount rates used by evaluating each component, (e) evaluated other estimates such as the equity value portions of purchase consideration, and (f) recomputed the valuation estimates. We agreed with management’s valuations.
/s/ Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
We have served as the Company’s auditor since 2017.
Boca Raton, Florida
August 25, 202221, 2023
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-3F-2
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 | 0 | 2,430 | ||||||
| Total Current Assets | 803,040 | 1,041,222 | ||||||
| OTHER ASSETS: | ||||||||
| Inventory, non-current | 0 | 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, $ par value; shares authorized; issued and outstanding | — | — | ||||||
| Common stock, issued and issuable, $ par value: shares authorized; and 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 | ||||
| For the Fiscal Years Ended | ||||||||
| May 31, 2023 | May 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 4,832,682 | $ | 373,731 | ||||
| Accounts receivable, net | 417,016 | 105,921 | ||||||
| Inventory, net | 1,311,864 | 323,388 | ||||||
| Prepaid expenses and other current assets | 801,360 | — | ||||||
| Total Current Assets | 7,362,922 | 803,040 | ||||||
| OTHER ASSETS: | ||||||||
| Property and equipment, net | 157,463 | 29,145 | ||||||
| Intangible assets, net | 382,674 | — | ||||||
| Right of use asset | 101,845 | 45,453 | ||||||
| Other assets | 12,195 | 16,277 | ||||||
| Goodwill | 2,152,215 | — | ||||||
| Total Other Assets | 2,806,392 | 90,875 | ||||||
| TOTAL ASSETS | $ | 10,169,314 | $ | 893,915 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 908,606 | $ | 458,263 | ||||
| Customer deposits | 183,688 | 16,522 | ||||||
| Equipment payable, current | 2,200 | 3,300 | ||||||
| Contract liabilities, current | 827,106 | — | ||||||
| Notes payable | 172,588 | 156,300 | ||||||
| Due to related party | 158,072 | 25,452 | ||||||
| Lease Liability, current | 65,824 | 47,166 | ||||||
| Income Tax Liability | 230,913 | — | ||||||
| Other current liabilities | 305,664 | — | ||||||
| Total Current Liabilities | 2,854,661 | 707,003 | ||||||
| LONG TERM LIABILITIES: | ||||||||
| Equipment payable | — | 2,200 | ||||||
| Lease liability, long term | 36,752 | — | ||||||
| Contract liabilities, long term | 605,942 | — | ||||||
| Total Long Term Liabilities | 642,694 | 2,200 | ||||||
| Total Liabilities | 3,497,355 | 709,203 | ||||||
| Commitments and contingencies (see Note 11) | — | — | ||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $ par value; shares authorized; and shares issued and outstanding as of May 31, 2023 and May 31, 2022, respectively | 25,000 | — | ||||||
| Common stock, $ par value: shares authorized; and shares issued, and outstanding as of May 31, 2023 and May 31, 2022, respectively | 11,708 | 4,195 | ||||||
| Additional paid-in capital | 10,102,243 | 5,472,084 | ||||||
| Accumulated deficit | (3,466,992 | ) | (5,291,567 | ) | ||||
| Total Stockholders’ Equity | 6,671,959 | 184,712 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 10,169,314 | $ | 893,915 | ||||
See accompanying notes to these consolidated financial statements.
F-4F-3
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 | ||||||
| For the Fiscal Years Ended | ||||||||
| May 31, | May 31, | |||||||
| 2023 | 2022 | |||||||
| Sales, net | $ | 23,521,027 | $ | 2,336,257 | ||||
| Cost of sales | 5,810,216 | 828,586 | ||||||
| Gross profit | 17,710,811 | 1,507,671 | ||||||
| OPERATING EXPENSES: | ||||||||
| Marketing and selling expenses | 11,675,206 | 1,199,305 | ||||||
| Compensation and related taxes | 1,347,839 | 15,129 | ||||||
| Professional and consulting expenses | 1,420,990 | 232,774 | ||||||
| General and administrative | 1,282,565 | 271,866 | ||||||
| Total Operating Expenses | 15,726,600 | 1,719,074 | ||||||
| INCOME (LOSS) FROM OPERATIONS | 1,984,211 | (211,403 | ) | |||||
| OTHER INCOME (EXPENSE): | ||||||||
| Gain on debt settlement | 50,500 | 35,000 | ||||||
| Other income | 16,829 | — | ||||||
| Interest income | 6,469 | 36 | ||||||
| Interest expense and other finance charges | (2,521 | ) | (6,536 | ) | ||||
| Other Income (Expense), Net | 71,277 | 28,500 | ||||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | 2,055,488 | (182,903 | ) | |||||
| Provision for income taxes | 230,913 | — | ||||||
| NET INCOME (LOSS) | $ | 1,824,575 | $ | (182,903 | ) | |||
| NET INCOME (LOSS) PER COMMON SHARE: | ||||||||
| Basic | $ | 0.02 | $ | (0.00 | ) | |||
| Diluted | $ | 0.01 | $ | (0.00 | ) | |||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic | 112,895,411 | 41,945,881 | ||||||
| Diluted | 357,385,274 | 41,945,881 | ||||||
See accompanying notes to these consolidated financial statements.
F-5F-4
REVIV3 PROCARE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE FISCAL YEARS ENDED MAY 31, 20222023 AND 20212022
| 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 | |||||||||||||||
| Preferred Stock | Common Stock Issued | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| 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 fiscal 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 | ||||||||||||||||||||
| Shares issued for acquisition of business | 250,000,000 | 25,000 | 73,183,893 | 7,318 | 3,975,162 | — | 4,007,480 | |||||||||||||||||||||
| Stock options expense | — | — | — | — | 207,342 | — | 207,342 | |||||||||||||||||||||
| Shares issued for cash | — | — | 1,947,175 | 195 | 447,655 | — | 447,850 | |||||||||||||||||||||
| Net income for the fiscal year ended May 31, 2023 | — | — | — | — | — | 1,824,575 | 1,824,575 | |||||||||||||||||||||
| Balance, May 31, 2023 | 250,000,000 | $ | 25,000 | 117,076,949 | $ | 11,708 | $ | 10,102,243 | $ | (3,466,992 | ) | $ | 6,671,959 | |||||||||||||||
See accompanying notes to these consolidated financial statements.
F-6F-5
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 | $ | — | $ | — | ||||
| For the Fiscal Years Ended | ||||||||
| May 31, 2023 | May 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | 1,824,575 | $ | (182,903 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 95,179 | 7,871 | ||||||
| Bad debts | 76,969 | 6,941 | ||||||
| Inventory obsolescence | — | 71,481 | ||||||
| Stock based compensation | 207,342 | 21,967 | ||||||
| Gain on debt forgiveness | (50,500 | ) | (35,000 | ) | ||||
| Non cash lease expense | — | (1,713 | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (160,277 | ) | (21,985 | ) | ||||
| Inventory | 353,985 | 95,983 | ||||||
| Prepaid expenses and other current assets | (661,115 | ) | 2,430 | |||||
| Deposits | (3,810 | ) | — | |||||
| Accounts payable and accrued expenses | 215,175 | (701 | ) | |||||
| Other current liabilities | 630,897 | — | ||||||
| Customer deposits | — | (90,426 | ) | |||||
| Contract liabilities | 389,716 | — | ||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 2,918,136 | (126,055 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash acquired on business acquisition | 1,066,414 | — | ||||||
| Purchase of property and equipment | (65,650 | ) | — | |||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | 1,000,764 | — | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Cash raised for common stock to be issued | 447,850 | — | ||||||
| Proceeds from loan payable | — | 35,000 | ||||||
| Repayment of equipment financing | (3,300 | ) | (3,300 | ) | ||||
| Repayment of note payable | (37,119 | ) | — | |||||
| Advances (payments) from a related party | 132,620 | (28,851 | ) | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 540,051 | 2,849 | ||||||
| NET INCREASE (DECREASE) IN CASH | 4,458,951 | (123,206 | ) | |||||
| CASH - Beginning of year | 373,731 | 496,937 | ||||||
| CASH - End of year | $ | 4,832,682 | $ | 373,731 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 2,521 | $ | 500 | ||||
| Income taxes | $ | — | $ | — | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Stock issued for business combination | $ | 4,007,480 | $ | — | ||||
| Right of use assets recognized as lease liability | $ | 131,970 | $ | — | ||||
| Tangible assets (excluding cash) acquired in business combination | $ | 1,740,729 | $ | — | ||||
| Intangible assets acquired in business combination | $ | 456,945 | $ | — | ||||
| Goodwill acquired in business combination | $ | 2,152,215 | $ | — | ||||
| Liabilities assumed in business combination | $ | 1,408,823 | $ | — | ||||
See accompanying notes to these consolidated financial statements.
F-7F-6
REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 20222023 AND 20212022
Note 1 – Organization
Reviv3 Procare Company (the “Company”(“Reviv3”) 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. has moved its corporate headquarters to 901 Fremont Avenue, Unit 158, Alhambra, California 91803. Its phone number (888) 638-8883. In March 2022, the Company incorporated a subsidiary “Reviv3 Acquisition Corporation” and in June 2022, completed the asset acquisition of the Axil & Associated Brand Corp. business (“AXIL”).The Company is now engaged in the manufacturing, marketing, sale and distribution of high-tech hearing and audio innovations that provide cutting edge solutions for consumers, with varied applications across many industries; as well as professional quality hair and skin care products. These products lines are both sold throughout the United States, Canada, Europe and Asia.
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements for the fiscal years ended May 31, 20222023 and 20212022 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.
Liquidity and Capital Resources
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 monitoringengaged in our product sales and development. Although we earned net income and had cash provided by operations in the outbreakfiscal year ended May 31, 2023, we had an accumulated deficit of COVID-19$3,466,992 as of May 31, 2023 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 operationsincurred operating losses and cash used in operations in the past. We currently expect to earn net income and positive cash flows from operations during the current fiscal year ending May 31, 2024. We believe our current cash balances, coupled with anticipated cash flow in additionfrom operating activities, will be sufficient 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 ofmeet our working capital requirements for at least one year from the date of theseissuance of the accompanying consolidated financial statements. TheWe intend to continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in the short-term to invest in revenue growth. As a result of the acquisition of AXIL’s business, we have generated and expect we will continue to generate sufficient cash for our operational needs, including any required debt payments, for at least one year from the date of issuance of the accompanying 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.statements. Management is focused on growing the Company’s existing product, introducing new products, offering, as well as expanding 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, including those resulting from the purchase of AXIL’s assets in June 2022, 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 assureprovide any assurance that it will be able to raise additional capital or obtain necessary financing 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-8F-7
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 deferred tax assets, the value of stock-based compensation, contract liability, allowance on sales returns, 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 stockCommon 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
Accounts receivables comprise of receivables from customers and receivables from merchant processors. 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, consistedconsist primarily of a cash prepaymentprepayments to vendors for inventory and prepayments for trade shows and marketing events which was amortized in 2022.will be utilized within a year, prepayments on credit cards and the right to recover assets (for the cost of goods sold) associated with the right of returns for products sold.
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- currentnon-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-9F-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)
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 and electronic hearing and enhancement 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
The five steps for revenue disaggregation disclosures.recognition are as follows:
Identify the contract with a customer. The Company generally considers completion of a sales order (which requires customeracceptance of the Company’s click-through terms and conditions for website sales and authorization of payment through credit card or another form of payment for sales made over the phone) or purchase orders from non-consumer customers as a customer contract provided that collection is considered probable. For payments that are not made upfront by credit card, the Company assesses customer creditworthiness based on credit checks, payment history, and/or other circumstances. For payments involving third party financier payors, the Company validates customer eligibility and reimbursement amounts prior to shipping the product.
Identify the performance obligations in the contract. Product performance obligations include shipment of products and related accessories and service performance obligations include extended warranty coverage.
However, as the historical redemption rate under our warranty policy has been low, the option is not accounted for as a separate performance obligation. The Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.
Determine the transaction price and allocation to performance obligations. The transaction price in the Company’s customer contractsconsists of both fixed and variable consideration. Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes the 30-days and 60-days right of return that applies to AXIL and Reviv3 products, respectively. To estimate product returns, the Company analyzes historical return levels, current economic trends, and changes in customer demand. Based on this information, the Company reserves a percentage of product sale revenue and accounts for the estimated impact as a reduction in the transaction price.
Allocate the transaction price to the performance obligations in the contract. For contracts that contain multiple performance obligations,the Company allocates the transaction price to the performance obligations on a relative standalone selling price basis.
Recognize revenue when or as the Company satisfies a performance obligation. Revenue for products is recognized at a point in time, which is generally upon shipment. Revenue for services (extended warranty) is recognized over time on a ratable basis over the warranty period.
As of May 31, 2023 and May 31, 2022, contract liabilities amounted to $1,433,048 and $0, respectively. Contract liabilities associated with product invoiced but not received by customers at the balance sheet date was $0 and $0, respectively; contract liabilities associated with unfulfilled performance obligations for warranty services offered for a period of one to three years was $1,320,401 and $0, respectively, and contract liabilities associated with unfulfilled performance obligations for customers’ right of return was $112,647 and $0, respectively. Our contract liabilities amounts are expected to be recognized over a period of one year to three years. Approximately $827,106 is expected to be recognized in year 1, $420,629 is expected to be recognized in year 2, and $185,313 is expected to be recognized in year 3.
Revenue recognized, during the fiscal year ended May 31, 2023, that was included in the contract liability balance at the beginning of period (acquisition of AXIL) was $391,204.
F-9
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
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 $214,5171,001,261 and $133,396214,517 for the fiscal years ended May 31, 2023 and 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”)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.
F-10
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
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.
F-11
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
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 notnot record any impairment loss during the fiscal years ended May 31, 20222023 and 2021.2022.
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.
Basic net lossincome (loss) per share is computed by dividing the net income or 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 options outstanding which were potentially dilutive securities, however they were excluded from the computation since their impact would be antidilutive.
For the fiscal year ended May 31, 2023, certain stock options were excluded from the computation of diluted common shares outstanding as they would have an anti-dilutive impact on the Company’s net income. The following table presents a reconciliation of basic and diluted net income per common share:
F-12
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
| Schedule of net loss per share | |||||
| For the Fiscal Year Ended | |||||
| May 31, 2023 | |||||
| Net income | $ | 1,824,575 | |||
| Weighted average basic shares | 112,895,411 | ||||
| Dilutive securities: | |||||
| Convertible preferred stock | 239,041,096 | ||||
| Stock options | 5,448,767 | ||||
| Weighted average dilutive shares | 357,385,274 | ||||
| Earnings (loss) per share: | |||||
| Basic | $ | 0.02 | |||
| Diluted | $ | 0.01 | |||
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, 2019,2022, under lease agreements classified as an operating lease. Please see Note 1011 – ‘Commitments and Contingencies’ under “Leases” below for more information about the Company’s leases.
Segment Reporting
The Company follows ASC Topic 280, Segment Reporting. The Company’s management reviews the Company’s consolidated financial results when making decisions about allocating resources and assessing the performance of the Company as a whole and has determined that the Company’s reportable segments are: (a) the sale of hearing protection and hearing enhancement products, and (b) the sale of hair care and skin care products. See Note 15 – “BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION” for more information about the Company’s reportable segments.
Reclassifications
Certain reclassifications have been made to the prior year’s data to conform with the current period’s presentation. Specifically, the accounts payable have been separated from the accrued expenses, to conform with the current period’s presentation.
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 theopted to adopt this ASU as of June 1, 2022. The adoption of this ASU wouldthe guidance did not have a material impact on the Company’saccompanying 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:
| Schedule of accounts receivable | ||||||||
| 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 | ||||
| Schedule of accounts receivable | ||||||||
| May 31, 2023 | May 31, 2022 | |||||||
| Customers Receivable | $ | 345,264 | $ | 115,741 | ||||
| Merchant Processor Receivable | 167,232 | — | ||||||
| Less: Allowance for doubtful debts | (95,480 | ) | (9,820 | ) | ||||
| Accounts receivable, net | $ | 417,016 | $ | 105,921 | ||||
The Company recorded bad debt expense of $6,94176,969 and $1,0616,941 during the fiscal years ended May 31, 2023 and 2022, and 2021, respectively.
Note 4 – Inventory, net
Inventory consisted of the following:
| Schedule of Inventory | ||||||||
| 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 | 0 | (39,874 | ) | |||||
| Current Inventory | $ | 323,388 | $ | 450,978 | ||||
| Schedule of Inventory | ||||||||
| May 31, 2023 | May 31, 2022 | |||||||
| Finished Goods | $ | 1,198,218 | $ | 29,249 | ||||
| Raw Materials | $ | 113,646 | $ | 294,139 | ||||
| Inventory, net | $ | 1,311,864 | $ | 323,388 | ||||
At May 31, 20222023 and 2021,2022, inventory held at third party locations amounted to $16,9400 and $23,40116,940, respectively. At May 31, 20222023 and 2021,2022, there was no$135,482 and $0 inventory in- transit.transit, respectively.
During the fiscal years ended May 31, 20222023 and 2021,2022, the Company created an allowance of $71,4810 and $23,71471,481, 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, 2023 and 2022, and 2021,there was no slow moving inventory amounted to $0 and $39,874, respectively.inventory.
F-14
Note 5 – Property and Equipment
Property and equipment, stated at cost, consisted of the following:
| Schedule of Property and Equipment | ||||||||||||
| 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 | |||||||||
| Schedule of Property and Equipment | ||||||||||
| Estimated Life | May 31, 2023 | May 31, 2022 | ||||||||
| Furniture and Fixtures | 5 years | $ | 14,598 | $ | 5,759 | |||||
| Computer Equipment | 3 years | 33,146 | 17,392 | |||||||
| Plant Equipment | 5-10 years | 165,778 | 45,128 | |||||||
| Automobile | 5 years | 15,000 | — | |||||||
| Less: Accumulated Depreciation | (71,059 | ) | (39,134 | ) | ||||||
| $ | 157,463 | $ | 29,145 | |||||||
Depreciation expense amounted to $7,871 20,908and $9,9697,871 for the fiscal years ended May 31, 2023 and 2022, and 2021, respectively.
Note 6 – Intangible Assets
The Company acquired intangible assets through the Business Combination. (See Note 13). These intangible assets consisted of the following:
| Schedule of intangible assets | |||||||
| Estimated Life | May 31, 2023 | ||||||
| Licensing Rights | 3 years | $ | 11,945 | ||||
| Customer Relationships | 3 years | 70,000 | |||||
| Trade Names | 10 years | 275,000 | |||||
| Website | 5 years | 100,000 | |||||
| Less: Accumulated Amortization | (74,271 | ) | |||||
| $ | 382,674 | ||||||
Goodwill arising through the business combination was $2,152,215 at May 31, 2023 (see Note 13).
Amortization expense amounted to $74,271 and $0 for the fiscal years ended May 31, 2023 and 2022, respectively.
Note 7 – Other Current Liabilities
Other current liabilities comprised of the following:
| Schedule of other current liabilities | ||||
| May 31, 2023 | ||||
| Credit Cards | 833 | |||
| Accrued Interest | 10,343 | |||
| Royalty Payment Accrual | 8,792 | |||
| Sales Tax Payable and Other Accrued Expenses | 258,023 | |||
| Affiliate Accrual | 27,673 | |||
| Other Current Liabilities | $ | 305,664 |
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:
| Schedule of Accounts Payable and Accrued Expenses | ||||||||
| 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 $ 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 78 – Equipment Payable
During the fiscal 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, 20222023 and 2021,2022, the balance outstanding on the loan was $5,500$2,200 and $8,800,$5,500, respectively, of which $3,300the $2,200 balance is payable within one year and the balance is payable after onenext year. The Company recorded an interest expense of $500 $500 and $500,$500, associated with the equipment financing during the fiscal years ended May 31, 20222023 and 2021,2022, on the loan in the accompanying consolidated financial statements.
The amounts of loan payments due inwithin the next two yearsfiscal year ended May 31, are as follows:
| Schedule of Loan Payment Due | ||||
| Total | ||||
| 2023 | $ | 3,300 | ||
| 2024 | 2,200 | |||
| Equipment Payable, Net | $ | 5,500 | ||
| Schedule of loan payment due | ||||||
| Total | ||||||
| 2024 | $ | 2,200 | ||||
| Equipment Payable, Net | $ | 2,200 | ||||
F-16
REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021
Note 89 – LoansNotes Payable
During the fiscal 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 3.753.75%% and is payable installments of $731$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 useused the loan proceeds for qualifying expenses. The Company received a loan forgiveness for $10,000 during the fiscal year ended May 31, 2022. During the fiscal year ended May 31, 2022, the Company received additional $10,000 of borrowings under the program. The Company recorded an accrued interest of $11,68410,342 and $5,92311,684, as of May 31, 2023 and 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 fiscal year ended May 31, 2020, a commercial bank granted to2023 the Company a loan (the “Loan”) in the amountobtained insurance financing of $12,90053,337 , which is administered underon the authoritygeneral liability 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”).excess liability insurance policies. The loan was forgiven by the US Small Business Administration in March 2021 and the Company recordedhas a gain on debt forgivenessfinance charge of $13,0203,164 during the year ended May 31, 2021.
During the year ended May 31, 2022, the Company received $25,000and is payable 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 as10 monthly installments of $5,650 each beginning November 1, 2022. As of May 31, 2022 and 20212023, six installments have been paid. As of May 31, 2023 outstanding balance of the loan amounted to $21,335
| Schedule of Loan Payable | ||||||||
| 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 | ||||
.
| Schedule of notes payable | ||||||||
| Notes Payable as of May 31, 2023 and 2022 | ||||||||
| 2023 | 2022 | |||||||
| Insurance Financing | $ | 21,335 | $ | — | ||||
| Second Draw Paycheck Protection Program (PPP- 2) | — | 6,300 | ||||||
| Financing Charges | 1,253 | — | ||||||
| Economic Injury Disaster Loan Program (EIDL) | 150,000 | 150,000 | ||||||
| Total | $ | 172,588 | $ | 156,300 | ||||
| Less: Current portion | (172,588 | ) | (156,300 | ) | ||||
| Non-current portion | $ | — | $ | — | ||||
The amounts of loan payments due in the next fiscal year ended May 31, are as follows:
| Schedule of loan payments due in the next five years | ||||
| Total | ||||
| 2023 | $ | 156,300 | ||
| $ | 156,300 | |||
| Schedule of notes payments due in the next five years | ||||||
| Total | ||||||
| 2024 | $ | 172,588 | ||||
| Total | $ | 172,588 | ||||
F-17F-16
REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021
Note 910 – Stockholders’ Equity
Shares Authorized
As of May 31, 2022,2023, the authorized capital of the Company consistedconsists of 100,000,000 shares of common stock, par value $ per share and 20,000,000 shares of preferred stock, par value $ 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 $ common stock per share,shares of Common Stock from 100,000,000 to shares and to increase the number of authorized shares of preferred stock, par value $ per share (“Preferred Stock”), from 20,000,000 to . shares.
Preferred Stock
The preferred stockPreferred 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.
During the fiscal year ended May 31, 2023, the Company issued shares of non-voting Series A Preferred Stock, which are convertible into shares of Company Common Stock on a one-to-one ratio, pursuant to the Asset Purchase Agreement (See Note 13 and Common Stock section below). These 250,000,000 shares of non-voting Series A Preferred Stock were valued at the fair market value of $3,100,000 at issuance.
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, 2022,2023, shares of Preferred Stock were issued and outstanding.
shares of Preferred Stock were issued and outstanding as of May 31, 2022.
Common Stock
As of May 31, 2023, shares of common stock were issued and outstanding.
During the fiscal year ended May 31, 2023, the Company issued
During the fiscal year ended May 31, 2023, the Company sold shares of Common Stock at $ per share for a total of $447,850 under several private placement agreements.
No shares of Common Stock were issued during the fiscal year ended May 31, 2022.
During the year ended May 31, 2021, the Company issued 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 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 $ for the fair value of 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 shares issued to an attorney for past services. The shares were valued at the fair market value, which expense was recognized immediately.
F-18F-17
REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021
Note 910 – 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.
F-18
Note 10 – Stockholders’ Equity (continued)
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 $ 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.
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 $ 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.
Pursuant to the Plan, on November 1, 2022, the Company issued non-statutory stock options, to a former executive officer of the Company, to purchase, in the aggregate, up to 300,000 shares of its Common Stock, at an exercise price of $ per share and expiring on October 31, 2032. shares vested as of January 29, 2023, and the remaining options were forfeited in April 2023 when the executive officer left the Company.
The Company computed the aggregate grant date fair value of $477,000 using the black-scholesBlack-Scholes option pricing model, which is being recorded as stock-based compensation expense over the vesting period. During the yearfiscal years ended May 31, 2023 and 2022, the Company recorded a stock-based compensation expense of $and $respectively, for these options in the accompanying consolidated financial statements.
F-19
Note 10 – Stockholders’ Equity (continued)
The black- scholesBlack-Scholes options pricing model used the following assumptions:
| Schedule of stock option assumptions | ||||||||
| 2023 | 2022 | |||||||
| Risk free interest rate | % | % | ||||||
| Expected life | years | years | ||||||
| Expected volatility | % | % | ||||||
| Expected dividend | % | % |
Risk free interest rate- %
Expected life –years
Expected volatility - %
Expected dividend - %
The following table summarizes the activity relating to the Company’s stock options held by Officers:executive officers:
| Schedule of summarizes relating to the Company’s stock | ||||||||||||
| 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
| Schedule of summarizes relating to the Company’s stock | ||||||||||||
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Term | ||||||||||
| Outstanding as June 1, 2021 | — | |||||||||||
| Granted | 5,300,000 | $ | 0.09 | 10.0 | ||||||||
| Exercised | — | |||||||||||
| Outstanding at May 31, 2022 | 5,300,000 | $ | 0.09 | |||||||||
| Granted | 300,000 | $ | 0.20 | 9.68 | ||||||||
| Less: Forfeited | (225,000 | ) | $ | 0.20 | 9.68 | |||||||
| Less: Unvested at May 31, 2023 | (2,725,000 | ) | $ | 0.09 | ||||||||
| Vested at May 31, 2023 | 2,650,000 | $ | 0.09 | 8.92 |
Note 1011 – 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 $7,567was $7,567 per month for the first year and increaseincreased by a certain amount each year. In November 2022, the Company entered into an extension of the lease for a two year term beginning December 1, 2022. The rent is $6,098 per month for the first year and will increase by a certain amount the following 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.
F-20
Note 11 – Commitments and Contingencies (continued)
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.amount in 2019. The Company computed another initial lease liability of $131,970 for the new lease agreement and an initial ROU asset in the same amount which was recorded on books at the commencement of the new lease on December 1, 2022. During the fiscal years ended May 31, 20222023 and 2021,2022, the Company recorded a lease expense in the amount of $94,23584,435 and $94,235, respectively. As of May 31, 2022,2023, the lease liability balance was $47,166102,576 and the right of use asset balance was $45,453101,845. A lease term of three years and a discount rate of 1212%% was used.
Supplemental balance sheet information related to leases was as follows:
| Schedule of Supplemental balance sheet information | ||||||||||||||||
| May 31, 2022 | May 31, 2021 | |||||||||||||||
| Assets | May 31, 2023 | May 31, 2022 | ||||||||||||||
| Right of use assets | $ | 235,748 | $ | 235,748 | $ | 131,970 | $ | 235,748 | ||||||||
| Accumulated reduction | (190,295 | ) | (107,373 | ) | (30,125 | ) | (190,295 | ) | ||||||||
| Operating lease assets, net | $ | 45,453 | $ | 128,375 | $ | 101,845 | $ | 45,453 | ||||||||
| Liabilities | ||||||||||||||||
| Lease liability | $ | 235,748 | $ | 235,748 | ||||||||||||
| Lease Liability | $ | 131,970 | $ | 235,748 | ||||||||||||
| Accumulated reduction | (188,582 | ) | (103,947 | ) | (29,394 | ) | (188,582 | ) | ||||||||
| Total lease liability, net | 47,166 | 131,801 | $ | 102,576 | $ | 47,166 | ||||||||||
| Current portion | (47,166 | ) | (84,635 | ) | (65,824 | ) | (47,166 | ) | ||||||||
| Non-current portion | $ | - | $ | 47,166 | $ | 36,752 | $ | — | ||||||||
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:
| Schedule of future minimum rental payments required under operating lease | ||||
| Operating Lease | ||||
| 2023 | $ | 48,831 | ||
| Total | $ | 48,431 | ||
| Less: Imputed interest | (1,665 | ) | ||
| Present value of lease liabilities | $ | 47,166 |
2023:
| Schedule of maturities of operating lease liabilities | ||||
| Operating Lease | ||||
| 2024 | $ | 65,824 | ||
| 2025 | 36,752 | |||
| Total | $ | 102,576 | ||
| Less: Imputed interest | $ | — | ||
| Present value of lease liabilities | $ | 102,576 | ||
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,Company, however, the Company believes that the products wereproduct was defective. The litigation process has not progressed and 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 2021.2023.
F-21
Note 1112 – Related Party Transactions
The Company’s Chief Executive Officer, Jeff Toghraie, is the managing director of Intrepid Global Advisors (“Intrepid”). Intrepid has, from time to time, provided advances to the Company for working capital purposes. At May 31, 20222023, and 2021,2022, the Company had aamounts payable to the officerIntrepid of $25,452124,378 and $54,30425,452, respectively. These advances are due on demandwere short-term in nature and non-interest bearing. Additionally, pursuant to a voting agreement, effective June 16, 2022 as amended effective November 7, 2022, with AXIL and Intrepid Global Advisors, we are subject to certain limitations on our ability to sell our capital stock until June 2024.
During the fiscal year ended May 31, 2023, the Company paid $218,696 as consulting fee for product development to Weston T. Harris, a major stockholder of AXIL, and also paid $126,097 to immediate family members of the major stockholder as compensation for services relating to packaging design and affiliate marketing.
During the fiscal year ended May 31, 2023, the Company paid $135,484 as consulting fee for inventory management and operations consulting to an immediate family member of a major stockholder of AXIL, $74,620 to an immediate family member of the major stockholder in commissions and a contractor fee, and $15,928 to an immediate member of the major stockholder as compensation for services relating to travel and event coordination.
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, Inc. As of May 31, 2023, Intrepid Global Advisors, Inc. held no outstanding common stock of AXIL and 19.50% of the outstanding common stock of the Company.
Note 13 – Business Combination
On June 16, 2022, the Company completed the acquisition of certain assets of Axil & Associated Brands Corp. (“AXIL”), a Delaware corporation, pursuant to the Asset Purchase Agreement dated May 1, 2022 and amended on June 15, 2022 and September 8, 2022. by and among the Company, its subsidiary, AXIL, and certain of AXIL’s stockholders, providing for the acquisition of AXIL’s hearing protection business and ear bud business. The business constituted substantially all of the business operations of AXIL but did not include AXIL’s hearing aid line of business.
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. As of May 31, 2023 Intrepid held no outstanding common shares of AXIL, as they were distributed with the Asset Purchase Agreement. 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 shares of the company comprised of (a) shares of the Company’s Common Stock and (b) 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 $4,007,480 based on a fair value of $ per common share on the date of acquisition.
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 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 was allocated to goodwill.
F-22
Note 1213 – Business Combination (continued)
The following is a summary of the fair value of the assets acquired and liabilities assumed at the date of acquisition:
| Schedule of estimated fair value of the assets acquired | ||||
| Cash | $ | 1,066,414 | ||
| Accounts receivable | 227,786 | |||
| Inventory | 1,342,461 | |||
| Prepaid expenses | 62,452 | |||
| Other assets | 108,030 | |||
| Accounts payable | (285,665 | ) | ||
| Contract liabilities | (1,043,332 | ) | ||
| Other current liabilities | (79,826 | ) | ||
| Net tangible assets acquired | $ | 1,398,320 | ||
| Identifiable intangible assets | ||||
| Licensing rights | $ | 11,945 | ||
| Customer relationships | 70,000 | |||
| Tradenames | 275,000 | |||
| Website | 100,000 | |||
| Total Identifiable intangible assets | $ | 456,945 | ||
| Consideration paid | $ | 4,007,480 | ||
| Total net assets acquired | 1,855,265 | |||
| Goodwill purchased | $ | 2,152,215 |
Pro Forma Information (Unaudited)
The unaudited pro forma condensed combined financial statements are based on Reviv3 and AXIL’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 fiscal year ended May 31, 2023 and 2022, for Reviv3 and AXIL, give effect to the Asset Purchase Agreement as if it had occurred on June 1, 2022 and 2021, respectively.
| Schedule of proforma information | ||||||||
| For the fiscal year ended | For the fiscal year ended | |||||||
| May 31, 2023 | May 31, 2022 | |||||||
| Revenue | $ | 25,428,163 | $ | 18,356,862 | ||||
| Net income (loss) | 2,032,954 | (3,212,320 | ) | |||||
| Earnings (loss) per common share | ||||||||
| Basic | $ | 0.02 | $ | (0.03 | ) | |||
| Diluted | $ | 0.01 | — | |||||
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-23
Note 14 – 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, 20222023 and 2021,2022, the Company held cash in various accounts of approximately $123,8714,582,682 and $224,395123,731, respectively, in excess of federally insured limits. The Company has not experienced any losses in such accounts through May 31, 2022 and 2021.2023.
Concentration of Revenue, Accounts Receivable, Product Line, and Supplier – Hair and Skin Care Products
During the fiscal year ended May 31, 20222023 hair and skin care product sales to 2three customers, which each represented over 10% of our total sales, aggregated to approximately 3194%% of the Company’s net sales at 1561%%, 12% and 1621%%. During the fiscal year ended May 31, 20212022 sales to 2two customers, which each represented over 10% of our total sales, aggregated to approximately 3431%% of the Company’s net sales at 1215%% and 2216%%.
During the fiscal year ended May 31, 2023 hair and skin care product sales to customers outside the United States represented approximately 25% which consisted of 20% from Canada and 5% from Italy and during the fiscal year ended May 31, 2022 sales to customers outside the United States represented approximately 1616%% which consisted of 1414%% from Canada and 22%% from Italy and duringItaly.
During the fiscal year ended May 31, 20212023, hair and skin care product sales to customers outside the United Statesby productline which each represented approximately 24% whichover 10% of sales consisted of approximately 1915% % from Canadasales of hair shampoo, and 510% % from Italy.sales of hair conditioner and 7%
from bundle kits. During the fiscal year ended May 31, 2022, hair and skin care product sales by product line which each represented over 10% of sales consisted of approximately 1010% % from sales of hair shampoo, 1212% % from sales of hair shampoo and conditioner, 2525% % from sale of introductory kit (shampoo, conditioner and treatment spray) and 29%29% from sale of bundle packs (shampoo, conditioner and spray).
During the fiscal years ended May 31, 2023 and 2022 sales for the hair and skin care product lines comprised of the following:
| Schedule of Sales by Product Line | ||||||||
| For the Fiscal Years ended | ||||||||
| Hair Care Products | May 31, 2023 | May 31, 2022 | ||||||
| Shampoos and Conditioners | 77 | % | 84 | % | ||||
| Ancillary Products | 23 | % | 16 | % | ||||
| Total | 100 | % | 100 | % | ||||
At May 31, 2023, hair and skin care product’s only accounts receivable from one customer accounted for more than 10% of sales transactions, which was Amazon and the second largest customer accounted for 8%, which is due to the fact that products are sold primarily through direct-to-consumer. At May 31, 2022, accounts receivable from four customers represented approximately 74% at 11%, 12%, 14% and 37%.
Hair and skin care product purchased inventories and products from three vendors totaling approximately $297,833, (95% of the purchases at 61%, 12% and 22%) during the fiscal year ended May 31, 2021,2023 and four vendors totaling approximately $343,015 (97% of the purchases at 10%, 23%, 30% and 34%) during the fiscal year ended May 31, 2022.
Concentration of Revenue, Accounts Receivable, Product Line, and Supplier – Ear Protection and Enhancement Products
AXIL is sold direct-to-consumer, therefore, during the fiscal year ended May 31, 2023, 97.3% of sales was direct to customers. There was no single customer that accounted for greater than 2% of total sales.
During the fiscal year ended May 31, 2023 AXIL sales to customers outside the United States represented approximately 4.5% which consisted of 3.7% from Canada and the remaining from various countries.
Manufacturing is outsourced primarily overseas via a number of third party vendors, the two largest vendors accounting for 82% and 10% of all purchases.
During the fiscal year ended May 31, 2023, AXIL sale of ear buds for PSAP (personal sound amplification product) and hearing protection by product line which each represented over 10% of sales consisted of approximately 1187%% from Ghost Stryke Extreme model GS-X ($18.1M) and 9% of sales of hair shampoo, 21% from sales of hair shampoo and conditioner and 38% from sale of introductory kit (shampoo, conditioner and treatment spray)Trackr earmuffs ($1.9M).
F-22F-24
REVIV3 PROCARE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2022 AND 2021
Note 1214 – Concentrations(continued)
During the fiscal year ended May 31, 2023 sales by product linehearing enhancement and protection products comprised of the following:
| Schedule of Sales by Product Line | ||||||||
| 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 | % | ||||
| Schedule of sales by product comprised | ||||
| For the fiscal year ended | ||||
| Ear Protection & Enhancement Products | May 31, 2023 | |||
| Ghost Stryke | 86.7 | % | ||
| Trackr Earmuffs | 9.1 | % | ||
| Other Bluetooth and ear buds | 3.9 | % | ||
| Accessories, other | 0.3 | % | ||
| Total | 100.0 | % | ||
Note 15 – At May 31, 2022, accounts receivable from 4 customers represented approximately 74% at 11%, 12%, 14%Business Segment and 37Geographic Area Information%.; and at May 31, 2021, accounts receivable from 4 customers represented approximately 83% at 11%, 12%, 25% and 35%.
Business Segments
The Company, purchased inventoriesdirectly or through its subsidiaries, markets and sells its products from 4 vendors totaling approximately $343,015 (97%and services directly to consumers and through its dealers. In June 2022, the Company acquired a hearing enhancement and hearing protection business. The Company’s determination of its reportable segments is based on how its chief operating decision makers manage the purchases at 10%, 23%, 30%business.
The Company’s segment information is as follows:
| Schedule of segment information | ||||||||
| The fiscal years ended | ||||||||
| Net Sales | May 31, 2023 | May 31, 2022 | ||||||
| Hair care and skin care | $ | 1,588,958 | $ | 2,336,257 | ||||
| Hearing enhancement and protection | 21,932,069 | — | ||||||
| Total net sales | $ | 23,521,027 | $ | 2,336,257 | ||||
| Operating earnings (loss) | ||||||||
| Segment gross profit: | ||||||||
| Hair care and skin care | $ | 1,076,834 | $ | 1,507,671 | ||||
| Hearing enhancement and protection | 16,633,977 | — | ||||||
| Total segment gross profit | $ | 17,710,811 | $ | 1,507,671 | ||||
| Selling and Marketing | 11,675,206 | 1,199,305 | ||||||
| General and Administrative | 4,051,394 | 519,769 | ||||||
| Consolidated operating income (loss) | $ | 1,984,211 | $ | (211,403 | ) | |||
| Total Assets: | ||||||||
| Hair care and skin care | $ | 3,785,732 | $ | 893,915 | ||||
| Hearing enhancement and protection | 6,383,582 | — | ||||||
| Consolidated total assets | $ | 10,169,314 | $ | 893,915 | ||||
| Payments for property and equipment | ||||||||
| Hair care and skin care | $ | — | $ | — | ||||
| Hearing enhancement and protection | 65,650 | — | ||||||
| Consolidated total payments for property and equipment | $ | 65,650 | $ | — | ||||
| Depreciation and amortization | ||||||||
| Hair care and skin care | $ | 5,675 | $ | 7,872 | ||||
| Hearing enhancement and protection | 89,504 | — | ||||||
| Consolidated total depreciation and amortization | $ | 95,179 | $ | 7,872 | ||||
F-25
Note 15 – Business Segment and 34%) and 3 vendors totaling approximately $404,512 (89% ofGeographic Area Information (continued)
Geographic Area Information
During the purchases at 19%, 27% and 43%) during the yearsfiscal year ended May 31, 2022 and 2021, respectively.2023, approximately 94% of our consolidated net sales were to customers located in the U.S. (based on the customer’s shipping address). All Company assets are located in the U.S.
Note 1316 – Income taxesTaxes
The Company has incurred aggregate net operating losses of approximately $1,527,0001,500,000 for income tax purposes as of May 31, 2022.2023. The net operating loss carries forward for United States and California 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 historycurrent year net income results and continuing losses for United States incomeshould be able to fully utilize that benefit in the current year tax purposes. Accordingly, the Company has providedfilings. Management will not provide a 100% valuation allowance onfor the deferred tax assetlosses as they appear to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as necessary.be fully realized.
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income were as follows:
| Schedule of effective statutory rate and the provision for income | ||||||||
| 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)
| Schedule of effective statutory rate and the provision for income | ||||||||
| For the Fiscal Years Ended May 31, | ||||||||
| 2023 | 2022 | |||||||
| Tax expense (benefit) computed at statutory rate of 21% | $ | 431,653 | $ | (38,410 | ) | |||
| State tax expense (benefit) blended rate | 297,928 | (15,289 | ) | |||||
| Change in federal tax rate estimate for prior years | — | (46,109 | ) | |||||
| Non-deductible expenses: Stock-based compensation | — | 6,590 | ||||||
| Non deductible expense: Other | — | 2,082 | ||||||
| Non taxable: COVID related grants/loan forgiveness | — | (10,500 | ) | |||||
Benefit of tax amortization of intangibles | (49,773 | ) | — | |||||
Deferred tax true up | 3,929 | — | ||||||
| Net operating loss benefit | (452,824 | ) | — | |||||
| Tax expense (benefit) | 230,913 | — | ||||||
| Increase (decrease) in valuation allowance | (101,636 | ) | 101,636 | |||||
| Change in deferred tax asset | 101,636 | |||||||
| Net income tax (benefit)/expense | $ | 230,913 | $ | — | ||||
The Company has a deferred tax asset which is summarized as follows at:
Deferred tax assets:
| Schedule of deferred tax asset | ||||||||
| 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
| Schedule of deferred tax asset | ||||||||
| May 31, 2023 | May 31, 2022 | |||||||
| Net operating loss carryover | $ | — | $ | 452,824 | ||||
Less: valuation allowance | — | (452,824 | ) | |||||
| Net deferred tax asset | $ | — | $ | — |
Due to the net income at May 31, 2023 the Company provided areversed the valuation allowance equal toagainst the deferred income tax asset at May 31, 2022 and 2021 because it was not known whether future2023 as current year taxable income will be sufficient to utilize the total loss carryforward. The increase in the allowance was $There is 101,636no 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, theremaining 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.asset at May 31, 2023.
The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2019, 2020, 2021 and 20212022 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 $ per share, from 100,000,000 to and to increase the number of authorized preferred stock, par value $ per share, from 20,000,000 to .
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 shares of the Company which comprised of (a) shares of the Company’s common stock and (b) 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 $ per share on the date of acquisition.
F-24F-26
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:
| Schedule of estimated fair value of the assets acquired | ||||
| 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.(b) Exhibits
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
-24-
| * | Management compensatory plan or arrangement. |
| + | The schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K and the Company agrees to furnish |
-24-
ITEM 16. Form 10-K Summary
Not Applicable.
SIGNATURES
-25-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 25th21st day of August 2022.2023.
| REVIV3 PROCARE COMPANY | ||
| BY: | /s/Jeff Toghraie | |
| Jeff Toghraie | ||
| Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) | ||
| ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/Jeff Toghraie | Chief Executive Officer and Chairman of the Board of Directors | |||
| August 21, 2023 | ||||
| Jeff Toghraie | ||||
| /s/ | Chief Financial Officer | |||
| officer and principal financial officer) | August 21, 2023 | |||
| Monica Diaz Brickell | ||||
| /s/Nancy Hundt | Director | August | ||
| Nancy Hundt |
-26--25-