UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2018
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________________ to ________________
Commission File Number: 000-53810
HER IMPORTS
(Exact name of registrant as specified in its charter)
| Nevada | 30-0802599 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 8861 W. Sahara Ave., Suite 210 | 89117 | |
| (Address of principal executive offices) | (Zip Code) |
Telephone: 702-544-0195
(Registrant’s telephone number, including area code)
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer,” “Smaller reporting company,” and “emerging growth company” in Rule 12-b of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |
| Non-accelerated filer | [ ] | Smaller reporting company | [X] | |
| Emerging growth company | [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 19, 2018, the registrant’s outstanding common stock consisted of 8,656,459 shares, $0.001 par value.
Table of Contents
Her Imports
Index to Form 10-Q
For the Quarterly Period Ended September 30, 2018
| 2 |
Her Imports
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 156,789 | $ | 190,233 | ||||
| Receivables | 180,397 | 165,770 | ||||||
| Related party receivables | 188,170 | 108,026 | ||||||
| Inventories | 1,651,137 | 2,335,753 | ||||||
| Prepaid maintenance fees - current | - | 75,000 | ||||||
| Other prepaid expenses | 12,818 | 64,923 | ||||||
| Deposits | 194,768 | 196,392 | ||||||
| Total current assets | 2,384,079 | 3,136,097 | ||||||
| Property, Equipment and software, net | 137,602 | 267,464 | ||||||
| Prepaid maintenance fees - non-current | - | 209,375 | ||||||
| Other asset | 25,000 | 25,000 | ||||||
| Trademark | 8,200,000 | 8,200,000 | ||||||
| Total assets | $ | 10,746,681 | $ | 11,837,936 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 679,350 | $ | 822,216 | ||||
| Income tax liability | - | 134,432 | ||||||
| Notes payable | 409,511 | 177,390 | ||||||
| Total current liabilities | 1,088,861 | 1,134,038 | ||||||
| Total liabilities | 1,088,861 | 1,134,038 | ||||||
| Stockholders’ equity | ||||||||
| Callable $0.144 per share per year non-cumulative dividend liquidation preference of $2.00 per share, preferred stock, $0.001 par value, 10,000,000 shares authorized and 5,000,000 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | 5,000 | 5,000 | ||||||
| Common stock, $0.001 par value, 70,000,000 shares authorized, 8,656,459 and 4,150,059 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | 8,656 | 4,150 | ||||||
| Additional paid-in capital | 30,143,703 | 26,679,777 | ||||||
| Accumulated deficit | (20,499,539 | ) | (15,985,029 | ) | ||||
| Total stockholders’ equity | 9,657,820 | 10,703,898 | ||||||
| Total liabilities and stockholders’ equity | $ | 10,746,681 | $ | 11,837,936 | ||||
See accompanying notes to these condensed consolidated financial statements.
| 3 |
Her Imports
Condensed Consolidated Statements of Operations
(Unaudited)
| For the Three Months | For the Nine Months | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Product sales | $ | 2,794,480 | $ | 3,668,040 | $ | 9,212,572 | $ | 12,652,837 | ||||||||
| Cost of products sold | 1,613,967 | 1,996,633 | 5,090,006 | 6,889,965 | ||||||||||||
| Gross profit | 1,180,513 | 1,671,407 | 4,122,566 | 5,762,872 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Royalties | 2,282 | 5,286 | 11,731 | 11,180 | ||||||||||||
| Selling expense | 1,115,543 | 1,259,130 | 3,397,653 | 4,045,970 | ||||||||||||
| General and administrative expense | 326,192 | 364,122 | 1,013,625 | 974,081 | ||||||||||||
| Total operating expenses | 1,444,017 | 1,628,538 | 4,423,009 | 5,031,231 | ||||||||||||
| Income (loss) from operations | (263,504 | ) | 42,869 | (300,443 | ) | 731,641 | ||||||||||
| Other (expense) income | ||||||||||||||||
| Interest income | - | 1 | - | 70 | ||||||||||||
| Interest expense | (11,322 | ) | (351 | ) | (24,316 | ) | (5,302 | ) | ||||||||
| Loss on abandonment of fixed assets | - | (2,162 | ) | (384,454 | ) | (2,162 | ) | |||||||||
| Contract termination expense - related party | - | - | (3,397,500 | ) | - | |||||||||||
| Total other expense | (11,322 | ) | (2,512 | ) | (3,806,270 | ) | (7,394 | ) | ||||||||
| Income (loss) before benefit (provision) for income taxes | (274,826 | ) | 40,356 | (4,106,713 | ) | 724,247 | ||||||||||
| Benefit (provision) for income taxes | 38,316 | 76,760 | 132,203 | (168,896 | ) | |||||||||||
| Net income (loss) attributable to Company | (236,510 | ) | 117,116 | (3,974,510 | ) | 555,351 | ||||||||||
| Preferred stock dividends | (180,000 | ) | (180,000 | ) | (540,000 | ) | (540,000 | ) | ||||||||
| Net loss to common stockholders | $ | (416,510 | ) | $ | (62,844 | ) | $ | (4,514,510 | ) | $ | 15,351 | |||||
| Net basic income (loss) per share attributable to common stockholders: basic and diluted | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.77 | ) | $ | 15.44 | |||||
| Weighted average number of common shares outstanding: basic and diluted | 8,656,459 | 4,150,059 | 5,833,886 | 4,150,059 | ||||||||||||
See accompanying notes to these condensed consolidated financial statements.
| 4 |
Her Imports
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Month Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) attributable to Company | $ | (3,974,510 | ) | $ | 555,351 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 58,462 | 92,439 | ||||||
| Stock-based compensation | 70,932 | - | ||||||
| Loss on abandonment of fixed assets | 384,455 | 2,162 | ||||||
| Contract termination expense | 3,397,500 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | (14,627 | ) | (91,113 | ) | ||||
| Related party receivables | (80,144 | ) | (17,140 | ) | ||||
| Inventories | 684,616 | (182,203 | ) | |||||
| Prepaid maintenance fees | - | 56,250 | ||||||
| Other prepaid expenses | 52,105 | (30,365 | ) | |||||
| Deposits | 1,624 | (75,366 | ) | |||||
| Accounts payable and accrued liabilities | (142,866 | ) | 106,203 | |||||
| Income tax liability | (134,432 | ) | 165,213 | |||||
| Other asset | - | (25,000 | ) | |||||
| Net cash provided by operating activities | 303,115 | 556,431 | ||||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of fixed assets | (28,680 | ) | (144,229 | ) | ||||
| Net cash used in investing activities | (28,680 | ) | (144,229 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Issuance of notes payable | 1,658,063 | - | ||||||
| Repayment on notes payable | (1,425,942 | ) | (43,805 | ) | ||||
| Payment of preferred dividend | (540,000 | ) | (540,000 | ) | ||||
| Net cash used in financing activities | (307,879 | ) | (583,805 | ) | ||||
| NET DECREASE IN CASH | (33,444 | ) | (171,603 | ) | ||||
| CASH - BEGINNING OF PERIOD | 190,233 | 355,568 | ||||||
| CASH - END OF PERIOD | $ | 156,789 | $ | 183,965 | ||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Interest paid | $ | 24,317 | $ | 5,539 | ||||
| Income taxes paid | $ | 3,502 | $ | 4,337 | ||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND | ||||||||
| FINANCING ACTIVITIES: | ||||||||
| Shares issued in exhange of cancellation of MIP Agreement | $ | 4,500 | $ | - | ||||
See accompanying notes to these condensed consolidated financial statements.
| 5 |
Notes to the Condensed Consolidated Financial Statements
1. Description of the Company
Her Imports, (previously known as EZJR, Inc.), (“the Company” or “Her”), was incorporated on August 14, 2006 under the laws of the State of Nevada.
Corporate Structure and Business
Her is a retailer of Human Hair Extensions and related haircare and beauty products headquartered in Las Vegas, Nevada. The Company sells its products at consultation studios, on its Website, www.herimports.com and on Amazon.com. As of September 30, 2018, the Company operated 18 retail locations, all of which are in the U.S. These locations are primarily in “executive offices suites” such as Regus PLC, where furniture, administrative staff and security are provided. The Company then stocks the location with products and point-of-sale equipment. These locations are leased on a short-term basis (primarily one year or less). Five leases, including our corporate office, have leases longer than one year at the time they were entered into. This allows the Company to open and close its consultation studios within a short period of time at minimal expense to the Company. At the Company’s consultation studios, the customer is provided with a personal, one-on-one consultation with a Her beauty expert. Additionally, the Company has locations in Greenbelt, Maryland and Brooklyn, New York with salons where customers can have their hair purchases “installed.”
The Company has one wholly owned subsidiary, Her Marketing Concepts, Inc. (“Her Marketing”), a Nevada corporation. All employees of the Company are employed by Her Marketing.
Agreement with Cabello Real Ltd.
On November 28, 2016, the Company entered into an Asset Share Purchase & Business Agreement with Cabello Real Ltd. (“Cabello”), a private United Arab Emirates company to acquire the exclusive U.S. rights to the Her Imports trademark. In addition to these rights, the Company also purchased certain other assets owned by Cabello including customer lists and various digital content. In exchange for these rights, and other digital assets, the Company issued to Cabello 10,000,000 shares of non-voting, non-cumulative, callable preferred stock (subsequently revised to 5,000,000) with a dividend rate of $0.144 per share per annum and a liquidation preference of $2.00 per share. In addition, the Cabello received 1,250,000 shares of common stock. Both the preferred stock and common stock issued were unregistered. Additionally, the Company filed with the Secretary of State of Nevada for the approval of the Certificate of Designations, Preferences, and Rights of Callable Non-cumulative Preferred Stock. The Certificate designated 5,000,000 as Callable Non-cumulative Preferred Stock at a par value of $.001 per share. Cabello is controlled by Mr. Johnathan Terry, who is the Company’s principal shareholder who is also actively involved in its operations.
On January 12, 2017, the Company changed its name from EZJR, Inc. to Her Imports.
eCommerce Platform
In January 2018, the Company converted to a new cloud-based eCommerce platform from its server-based eCommerce platform. The primary reason for the change was to allow the Company to optimize its mobile marketing efforts. In the past, marketing efforts have focused on traditional media, email, and search. However, due to the proliferation of smart phones and social media it is much more effective, while less expensive, to reach our customers using mobile marketing using SMS messaging and social platforms such as Facebook and Snapchat. Furthermore, advances in eCommerce shopping carts to cloud-based platforms allow for significant customization that was not previously available. The Company can interface with the shopping cart using various self-developed “mini-CRMs” depending on the marketing promotion and platform.
As a result of the change, the Company incurred a one-time charge of $383,542 from the write-off of the previous CRM and the prepaid maintenance agreement associated with it.
| 6 |
Media Investor Purchaser Agreement
On June 29, 2014, the Company entered into a Media Investor Purchaser Agreement (“MIP”) with Leader Act HK Ltd (“Leader”), a shareholder. On July 31, 2017, this agreement was assigned by Leader to Cabello. Prior to signing the agreement Leader advanced the Company $50,000 which the agreement allowed to be converted to 83,333 shares of common at $.60 per share. That left up to 9,500,000 shares of common stock that Cabello could purchase at $0.05 per share from its portion of the funds generated by the offers it creates. Contrary to customary practice, the MIP did not provide for any adjustment in the event of a future reverse split, so the Company’s recent reverse split did not affect the number of shares purchasable or the exercise price. This highlighted an unfair agreement which adversely affected the Company. This problem was exacerbated since Cabello is a related party. From April 19 to April 20, 2018, Cabello ran a program to sell a variety of the Company’s hair products. This program generated approximately $150,000 in revenue, however, a final accounting of the results of the program were never completed. Instead, on June 20, 2018 the Company issued to Cabello 4,500,000 of restricted common stock in exchange for cancelation of the MIP Agreement and forgiveness of any monies owed to Cabello for program in April. This cancellation resulted in a non-cash expense of $3,397,500 based on the estimated value of the stock issued in exchange for the cancellation of the agreement.
Agreement with Cabello Real FZE
On April 20, 2017, the Company entered into a Marketing and Selling Agreement with Cabello Real FZE, owner of a hair care product line called OSIworks, whereby the Company exclusively purchases, markets and sells OSIworks’ products in the United States. Under the agreement the Company pays Cabello a royalty of 2% of net sales. Cabello Real FZE is also controlled by Jonathan Terry, the Company’s principal shareholder. During the three- and nine-months ending September 30, 2018 the Company recognized royalty expense of $2,282 and $11,731, respectively, related to the agreement.
2. Summary of Significant Accounting Policies
There have been no changes in Significant Accounting Policies from those described in our Form 10-K for our fiscal year ending December 31, 2017 filed with the Securities and Exchange Commission on March 27, 2018.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company (a Nevada corporation) and its wholly owned subsidiary, Her Marketing. All significant intercompany transactions have been eliminated in consolidation.
Basis of Presentation of the Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Her Marketing. The Company maintains its books of account and prepares consolidated financial statements in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). The Company’s fiscal year ends on December 31. All significant intercompany balances and transactions have been eliminated in consolidation.
On January 31, 2017, the Company effected a 1-for-2 reverse stock split effective January 31, 2017. The par value was not adjusted as a result of the reverse stock split. On April 9, 2018, the Company effected a 1-for-6 reverse stock split effective April 9, 2018. All references to numbers of shares of our common stock and per-share information in the accompanying condensed consolidated financial statements and in these notes to the condensed consolidated financial statements have been adjusted retroactively to reflect these splits.
| 7 |
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates its estimates on an ongoing basis, including those related to the fair values of stock-based awards, income taxes and contingent liabilities, among others. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates and such differences could be material to the consolidated financial position and results of operations.
Fair Value of Financial Instruments
The Company measures fair value based on the prices 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. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).
The Company did not have any assets measured at fair value on a recurring basis at September 30, 2018 and December 31, 2017.
The Company believes the carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, and other accrued liabilities are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.
Deposits
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Deposits on Products | $ | 168,059 | $ | 175,819 | ||||
| Security Deposits | 26,709 | 20,573 | ||||||
| Total | $ | 194,768 | $ | 196,392 | ||||
Intangibles
Intangible assets are comprised primarily of trademarks that represent the Company’s exclusive ownership of the HER trademarks in the US and are inclusive all related social media sites and domain names in the US., all used in connection with (consisting of the name, Her Imports and the Her Imports Logo) the manufacture, sale and distribution of human hair extensions and related beauty products. In accordance with Financial Accounting Standards Board Accounting Standard Codification 350 (FASB ASC 350), intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists through the use of discounted cash flow models. The Company calculates impairment as the excess of the carrying value of its indefinite-lived assets over their estimated fair value. If the carrying value exceeds the estimate of fair value a write-down is recorded. For the three and nine months ended September 30, 2018 and 2017 there were no impairments recorded.
| 8 |
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. ASU No. 2014-09, as amended, is effective for the Company as of January 1, 2018.
The adoption did not result in any material change in the timing of recognizing revenue The adoption will also result in a change in the timing of recognizing revenue for sales where we ship the merchandise to the customer from a distribution center or store, as revenue for sales where we ship the merchandise to customers will be recognized when control of the merchandise transfers to the customer, which is generally at the time of shipment rather than upon delivery of the products to the customer. Additionally, the Company has had a deminimis amount of sales returns.
The Company, through the Her Imports retail locations, its eCommerce Website, www.herimports.com and Amazon.com sells a variety of hair extensions and related products.
Revenue is recognized at the “point of sale” in the stores. Customers pay for the products using either cash, a debit card or a credit card. All sales are final. In the case of cash sales at the store, the store manager makes a nightly deposit of the cash. For credit card and debit sales, the Company recognizes the sale when the card is charged and approved. Sales tax collected from customers is excluded from revenue and is included in accrued liabilities on our condensed consolidated balance sheets.
Product purchases on the Company’s Website are paid for using either debit cards, credit cards, or PayPal Revenue for online product sales are recognized upon shipment of the product. Additionally, customers have the option of making installment payments on products purchased. In this case fifty percent of the purchase price is paid at the time of sale and the remainder withdrawn from the customer’s account via ACH. Because there is a significant amount of uncertainty related to the subsequent collections via ACH, those payment are only recognized as revenue upon receipt. Finally, customers may purchase product using a payment facility called PayNearMe where a customer who doesn’t have a debit/credit/PayPal account can place an online order with an agreement to take cash and pay for the order at a PayNearMe location. The product is then shipped at time PayNearMe notifies the Company that the payment has been received. Revenue is recognized at the time of the shipment of the product.
Also included in revenue is shipping revenue from our e-commerce customers. Sales taxes collected from retail customers are excluded from reported revenues when control of the merchandise transfers to the customers, which is generally at the time of shipment rather than upon delivery of the products to the customer.
Revenue from sales on Amazon.com are recorded net of certain expenses paid to Amazon.com including selling fees, transaction fees, service fees, administrative fees and inventory and inbound service fees. All advertising fees paid to Amazon.com is recognized as a period expense and is booked to selling expense.
Earnings (Loss) per Share
The Company utilizes FASB ASC 260. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.
Reverse Stock Split
All references to numbers of shares of our common stock and per-share information in the accompanying financial statements have been adjusted retroactively to reflect the Company’s 1-for-2 reverse stock split effected on January 31, 2017, and a 1-for-6 reverse stock split effective April 9, 2018. The par value was not adjusted because of the reverse stock splits.
| 9 |
Stock-based compensation
The Company records stock-based compensation issued to external entities for goods and services at either the fair market value of the shares issued, or the value of the services received, whichever is more readily determinable, using the measurement date guidelines enumerated in FASB ASC 505-50-30. For the three months and nine months ended September 30, 2018, the Company recognized stock-based compensation expense of $15,110 and $70,932, respectively. There was no stock-based compensation for the three months and nine months ended September 30, 2017.
Recent Accounting Pronouncements
Except as noted below, the Company has considered all recent accounting pronouncements and has concluded that there are no recent accounting pronouncements that may have a material impact on its condensed consolidated financial statements, based on current information.
In July 2018, the FASB issued ASU 2018-10 Leases (Topic 842), Codification Improvements and ASU 2018-11 Leases (Topic 842), Targeted Improvements, to provide additional guidance for the adoption of Topic 842. ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ equity. ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842. In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases with terms greater than 12 months. ASU 2018-11, ASU 2018-10, and ASU 2016-02 (collectively, “the new lease standards”) are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect the new lease standards will have on its Condensed Consolidated Financial Statements; however, the Company anticipates recognizing assets and liabilities arising from any leases that meet the requirements under the new lease standards on the adoption date and including qualitative and quantitative disclosures in the Company’s Notes to the Condensed Consolidated Financial Statements.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in ASU 2018-09 affect a wide variety of Topics in the FASB Codification and apply to all reporting entities within the scope of the affected accounting guidance. The Company has evaluated ASU 2018-09 in its entirety and determined that the amendments related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, are the only provisions that currently apply to the Company. The amendments in ASU 2018-09 related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, clarify that an entity should recognize excess tax benefits related to stock compensation transactions in the period in which the amount of the deduction is determined. The amendments in ASU 2018-09 related to Topic 718-740 are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of the new standard to have a material impact on the Company’s Condensed Consolidated Financial Statements.
In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Reform Act) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. As described in the footnotes to the Annual Report on Form 10-K, the Company’s accounting for the tax effects of enactment of the Tax Reform Act is being assessed; however, in certain cases, as described below, we made a reasonable estimate of the effects on our existing deferred tax balances and valuation allowance. The Company determined that the $62.9 million recorded in connection with the re-measurement of certain deferred tax assets and liabilities, and corresponding valuation allowance was a provisional amount and a reasonable estimate at December 31, 2017. The Company has not completed the accounting with regard to the tax effects associated with an intra-entity transfer of certain intellectual property rights with the enactment of Tax Reform Act. Our accounting for the intra-entity transfer reflects the utilization of net operating losses on the basis of the laws in effect before the Tax Reform Act. The Company is evaluating the impact under Tax Reform Act on the Company’s global business structure. In all aspects, the Company will continue to make and refine calculations as additional analysis is completed. The Company expects to complete the accounting assessment during the one-year measurement period provided by SAB 118.
| 10 |
3. Property, Equipment and Software
Property and equipment consisted of the following:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Software | $ | 110,000 | $ | 463,310 | ||||
| Computers and equipment | 107,339 | 99,592 | ||||||
| Furniture | 42,064 | 30,391 | ||||||
| Leasehold improvements | 26,384 | 19,493 | ||||||
| subtotal | 285,787 | 612,786 | ||||||
| Accumulated depreciation and amortization | (148,185 | ) | (345,322 | ) | ||||
| Property, equipment and software, net | $ | 137,602 | $ | 267,464 | ||||
Depreciation and amortization expense on property, plant, equipment, and software for the three and nine months ended September 30, 2018 was $18,871 and $58,462, respectively. Depreciation and amortization expense on property, plant, equipment, and software for the three and nine months ended September 30, 2017
4. Sales tax payable
The Company is delinquent in filing some sales tax returns for one state (including the remittance of taxes), for which the Company has transacted business. The Company has recorded tax obligations plus potential interest and penalties estimated to be approximately $18,792, computed through September 30, 2018, which are included in accounts payable and accrued liabilities on the balance sheet. The Company is in the process of becoming fully compliant.
5. Related Party Transactions
Related Party Accounts Receivable and Payable
At September 30, 2018 and December 31, 2017, the Company had a receivable from Cabello, its principal stockholder, of $188,170 and $108,026, respectively, that resulted from payments made by the Company on behalf of Cabello. The Company has the right to offset this receivable against any future dividend payments owed Cabello related to the preferred stock described in Note 1. As described in Note 11, subsequent to September 30, 2018, two dividends of $60,000 each were declared and offset against amounts owed by Cabello. For further information on related party transactions, see Note 1. As described below, the Company incurred $11,731 in royalty expense in 2018 which has also been offset against the Cabello receivable.
Royalty Expense
Royalty expense is a result of royalties incurred on products sold under the brand name OSIworks, a company under common control with the Company’s principal shareholder. During the three ended September 30, 2018 and 2017 royalty expense was $2,282 and $5,286, respectively. During the nine months ended September 30, 2018 and 2017 royalty expense was $11,731 and $11,180, respectively.
Contract Termination Expense – Related Party
On June 20, 2018, the Company issued to Cabello 4,500,000 shares of restricted common stock in exchange for cancelation of the MIP Agreement (described in Note 1) and forgiveness of any monies owed to Cabello for program run in April. This cancellation resulted in a non-cash expense of $3,397,500 based on the estimated value of the stock issued in exchange for the cancellation of the agreement.
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6. Commitments and Contingencies
Leases
At September 30, 2018, the Company leased or rented 20 different facilities including its corporate headquarters, a warehouse and 18 active retail locations. Future lease obligation for these facilities are as follows:
| Year | Amount | |||
| 2018 (remaining three months) | $ | 86,256 | ||
| 2019 | 257,990 | |||
| 2020 | 159,292 | |||
| 2021 | 148,804 | |||
| 2022 | 120,045 | |||
| Thereafter | 24,808 | |||
| Total | $ | 797,195 | ||
Rent expense for the three months ended September 30, 2018 and 2017 was $125,885 and $150,167, respectively. Rent expense for the nine months ended September 30, 2018 and 2017 was $378,807 and $475,674, respectively.
Concentrations
As of September 30, 2018, the Company has only twelve qualified vendors that supply its wigs and hair extension products. The Company sources its hair care products from one vendor. There are numerous suppliers of styling tools as this is a commodity product.
During the three months ended September 30, 2018, the Company purchased hair products from four different vendors, however, two vendors accounted for approximately 94.5% of all hair products purchased. During the nine months ended September 30, 2018, the Company purchased hair products from six different vendors, however, two vendors accounted for approximately 92.4% of all hair products purchased. During the three months ended September 30, 2017, the Company purchased hair products from four different vendors, however, two vendors accounted for approximately 96.6% of all hair products purchased. During the nine months ended September 30, 2017, the Company purchased hair products from six different vendors, however, two vendors accounted for approximately 92.1% of all hair products purchased.
Legal Proceedings
From time to time, the Company 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 the Company’s business.
On or about September 5, 2015, the Company received a summons naming it in a civil action against Her Imports, LLC, Her Imports New York, LLC, Her Holding, Inc. and EZJR, Inc. (now Her Imports) from a former independent contractor of Her Imports, LLC. The complaint claims unpaid wages and overtime wages in violation of New York Labor Law, among other things. No specific damages are mentioned in the complaint. The Company subsequently answered the complaint and denied any wrongdoing as EZJR had no relationship with the contractor, whatsoever. At this point in the litigation it is impracticable to foresee the outcome, however, the Company believes it has meritorious defense and is vigorously defending this litigation. On February 16, 2018, a magistrate judge ruled that EZJR, Her Holding and Her Imports, LLC acted as a joint employer. The judge also found that genuine issues of material fact exist as to “whether plaintiff qualifies as an ‘employee’ under the law or was an ‘independent contractor’.” While the Company disagrees with the ruling that it was a joint employer, it has decided to proceed to trial on the basis that the plaintiff was an independent contractor, while reserving the right to appeal the decision.
On or about On March 13, 2018, the Company received a summons in a civil action alleging that it had violated the Telephone Consumer Protection Act of 1991 (TCPA). In the complaint, an individual who provided his phone number to the Company to obtain certain discounts on the Company’s products, claims that the Company sent several text messages to his cell phone without prior written consent. The suit was filed by on behalf of the plaintiff and others similarly situated. On or about June 5, 2018 the Company received a second summons in a civil action also alleging that it had violated the TCPA. In the complaint, an individual who provided her phone number to the Company to obtain certain discounts on the Company’s products, claims that the Company sent several text messages to her cell phone without prior written consent. The suit was filed by on behalf of the plaintiff and others similarly situated. In both instances our review of the circumstance surrounding the claim are that the actions are not justified and as such we made the decision to intend to vigorously defend the Company against these actions. In the case of the first action we have filed a response denying the allegations. In the case of the second action we have file a motion to dismiss or consolidate this action with the first based on what is known “the-first-to-file rule.” To date there has been no ruling on this motion.
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On January 12, 2017, the Company entered into a Business Purchase Agreement with EnzymeBioSystems, Inc. (“EnzymeBio”), a Nevada corporation, whereby the Company entered into an agreement to purchase 100% ownership of EnzymeBio’s wholly owned subsidiary, Share Acquisition Corp. (“SAC”), a Nevada corporation in exchange for approximately 9,167 shares of the Company’s common stock and $25,000 cash. On February 28, 2017, EnzymeBio agreed to spin-off SAC as a dividend. Pursuant to the Business Purchase Agreement and Nevada Revised Stature 92A.180 (Merger of a subsidiary into parent or parent into subsidiary), SAC was to be acquired and merged into the Company. Restricted common shares of the Company were to be exchanged on a pro-rata one-for-one ownership basis. After the exchange took place, SAC would be collapsed into the Company and subsequently dissolved with the Nevada Secretary of State. The Company agreed to acquire SAC for the sole purpose to increase its shareholder base. The Company paid the $25,000, however, the share exchange did not take place and the agreement was not consummated. The Company was subsequently informed by its legal counsel that this transaction cannot be concluded under applicable securities laws. The Company informed EnzymeBio of this and requested that the $25,000 payment be returned. As a result, the $25,000 payment was recorded under Other Asset on the balance sheet. EnzymeBio refused to return the $25,000 and, as a result, on March 13, 2018 the Company filed a legal complaint against those parties which included a demand for the $25,000 as well as legal fees and specific damages the Company incurred as a result of their actions. In June 2018, the defendants responded to the complaint denying the allegation and also filed a counterclaim against the Company and its Chief Executive Officer. Subsequently, the defendants stipulated and all charges against the Company and its Chief Executive Officer were dismissed. On and effective October 30, 2018 all parties involved in the lawsuit agreed to a settlement and mutual release. Under the settlement agreement, the Company agreed to dismiss that lawsuit. In return, certain shareholders of the Company agreed to return to the Company 72,324 shares of the Company’s common stock upon the filing by the Company of a Form 15 with the U.S. Securities and Exchange Commission. The returned common stock will be immediately retired. Additionally, the shareholders agreed to place 120,000 shares of common in an attorney trust account and that such shares will be surrendered for retirement to the Company on January 1, 2020 should the Company refrain from trading its stock other and a “pink sheet system or OTC market.”
7. Promissory Notes
UPS Capital
On November 8, 2017 the Company entered into an agreement with UPS Capital Corporation (UPS) for a $500,000 credit facility. Under the terms of the agreement UPS will loan 100% of the invoice amount on incoming offshore shipments carried by UPS. Upon funding the loan, the Company pays a transaction fee of 1.85% or 2.75% for air shipment or ocean shipment, respectively. Repayment of amounts funded are due in 60 days for air shipments and 90 days for ocean shipment. Amounts funded are secured by inventory on hand and are personally guaranteed by the Company’s Chief Executive Officer and the Company’s principal controlling shareholder. As of September 30, 2018, and December 31, 2017 the Company owed $409,511 and $177,390, respectively under the facility.
8. Stockholders’ Equity
On January 31, 2017, the Company effected a 1-for-2 reverse stock split effective January 31, 2017. The par value was not adjusted as a result of the reverse stock split. On April 9, 2018, the Company effected a 1-for-6 reverse stock split effective April 9, 2018. All references to numbers of shares of our common stock and per-share information in the accompanying condensed consolidated financial statements and in these notes to the condensed consolidated financial statements have been adjusted retroactively to reflect these splits.
As described in Note 1, on November 28, 2016, the Company entered into an Asset Share Purchase & Business Agreement with Cabello to acquire the exclusive U.S. rights to the Her Imports trademark. In exchange for these rights, and other digital assets, the Company issued to Cabello 10,000,000 shares of unregistered non-voting, non-cumulative, callable preferred stock (subsequently revised to 5,000,000 shares) and 1,250,000 unregistered common stock with a combined value of $8,200,000. All shares of callable preferred stock rank superior to all the Company’s preferred stock and common stock currently outstanding and hereafter issued, as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (with the exception of a merger), including the payment of dividends. The callable preferred stock is subject to a monthly dividend payment equal to a rate of $0.144 per share of preferred stock per annum. The declaration and payment of the dividend on a monthly basis is subject to the approval of the Company’s Board of Directors. Such dividend is non-cumulative should the Company not pay the dividend. The Company has a right of first refusal to purchase the callable preferred stock, should the shareholder decide to sell all or part of their callable preferred stock. The callable preferred stock has no voting rights. Through September 30, 2018, the Board of Directors has declared and approved, preferred stock dividends of $1,320,000 ($60,000 each month) to Cabello related to the 5,000,000 shares of callable, non-voting, non-cumulative preferred stock. Because the dividends on the preferred stock are non-cumulative and at the discretion of the Company, these preferred shares are considered to be equity.
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At September 30, 2018 and December 31, 2017, the Company had 10,000,000 shares of preferred stock authorized and 5,000,000 issued and outstanding and 70,000,000 shares of common stock authorized. At September 30, 2018 and December 31, 2017 there were 8,656,459 and 4,150,039 shares of common stock outstanding, respectively.
As described in Note 1, on October 13, 2016, the Company entered into a five-year maintenance agreement on its eCommerce platform with Leader in exchange for 250,000 shares of the Company’s common stock valued at $375,000 based on the fair market value of a service maintenance contract provided to other third parties which approximates the fair value of the common stock at the time it was issued. In January 2018 the Company converted to a new cloud-based eCommerce platform from its server-based eCommerce platform. As a result, the Company wrote off $265,625 of unamortized prepaid software maintenance related to the agreement.
As described in Note 1, on June 20, 2018 the Company issued 4,500,000 shares of restricted common stock to Cabello in exchange for cancelation of the MIP Agreement and forgiveness of monies owed to Cabello for program that was run in April 2018.
9. Stock-based Compensation
On September 5, 2017 the Company adopted the 2017 Her Imports Stock Incentive Plan. For the three and nine months ended September 30, 2018, the Company recognized $15,110 and $70,932, respectively in stock-based compensation related to stock options and common stock issued under the plan. Stock-based compensation expense is included in the following captions on the condensed consolidated statements of operations.
| Three Month Ended | Nine Month Ended | |||||||
| September 30, 2018 | September 30, 2018 | |||||||
| Selling expense | $ | 9,451 | $ | 38,041 | ||||
| General and administrative expense | 5,659 | 32,891 | ||||||
| Total | $ | 15,110 | $ | 70,932 | ||||
Changes in the Company’s outstanding stock options under the plan during the nine months ended September 30, 2018 were as follows:
| Weighted | ||||||||
| Number of | Average | |||||||
| Options | Price | |||||||
| Outstanding at December 31, 2017 | 58,332 | $ | 9.42 | |||||
| Granted | 3,332 | 1.65 | ||||||
| Exercised | - | - | ||||||
| Forfeited or expired | (8,333 | ) | 10.68 | |||||
| Outstanding at September 30, 2018 | 53,331 | $ | 8.73 | |||||
| Exercisable at September 30, 2018 | 25,832 | $ | 8.99 | |||||
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The weighted average remaining contractual term and aggregate intrinsic value of outstanding options as of September 30, 2018 was 3.86 years and $99,538, respectively.
The Company’s stock options are measured at fair value using the Black-Scholes Option Pricing Model methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s stock options that are categorized within Level 3 of the fair value hierarchy for nine months September 30, 2018 is as follows:
| Strike Price | $ | 1.65 to 10.68 | ||
| Volatility | 46.21 | % | ||
| Risk-free interest rate | 2.15 | % | ||
| Contractual life (in years) | 5 | |||
| Dividend yield (per share) | 0 | % |
10. Income Taxes
The tax reform bill that Congress voted to approve December 20, 2017, also known as the “Tax Cuts and Jobs Act”, made sweeping modifications to the Internal Revenue Code, including a much lower corporate tax rate, changes to credits and deductions, and a move to a territorial system for corporations that have overseas earnings. The act replaced the prior-law graduated corporate tax rate, which taxed income over $10 million at 35%, with a flat rate of 21%.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. An approximate estimated blended tax rate of 16.3% was used to calculate the benefit for taxes based on operations for the nine months ended September 30, 2018 and 23.1% to calculate the provision for taxes based on income for the nine months ended September 30, 2017. For financial reporting purposes the benefit for income taxes is based on a pre-tax loss of $709,213 for the nine months ended September 30, 2018 and pre-tax income of $724,247 for the nine months ended September 30, 2017. In 2018, and for fourteen years thereafter, there will be a permanent book versus tax difference of $546,667 each year related to the amortization of the trademark, which is deductible for tax purposes but is not amortized and expensed for financial reporting purposes. The provision (benefit) for income taxes for the three and nine months ended September 30, 2018 and 2017 consisted of the following:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| U.S. Federal | $ | 42,115 | $ | 78,811 | $ | 142,870 | $ | (146,947 | ) | |||||||
| U.S. State | (3,799 | ) | (2,051 | ) | (10,667 | ) | (21,949 | ) | ||||||||
| Total | 38,316 | 76,760 | 132,203 | (168,896 | ) | |||||||||||
| Deferred | - | - | - | - | ||||||||||||
| Total benefit (provision) for income taxes | $ | 38,316 | $ | 76,760 | $ | 132,203 | $ | (168,896 | ) | |||||||
As of September 30, 2018, we had a tax loss carryforward of approximately $1,436,657 which can be used to offset future Federal income taxes.
11. Subsequent Events
On October 3, 2018, the Board of Directors approved the monthly $60,000 dividend related to 5,000,000 shares of Callable Preferred Stock owned by Cabello Real Ltd. This dividend was offset against amounts owed to the Company by Cabello.
On and effective October 30, 2018 all parties involved in the EnzymeBio lawsuit agreed to a settlement and mutual release. Under the settlement, the Company agreed to dismiss that lawsuit. In return, certain shareholders of the Company agreed to return to the Company 72,324 shares of the Company’s common stock upon the filing by the Company of a Form 15 with the U.S. Securities and Exchange Commission. The returned common stock will be retired. Additionally, the shareholders agreed to place 120,000 shares of common stock in an attorney trust account and that such shares will be surrendered for retirement to the Company on January 1, 2020 should the Company refrain from trading its stock other and a “pink sheet system or OTC market.”
On November 7, 2018, the the sole member of the Board of Directors approved the monthly $60,000 dividend related to 5,000,000 shares of Callable Preferred Stock owned by Cabello Real Ltd. This dividend was offset against amounts owed to the Company by Cabello.
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ITEM 2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues, costs and expenses during the reporting periods. Actual results could differ materially from these estimates.
Forward-Looking Statements
This report contains forward-looking statements including our statements on expected future fluctuation in inventory, liquidity, anticipated capital asset requirements and anticipated growth and plans for funding our operations. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the risks contained in our Form 10-K for the year ended December 31, 2017 which was filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2018 and other risks including a deterioration in general or regional economic, market and political conditions, failure to raise capital or obtain a credit facility ineffective marketing, unanticipated federal legislation or regulation that increases our cost of compliance, failure to implement our business plan and competition.
Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
The following discussion and analysis compare our results of operations for the three and nine months ended September 30, 2018 and September 30, 2017. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto and our Form 10-K for our fiscal year ending December 31, 2017 filed with the SEC on March 27, 2018.
Business Organization and Overview
We are a retailer of Human Hair Extension and related haircare and beauty products headquartered in Las Vegas, Nevada. We sell our products at consultation studios throughout the U.S. on our Website at www.herimports.com and at Amazon.com. Additionally, by way of our proprietary eCommerce platform and strategic leveraging of social media buys, we convert prospects into customers while developing long-term personal relationships and loyal customers. Our consultation studios are primarily leased on a short-term basis (one year or less). This allows the Company to open and close locations with a minimal amount of time and expense. At these consultation studios, the customer is provided with a personal, one-on-one consultation. Additionally, the Company has one “super-store” in Greenbelt Maryland where we have several consultants as well as a waiting room.
Seasonality
In the opinion of our management, the business areas in which we operate are subject to seasonal fluctuations during holidays and personal income tax filing season. We believe our quarterly revenues are highest in the late Winter and Spring when our customers receive income tax refunds. As such, past quarterly results are not indicative of future results and may be subject to seasonal fluctuations.
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Results of Operations
Discussion of three months ended September 30, 2018 and 2017
Product Sales
Product sales for the three months ended September 30, 2018 were $2,794,480 representing a 23.8% decrease from revenues of $3,668,040 for the three months ended September 30, 2017. These sales were derived primarily from the sale of human hair extensions and related hair care products under the brands “Her Imports” or “OSIworks.” These sales were made either online or at Her Imports’ consultation studios. Consultation studio sales decreased by 21.4% to $1,611,667 for the three months ended September 30, 2018 when compared to $2,049,358 for the three months ended September 30, 2017. The reason for the decrease is that we closed 13 under-performing studios during second half of 2017 and another four in the first three quarters of 2018. We also experienced greater competition from various online retailers. Same store sales decrease by $240,000 or 12.8% from $1,872, 892. Adding to this decrease in studio sales was a decrease in online sales. Online sales decreased by 27.0% to $1,181,612 for the three months ended September 30, 2018 from $1,618,682 for the three months ended September 30, 2017. Online sales as a percentage of overall sales decreased to 42.3% for the three months ended September 30, 2018 compared to 44.1% for the three months ended September 30, 2017. This decrease in online sales as a percentage of overall sales is consistent with the overall decrease. Finally, during the three months ended September 30, 2018, the were $1,200 of wholesale sales. There were no wholesale sales during the three months ended September 30, 2017.
Cost of Products Sold, Gross Profit and Gross Margins
Cost of products sold for the three months ended September 30, 2018 were $1,613,967 representing a 19.2% decrease from cost of products sold of $1,996,633 for the three months ended September 30, 2017. Accompanying this decrease was a nominal decrease in gross margins to 42.2% for the three months ended September 30, 2018 down from a gross margin of 45.6% for the three months ended September 30, 2017. As a result, gross profit decreased to $1,180,513 or 29.4% from gross profit of $1,671,407 for the three months ended September 30, 2017.
Operating Expenses
Operating expenses consist of royalty expense, selling expense and general and administrative expense and decreased by 11.3% when comparing the three months ended September 30, 2018 to the same period for 2017. Total operating expenses for the three months ended September 30, 2018 were $1,444,017, compared to $1,628,538 for the three months ended September 30, 2017. Royalty expense for the three months ended September 30, 2018 was $2,282 compared to $5,286 for the three months ended September 30, 2017. Selling expense for the three months ended September 30, 2018 decreased by $143,587 or 11.4% for the three months ended September 30, 2018 when compared to the same 2017 period. The decrease in selling expense was primarily attributable to a decrease in consultation studio operating expenses including payroll, rent, travel expenses and other operating expenses due to the closing of these retail locations. There were 21 consultation studios open at some time during the three months ended September 30, 2018 compared to 33 consultation studios open in the same period for 2017. Also, contributing to the decrease were decreases in Website development expense and promotion expense. General and administrative expenses decreased by $37,930 or 10.4% for the three months ended September 30, 2018 when compared to the same period last year. This decrease was primarily due to decreased payroll costs, depreciation and amortization and investor relations. This decrease was partially offset by increased legal expenses.
Income (loss) from operations
The above resulted in loss from operations of $263,504 for the three months ended September 30, 2018 compared to income from operations of $42,869 for the three months ended September 30, 2017.
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Other income and expense
For the three months ended September 30, 2018, other expense of $11,322 which consisted interest expense from notes payable. This compares to other expense for the three months ended September 30, 2017 of $2,512 consisting of interest expense of $351 interest income of $1 and a loss on abandonment of fixed assets of $2,162.
Provision for income taxes
For the three months ended September 30, 2018, we recognized a tax benefit of $38,316 compared to a tax benefit $76,760 for the three months ended September 30, 2017. These provisions/benefits are based on estimated income for the entire year. An approximate estimated blended tax rate of 22.1% was used to calculate the provision for taxes based on income for the 2018 and 35.9% for 2017. The reason for the decrease in the effective tax rate in 2018 was a change in the Federal corporate tax rate from 35% to 21% as a result of the “Tax and Jobs Act” passed by Congress in December 2017.
Net income (loss) attributable to company
As a result of the above, net loss attributable to company for the three months ended September 30, 2018 was $236,510 compared to net income attributable to company of $117,116 for the three months ended September 30, 2017.
Discussion of nine months ended September 30, 2018 and 2017
Product Sales
Product sales for the nine months ended September 30, 2018 were $9,212,572 representing a 27.2% decrease from revenues of $12,652,837 for the nine months ended September 30, 2017. These sales were derived primarily from the sale of human hair extensions and related hair care products under the brands “Her Imports” or “OSIworks.” These sales are made either online or at Her Imports’ consultation studios. Consultation studio sales decreased by 36.3% to $5,401,229 for the nine months ended September 30, 2018 when compared to $8,472,852 for the nine months ended September 30, 2017. The reason for the decrease was primarily due to the closure of consultation studios as the Company began focusing on online sales. There were 36 consultation studios open at some time during the nine months ended September 30, 2017 compared to 23 consultation studios open at some time during the same period for 2018. A decrease in online sales also contributed to the overall decrease in sales. Online sales decreased by 8.9% to $3,800,143 for the nine months ended September 30, 2018 from $4,172,063 for the nine months ended September 30, 2017. Wholesale sales increase by $3,278 when comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017.
Cost of Products Sold
Cost of products sold for the nine months ended September 30, 2018 were $5,090,006, representing a 26.1% decrease from cost of products sold of $6,889,965 for the nine months ended September 30, 2017. This decrease was the result of lower sales. Gross margin decreased slightly to 44.7% for the nine months ended September 30, 2018 down from a gross margin of 45.5% for the nine months ended September 30, 2017. As a result, gross profit decreased to $4,122,566 or 28.5% from gross profit of $5,762,872 for the nine months ended September 30, 2017.
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Operating Expenses
Operating expenses consist of royalty expense, selling expense and general and administrative expense. Total operating expenses for the nine months ended September 30, 2018 was $4,423,009, representing a 12.1% or $608,222 decrease from $5,031,231 for the nine months ended September 30, 2017. This decrease was primarily a result of decrease in selling expense partially offset by an increase in both general and administrative expense and royalties. Selling expense for the nine months ended September 30, 2017 decreased $648,316 or 16.0% for the nine months ended September 30, 2018 when compared to the same 2017 period. The decrease in selling expense was primarily attributable to a decrease in consultation studio operating expenses including payroll, rent, travel expenses and other operating expenses due to the closing of retail locations. There were 23 consultation studios open at some time during the nine months ended September 30, 2018 compared to 36 consultation studios open in the same period for 2017. Also, contributing to the decrease were decreases in Website development expense and promotion expense. General and administrative expenses increased by $39,544 or 4.1% for the nine months ended September 30, 2018 when compared to the same period last year. This increase was primarily due to non-cash compensation, Board of Directors expenses, administrative payroll and professional fees. These increase we partially offset by a decrease in investor relations, bank service fees and depreciation and amortization. Royalty expense was $11,731 for the nine months ended September 30, 2018 compared to $11,180 for the nine months ended September 30, 2017.
Income from operations
The above resulted in loss from operations of $300,443 for the nine months ended September 30, 2018 compared to income from operations of $731,641 for the nine months ended September 30, 2017.
Other income and expense
For the nine months ended September 30, 2018, other expense of $3,806,270 consisted of a non-cash charge of $3,397,500 related to the termination of the Media Investor Purchase Agreement, dated as of September 29, 2014, a $384,454 loss on abandonment of fixed assets and $24,317 of interest expense related to notes payable. This compares other expense $7,394 for the nine months ended September 30, 2017 of which consisted of $5,302 of interest expense, $70 of interest income and loss on abandonment of fixed assets of $2,162.
Provision for income taxes
For the nine months ended September 30, 2018, a tax benefit of $132,203 was recognized compared to a tax provision of $168,896 for the nine months ended September 30, 2017. These provisions/benefits are based on estimated income for the entire year. An approximate estimated blended tax rate of 22.1% was used to calculate the provision for taxes based on income for the 2018 and 35.9% for 2017. The reason for the decrease in the effective tax rate in 2018 was a reduction in the Federal corporate tax rate from 35% to 21% as a result of the “Tax and Jobs Act” pass by Congress in December 2017.
Net income (loss) attributable to company
As a result of the above, net loss attributable to the Company for the nine months ended September 30, 2018 was $3,974,510 compared to net income attributable to the Company of $555,351 for the nine months ended September 30, 2017.
Liquidity and Capital Resources
We had a working capital surplus of $1,295,218 and $2,002,059 at September 30, 2018 and December 31, 2017, respectively, representing a $706,841 decrease in our working capital. As of November 14, 2018, we had $69,704 in cash.
Our primary use of cash is the purchase of inventory and the payment of dividends on outstanding callable non-cumulative preferred stock. We anticipate that inventory will continue to fluctuate depending on the level of sales and, as we add additional SKU’s to our product line and when close or we open new retail operations, subject to the occurrence of any material risks, trends and uncertainties stated above. We currently plan to fund our growth through earnings, however, we are currently negotiating with various financial institutions to obtain a credit facility related to the purchase of inventory. Additionally, we may seek to raise additional capital through the sale of equity. We believe we have sufficient working capital to pay our expenses for the next twelve months and anticipate paying monthly dividends of $60,000 on the preferred stock until such time that we call the preferred stock.
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Net Cash Provided by Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2018 totaled $303,115 primarily from a reduction of inventory of $684,616, offset by a net change in accounts payable and accrued liabilities of ($142,866) and income tax liability of ($134,432). Non-cash items were contract termination expense of $3,397,500, depreciation of $58,462, stock-based compensation of $70,932 and $384,455 of loss on abandonment of fixed assets.
Net cash provided by operating activities for the nine months ended September 30, 2017 totaled $556,431 and resulted primarily from net income attributable to company of $555,351, offset by a net change in operating assets and liabilities of ($93,521). The most significant change in operating assets and liabilities were increases of $182,203 in inventories, $75,366 in deposits, $91,113 in receivables, $106,203 in accounts payable and accrued liabilities and $165,213 in income tax liability. Non-cash items were $92,439 of depreciation and amortization and $2,162 of loss on abandonment of fixed assets.
Net Cash Used in Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2018 totaled $28,680 related to purchases of fixed assets.
Net cash used in investing activities during the nine months ended September 30, 2017 totaled $144,229, including $110,000 for the development of a new eCommerce Website, $34,229 for the purchase of retail location equipment.
Net Cash Used in Financing Activities
Net cash used in financing activities during the nine months ended September 30, 2018 totaled $307,879 resulting from borrowings of $1,658,063 offset by $1,425,942 of repayments of these borrowings. Additionally, the Company paid preferred dividends of $540,000 during the period.
Net cash used in financing activities during the nine months ended September 30, 2017 totaled $583,805 resulting from payments of preferred dividends of $540,000 and repayments on notes payable of $43,805.
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 of operations, liquidity, capital expenditures or capital resources that is material to investors.
Related Party Transactions
For information on related party transactions and their financial impact, see Note 5 to the Unaudited Condensed Consolidated Financial Statements.
Critical Accounting Policies and Estimates
In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, the Company has selected its most subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on the Company’s financial condition. These estimates involve certain assumptions that if incorrect could create a material adverse impact on the Company’s results of operations and financial condition. There were no material changes to our principal accounting estimates during the period covered by this report.
Revenue Recognition: Revenue is recognized at the “point of sale” in the stores. Customers pay for the products using either cash, a debit card or a credit card. In the case of cash sales at the store, the store manager makes a nightly deposit of the cash. For cash sales, we recognize the sale when the deposit is recorded into our account by the bank. For credit card and debit sales, we recognize the sale when the card is charged and approved. Allowances for sales returns are recorded as a reduction of net sales in the periods in which the related sales are recognized. Sales tax collected from customers is excluded from revenue and is included in accrued expenses on our Consolidated Balance Sheets.
| 20 |
Product purchases on the Website are paid for using either debit cards, credit cards, PayPal, or an independent financing company. Revenue for Website product sales are recognized upon shipment of the product. Also included in revenue is shipping revenue from our e-commerce customers. Sales taxes collected from retail customers are excluded from reported revenues.
Recent Pronouncements
Our management has evaluated all the recently issued accounting pronouncements through the filing date of this quarterly report on Form 10-Q and does not believe that any of these pronouncements will have a material impact on our financial position and results of operations. See Note 1 to the Unaudited Condensed Consolidated Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the SEC, and that such information is accumulated and communicated to management, including the Chief Executive Officer, to allow timely decisions regarding required disclosures.
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, who is also a member of our Board of Directors, have evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2018. Based on such evaluation, the Chief Executive Officer concluded that, as of September 30, 2018, our disclosure controls and procedures were not effective. Our disclosure controls and procedures were not effective at the reasonable assurance level due to the “material weaknesses” described below.
In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standards) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. Management has identified the following material weakness which has caused management to conclude that, as of September 30, 2018, our disclosure controls and procedures were not effective at the reasonable assurance level.
We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ending September 30, 2018. Management evaluated the impact of our failure to have adequate written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 21 |
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 adversely affect our business.
As a Smaller Reporting Company, we are not required to provide information otherwise required by this item; however, you may review risk factors contained in our Form 10-K for the fiscal year ending December 31, 2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION
None.
The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-Q.
EXHIBIT INDEX
| Exhibit | Incorporated by Reference | Filed or Furnished | ||||||||
| No. | Exhibit Description | Form | Date | Number | Herewith | |||||
| 3.1 | Articles of Incorporation | SB-2 | 6/14/07 | 3.1 | ||||||
| 3.1(a) | Certificate of Amendment to Articles of Incorporation - name change | 8-K | 1/12/17 | 10.18 | ||||||
| 3.1(b) | Certificate of Amendment to Articles of Incorporation - preferred stock | 8-K | 2/14/18 | 3.1 | ||||||
| 3.1(c) | Certificate of Amendment to Articles of Incorporation - reverse stock split | 10-Q | 5/15/18 | 3.1(c) | ||||||
| 3.1(d) | Certificate of Correction to the Certificate of Amendment to Articles of Incorporation - reverse stock split | 8-K | 4/4/2018 | 3.1 | ||||||
| 3.1(e) | Certificate of Amendment Articles of Incorporation | 8-K | 8/27/18 | 3.1 | ||||||
| 3.2 | Amended and Restated Bylaws | 10-Q | 8/14/18 | 3.2 | ||||||
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer (302) | Filed | ||||||||
| 32.1 | Certification of Principal Executive and Principal Financial Officer (906) | Furnished** | ||||||||
| 101.INS | XBRL Instance Document | Filed | ||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to our Corporate Secretary at 8861 W. Sahara Ave., Suite 210, Las Vegas, NV 89117.
** This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
| 22 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November 19, 2018 | By: | /s/ Barry Hall |
| Name: | Barry Hall | |
| Title: | Executive Chairman, Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
| 23 |
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Barry Hall, certify that:
1. I have reviewed this report on Form 10-Q of Her Imports;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 19, 2018 | |
| /s/ Barry Hall | |
| Barry Hall, Executive Chairman, Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Her Imports (the “Company”) on Form 10-Q for the periods ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry Hall, Executive Chairman, Chief Executive Officer and Chief Financial Officer of the Company, certify, to the best of my knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| i. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and | |
| ii. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 19, 2018 | |
| /s/ Barry Hall | |
| Barry Hall, Executive Chairman, Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Nov. 19, 2018 |
|
| Document And Entity Information | ||
| Entity Registrant Name | Her Imports | |
| Entity Central Index Key | 0001402453 | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 30, 2018 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Small Business Flag | true | |
| Entity Emerging Growth Company | true | |
| Entity Ex Transition Period | false | |
| Entity Common Stock, Shares Outstanding | 8,656,459 | |
| Trading Symbol | HHER | |
| Document Fiscal Period Focus | Q3 | |
| Document Fiscal Year Focus | 2018 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock call price per share | $ 0.144 | $ 0.144 |
| Liquidation preference price per share | 2.00 | 2.00 |
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | 5,000,000 | 5,000,000 |
| Preferred stock, shares outstanding | 5,000,000 | 5,000,000 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 70,000,000 | 70,000,000 |
| Common stock, shares issued | 8,656,459 | 4,150,059 |
| Common stock, shares outstanding | 8,656,459 | 4,150,059 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Income Statement [Abstract] | ||||
| Product sales | $ 2,794,480 | $ 3,668,040 | $ 9,212,572 | $ 12,652,837 |
| Cost of products sold | 1,613,967 | 1,996,633 | 5,090,006 | 6,889,965 |
| Gross profit | 1,180,513 | 1,671,407 | 4,122,566 | 5,762,872 |
| Operating expenses | ||||
| Royalties | 2,282 | 5,286 | 11,731 | 11,180 |
| Selling expense | 1,115,543 | 1,259,130 | 3,397,653 | 4,045,970 |
| General and administrative expense | 326,192 | 364,122 | 1,013,625 | 974,081 |
| Total operating expenses | 1,444,017 | 1,628,538 | 4,423,009 | 5,031,231 |
| Income (loss) from operations | (263,504) | 42,869 | (300,443) | 731,641 |
| Other (expense) income | ||||
| Interest income | 1 | 70 | ||
| Interest expense | (11,322) | (351) | (24,316) | (5,302) |
| Loss on abandonment of fixed assets | (2,162) | (384,454) | (2,162) | |
| Contract termination expense - related party | (3,397,500) | |||
| Total other expense | (11,322) | (2,512) | (3,806,270) | (7,394) |
| Income (loss) before benefit (provision) for income taxes | (274,826) | 40,356 | (4,106,713) | 724,247 |
| Benefit (provision) for income taxes | 38,316 | 76,760 | 132,203 | (168,896) |
| Net income (loss) attributable to Company | (236,510) | 117,116 | (3,974,510) | 555,351 |
| Preferred stock dividends | (180,000) | (180,000) | (540,000) | (540,000) |
| Net loss to common stockholders | $ (416,510) | $ (62,844) | $ (4,514,510) | $ 15,351 |
| Net basic income (loss) per share attributable to common stockholders: basic and diluted | $ (0.05) | $ (0.02) | $ (0.77) | $ 0.02 |
| Weighted average number of common shares outstanding: basic and diluted | 8,656,459 | 4,150,059 | 5,833,886 | 4,150,059 |
Description of the Company |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Accounting Policies [Abstract] | |
| Description of the Company |
1. Description of the Company
Her Imports, (previously known as EZJR, Inc.), (“the Company” or “Her”), was incorporated on August 14, 2006 under the laws of the State of Nevada.
Corporate Structure and Business
Her is a retailer of Human Hair Extensions and related haircare and beauty products headquartered in Las Vegas, Nevada. The Company sells its products at consultation studios, on its Website, www.herimports.com and on Amazon.com. As of September 30, 2018, the Company operated 18 retail locations, all of which are in the U.S. These locations are primarily in “executive offices suites” such as Regus PLC, where furniture, administrative staff and security are provided. The Company then stocks the location with products and point-of-sale equipment. These locations are leased on a short-term basis (primarily one year or less). Five leases, including our corporate office, have leases longer than one year at the time they were entered into. This allows the Company to open and close its consultation studios within a short period of time at minimal expense to the Company. At the Company’s consultation studios, the customer is provided with a personal, one-on-one consultation with a Her beauty expert. Additionally, the Company has locations in Greenbelt, Maryland and Brooklyn, New York with salons where customers can have their hair purchases “installed.”
The Company has one wholly owned subsidiary, Her Marketing Concepts, Inc. (“Her Marketing”), a Nevada corporation. All employees of the Company are employed by Her Marketing.
Agreement with Cabello Real Ltd.
On November 28, 2016, the Company entered into an Asset Share Purchase & Business Agreement with Cabello Real Ltd. (“Cabello”), a private United Arab Emirates company to acquire the exclusive U.S. rights to the Her Imports trademark. In addition to these rights, the Company also purchased certain other assets owned by Cabello including customer lists and various digital content. In exchange for these rights, and other digital assets, the Company issued to Cabello 10,000,000 shares of non-voting, non-cumulative, callable preferred stock (subsequently revised to 5,000,000) with a dividend rate of $0.144 per share per annum and a liquidation preference of $2.00 per share. In addition, the Cabello received 1,250,000 shares of common stock. Both the preferred stock and common stock issued were unregistered. Additionally, the Company filed with the Secretary of State of Nevada for the approval of the Certificate of Designations, Preferences, and Rights of Callable Non-cumulative Preferred Stock. The Certificate designated 5,000,000 as Callable Non-cumulative Preferred Stock at a par value of $.001 per share. Cabello is controlled by Mr. Johnathan Terry, who is the Company’s principal shareholder who is also actively involved in its operations.
On January 12, 2017, the Company changed its name from EZJR, Inc. to Her Imports.
eCommerce Platform
In January 2018, the Company converted to a new cloud-based eCommerce platform from its server-based eCommerce platform. The primary reason for the change was to allow the Company to optimize its mobile marketing efforts. In the past, marketing efforts have focused on traditional media, email, and search. However, due to the proliferation of smart phones and social media it is much more effective, while less expensive, to reach our customers using mobile marketing using SMS messaging and social platforms such as Facebook and Snapchat. Furthermore, advances in eCommerce shopping carts to cloud-based platforms allow for significant customization that was not previously available. The Company can interface with the shopping cart using various self-developed “mini-CRMs” depending on the marketing promotion and platform.
As a result of the change, the Company incurred a one-time charge of $383,542 from the write-off of the previous CRM and the prepaid maintenance agreement associated with it.
Media Investor Purchaser Agreement
On June 29, 2014, the Company entered into a Media Investor Purchaser Agreement (“MIP”) with Leader Act HK Ltd (“Leader”), a shareholder. On July 31, 2017, this agreement was assigned by Leader to Cabello. Prior to signing the agreement Leader advanced the Company $50,000 which the agreement allowed to be converted to 83,333 shares of common at $.60 per share. That left up to 9,500,000 shares of common stock that Cabello could purchase at $0.05 per share from its portion of the funds generated by the offers it creates. Contrary to customary practice, the MIP did not provide for any adjustment in the event of a future reverse split, so the Company’s recent reverse split did not affect the number of shares purchasable or the exercise price. This highlighted an unfair agreement which adversely affected the Company. This problem was exacerbated since Cabello is a related party. From April 19 to April 20, 2018, Cabello ran a program to sell a variety of the Company’s hair products. This program generated approximately $150,000 in revenue, however, a final accounting of the results of the program were never completed. Instead, on June 20, 2018 the Company issued to Cabello 4,500,000 of restricted common stock in exchange for cancelation of the MIP Agreement and forgiveness of any monies owed to Cabello for program in April. This cancellation resulted in a non-cash expense of $3,397,500 based on the estimated value of the stock issued in exchange for the cancellation of the agreement.
Agreement with Cabello Real FZE
On April 20, 2017, the Company entered into a Marketing and Selling Agreement with Cabello Real FZE, owner of a hair care product line called OSIworks, whereby the Company exclusively purchases, markets and sells OSIworks’ products in the United States. Under the agreement the Company pays Cabello a royalty of 2% of net sales. Cabello Real FZE is also controlled by Jonathan Terry, the Company’s principal shareholder. During the three- and nine-months ending September 30, 2018 the Company recognized royalty expense of $2,282 and $11,731, respectively, related to the agreement. |
Summary of Significant Accounting Policies |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
2. Summary of Significant Accounting Policies
There have been no changes in Significant Accounting Policies from those described in our Form 10-K for our fiscal year ending December 31, 2017 filed with the Securities and Exchange Commission on March 27, 2018.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company (a Nevada corporation) and its wholly owned subsidiary, Her Marketing. All significant intercompany transactions have been eliminated in consolidation.
Basis of Presentation of the Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Her Marketing. The Company maintains its books of account and prepares consolidated financial statements in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). The Company’s fiscal year ends on December 31. All significant intercompany balances and transactions have been eliminated in consolidation.
On January 31, 2017, the Company effected a 1-for-2 reverse stock split effective January 31, 2017. The par value was not adjusted as a result of the reverse stock split. On April 9, 2018, the Company effected a 1-for-6 reverse stock split effective April 9, 2018. All references to numbers of shares of our common stock and per-share information in the accompanying condensed consolidated financial statements and in these notes to the condensed consolidated financial statements have been adjusted retroactively to reflect these splits.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates its estimates on an ongoing basis, including those related to the fair values of stock-based awards, income taxes and contingent liabilities, among others. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates and such differences could be material to the consolidated financial position and results of operations.
Fair Value of Financial Instruments
The Company measures fair value based on the prices 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. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).
The Company did not have any assets measured at fair value on a recurring basis at September 30, 2018 and December 31, 2017.
The Company believes the carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, and other accrued liabilities are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.
Deposits
Intangibles
Intangible assets are comprised primarily of trademarks that represent the Company’s exclusive ownership of the HER trademarks in the US and are inclusive all related social media sites and domain names in the US., all used in connection with (consisting of the name, Her Imports and the Her Imports Logo) the manufacture, sale and distribution of human hair extensions and related beauty products. In accordance with Financial Accounting Standards Board Accounting Standard Codification 350 (FASB ASC 350), intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists through the use of discounted cash flow models. The Company calculates impairment as the excess of the carrying value of its indefinite-lived assets over their estimated fair value. If the carrying value exceeds the estimate of fair value a write-down is recorded. For the three and nine months ended September 30, 2018 and 2017 there were no impairments recorded.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. ASU No. 2014-09, as amended, is effective for the Company as of January 1, 2018.
The adoption did not result in any material change in the timing of recognizing revenue The adoption will also result in a change in the timing of recognizing revenue for sales where we ship the merchandise to the customer from a distribution center or store, as revenue for sales where we ship the merchandise to customers will be recognized when control of the merchandise transfers to the customer, which is generally at the time of shipment rather than upon delivery of the products to the customer. Additionally, the Company has had a deminimis amount of sales returns.
The Company, through the Her Imports retail locations, its eCommerce Website, www.herimports.com and Amazon.com sells a variety of hair extensions and related products.
Revenue is recognized at the “point of sale” in the stores. Customers pay for the products using either cash, a debit card or a credit card. All sales are final. In the case of cash sales at the store, the store manager makes a nightly deposit of the cash. For credit card and debit sales, the Company recognizes the sale when the card is charged and approved. Sales tax collected from customers is excluded from revenue and is included in accrued liabilities on our condensed consolidated balance sheets.
Product purchases on the Company’s Website are paid for using either debit cards, credit cards, or PayPal Revenue for online product sales are recognized upon shipment of the product. Additionally, customers have the option of making installment payments on products purchased. In this case fifty percent of the purchase price is paid at the time of sale and the remainder withdrawn from the customer’s account via ACH. Because there is a significant amount of uncertainty related to the subsequent collections via ACH, those payment are only recognized as revenue upon receipt. Finally, customers may purchase product using a payment facility called PayNearMe where a customer who doesn’t have a debit/credit/PayPal account can place an online order with an agreement to take cash and pay for the order at a PayNearMe location. The product is then shipped at time PayNearMe notifies the Company that the payment has been received. Revenue is recognized at the time of the shipment of the product.
Also included in revenue is shipping revenue from our e-commerce customers. Sales taxes collected from retail customers are excluded from reported revenues when control of the merchandise transfers to the customers, which is generally at the time of shipment rather than upon delivery of the products to the customer.
Revenue from sales on Amazon.com are recorded net of certain expenses paid to Amazon.com including selling fees, transaction fees, service fees, administrative fees and inventory and inbound service fees. All advertising fees paid to Amazon.com is recognized as a period expense and is booked to selling expense.
Earnings (Loss) per Share
The Company utilizes FASB ASC 260. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.
Reverse Stock Split
All references to numbers of shares of our common stock and per-share information in the accompanying financial statements have been adjusted retroactively to reflect the Company’s 1-for-2 reverse stock split effected on January 31, 2017, and a 1-for-6 reverse stock split effective April 9, 2018. The par value was not adjusted because of the reverse stock splits.
Stock-based compensation
The Company records stock-based compensation issued to external entities for goods and services at either the fair market value of the shares issued, or the value of the services received, whichever is more readily determinable, using the measurement date guidelines enumerated in FASB ASC 505-50-30. For the three months and nine months ended September 30, 2018, the Company recognized stock-based compensation expense of $15,110 and $70,932, respectively. There was no stock-based compensation for the three months and nine months ended September 30, 2017.
Recent Accounting Pronouncements
Except as noted below, the Company has considered all recent accounting pronouncements and has concluded that there are no recent accounting pronouncements that may have a material impact on its condensed consolidated financial statements, based on current information.
In July 2018, the FASB issued ASU 2018-10 Leases (Topic 842), Codification Improvements and ASU 2018-11 Leases (Topic 842), Targeted Improvements, to provide additional guidance for the adoption of Topic 842. ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ equity. ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842. In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases with terms greater than 12 months. ASU 2018-11, ASU 2018-10, and ASU 2016-02 (collectively, “the new lease standards”) are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect the new lease standards will have on its Condensed Consolidated Financial Statements; however, the Company anticipates recognizing assets and liabilities arising from any leases that meet the requirements under the new lease standards on the adoption date and including qualitative and quantitative disclosures in the Company’s Notes to the Condensed Consolidated Financial Statements.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in ASU 2018-09 affect a wide variety of Topics in the FASB Codification and apply to all reporting entities within the scope of the affected accounting guidance. The Company has evaluated ASU 2018-09 in its entirety and determined that the amendments related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, are the only provisions that currently apply to the Company. The amendments in ASU 2018-09 related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, clarify that an entity should recognize excess tax benefits related to stock compensation transactions in the period in which the amount of the deduction is determined. The amendments in ASU 2018-09 related to Topic 718-740 are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of the new standard to have a material impact on the Company’s Condensed Consolidated Financial Statements.
In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Reform Act) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. As described in the footnotes to the Annual Report on Form 10-K, the Company’s accounting for the tax effects of enactment of the Tax Reform Act is being assessed; however, in certain cases, as described below, we made a reasonable estimate of the effects on our existing deferred tax balances and valuation allowance. The Company determined that the $62.9 million recorded in connection with the re-measurement of certain deferred tax assets and liabilities, and corresponding valuation allowance was a provisional amount and a reasonable estimate at December 31, 2017. The Company has not completed the accounting with regard to the tax effects associated with an intra-entity transfer of certain intellectual property rights with the enactment of Tax Reform Act. Our accounting for the intra-entity transfer reflects the utilization of net operating losses on the basis of the laws in effect before the Tax Reform Act. The Company is evaluating the impact under Tax Reform Act on the Company’s global business structure. In all aspects, the Company will continue to make and refine calculations as additional analysis is completed. The Company expects to complete the accounting assessment during the one-year measurement period provided by SAB 118. |
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Property, Equipment and Software |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Equipment and Software |
3. Property, Equipment and Software
Property and equipment consisted of the following:
Depreciation and amortization expense on property, plant, equipment, and software for the three and nine months ended September 30, 2018 was $18,871 and $58,462, respectively. Depreciation and amortization expense on property, plant, equipment, and software for the three and nine months ended September 30, 2017 |
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Sales Tax Payable |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Sales Tax Payable | |
| Sales Tax Payable |
4. Sales tax payable
The Company is delinquent in filing some sales tax returns for one state (including the remittance of taxes), for which the Company has transacted business. The Company has recorded tax obligations plus potential interest and penalties estimated to be approximately $18,792, computed through September 30, 2018, which are included in accounts payable and accrued liabilities on the balance sheet. The Company is in the process of becoming fully compliant. |
Related Party Transactions |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions |
5. Related Party Transactions
Related Party Accounts Receivable and Payable
At September 30, 2018 and December 31, 2017, the Company had a receivable from Cabello, its principal stockholder, of $188,170 and $108,026, respectively, that resulted from payments made by the Company on behalf of Cabello. The Company has the right to offset this receivable against any future dividend payments owed Cabello related to the preferred stock described in Note 1. As described in Note 11, subsequent to September 30, 2018, two dividends of $60,000 each were declared and offset against amounts owed by Cabello. For further information on related party transactions, see Note 1. As described below, the Company incurred $11,731 in royalty expense in 2018 which has also been offset against the Cabello receivable.
Royalty Expense
Royalty expense is a result of royalties incurred on products sold under the brand name OSIworks, a company under common control with the Company’s principal shareholder. During the three ended September 30, 2018 and 2017 royalty expense was $2,282 and $5,286, respectively. During the nine months ended September 30, 2018 and 2017 royalty expense was $11,731 and $11,180, respectively.
Contract Termination Expense – Related Party
On June 20, 2018, the Company issued to Cabello 4,500,000 shares of restricted common stock in exchange for cancelation of the MIP Agreement (described in Note 1) and forgiveness of any monies owed to Cabello for program run in April. This cancellation resulted in a non-cash expense of $3,397,500 based on the estimated value of the stock issued in exchange for the cancellation of the agreement. |
Commitments and Contingencies |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies |
6. Commitments and Contingencies
Leases
At September 30, 2018, the Company leased or rented 20 different facilities including its corporate headquarters, a warehouse and 18 active retail locations. Future lease obligation for these facilities are as follows:
Rent expense for the three months ended September 30, 2018 and 2017 was $125,885 and $150,167, respectively. Rent expense for the nine months ended September 30, 2018 and 2017 was $378,807 and $475,674, respectively.
Concentrations
As of September 30, 2018, the Company has only twelve qualified vendors that supply its wigs and hair extension products. The Company sources its hair care products from one vendor. There are numerous suppliers of styling tools as this is a commodity product.
During the three months ended September 30, 2018, the Company purchased hair products from four different vendors, however, two vendors accounted for approximately 94.5% of all hair products purchased. During the nine months ended September 30, 2018, the Company purchased hair products from six different vendors, however, two vendors accounted for approximately 92.4% of all hair products purchased. During the three months ended September 30, 2017, the Company purchased hair products from four different vendors, however, two vendors accounted for approximately 96.6% of all hair products purchased. During the nine months ended September 30, 2017, the Company purchased hair products from six different vendors, however, two vendors accounted for approximately 92.1% of all hair products purchased.
Legal Proceedings
From time to time, the Company 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 the Company’s business.
On or about September 5, 2015, the Company received a summons naming it in a civil action against Her Imports, LLC, Her Imports New York, LLC, Her Holding, Inc. and EZJR, Inc. (now Her Imports) from a former independent contractor of Her Imports, LLC. The complaint claims unpaid wages and overtime wages in violation of New York Labor Law, among other things. No specific damages are mentioned in the complaint. The Company subsequently answered the complaint and denied any wrongdoing as EZJR had no relationship with the contractor, whatsoever. At this point in the litigation it is impracticable to foresee the outcome, however, the Company believes it has meritorious defense and is vigorously defending this litigation. On February 16, 2018, a magistrate judge ruled that EZJR, Her Holding and Her Imports, LLC acted as a joint employer. The judge also found that genuine issues of material fact exist as to “whether plaintiff qualifies as an ‘employee’ under the law or was an ‘independent contractor’.” While the Company disagrees with the ruling that it was a joint employer, it has decided to proceed to trial on the basis that the plaintiff was an independent contractor, while reserving the right to appeal the decision.
On or about On March 13, 2018, the Company received a summons in a civil action alleging that it had violated the Telephone Consumer Protection Act of 1991 (TCPA). In the complaint, an individual who provided his phone number to the Company to obtain certain discounts on the Company’s products, claims that the Company sent several text messages to his cell phone without prior written consent. The suit was filed by on behalf of the plaintiff and others similarly situated. On or about June 5, 2018 the Company received a second summons in a civil action also alleging that it had violated the TCPA. In the complaint, an individual who provided her phone number to the Company to obtain certain discounts on the Company’s products, claims that the Company sent several text messages to her cell phone without prior written consent. The suit was filed by on behalf of the plaintiff and others similarly situated. In both instances our review of the circumstance surrounding the claim are that the actions are not justified and as such we made the decision to intend to vigorously defend the Company against these actions. In the case of the first action we have filed a response denying the allegations. In the case of the second action we have file a motion to dismiss or consolidate this action with the first based on what is known “the-first-to-file rule.” To date there has been no ruling on this motion.
On January 12, 2017, the Company entered into a Business Purchase Agreement with EnzymeBioSystems, Inc. (“EnzymeBio”), a Nevada corporation, whereby the Company entered into an agreement to purchase 100% ownership of EnzymeBio’s wholly owned subsidiary, Share Acquisition Corp. (“SAC”), a Nevada corporation in exchange for approximately 9,167 shares of the Company’s common stock and $25,000 cash. On February 28, 2017, EnzymeBio agreed to spin-off SAC as a dividend. Pursuant to the Business Purchase Agreement and Nevada Revised Stature 92A.180 (Merger of a subsidiary into parent or parent into subsidiary), SAC was to be acquired and merged into the Company. Restricted common shares of the Company were to be exchanged on a pro-rata one-for-one ownership basis. After the exchange took place, SAC would be collapsed into the Company and subsequently dissolved with the Nevada Secretary of State. The Company agreed to acquire SAC for the sole purpose to increase its shareholder base. The Company paid the $25,000, however, the share exchange did not take place and the agreement was not consummated. The Company was subsequently informed by its legal counsel that this transaction cannot be concluded under applicable securities laws. The Company informed EnzymeBio of this and requested that the $25,000 payment be returned. As a result, the $25,000 payment was recorded under Other Asset on the balance sheet. EnzymeBio refused to return the $25,000 and, as a result, on March 13, 2018 the Company filed a legal complaint against those parties which included a demand for the $25,000 as well as legal fees and specific damages the Company incurred as a result of their actions. In June 2018, the defendants responded to the complaint denying the allegation and also filed a counterclaim against the Company and its Chief Executive Officer. Subsequently, the defendants stipulated and all charges against the Company and its Chief Executive Officer were dismissed. On and effective October 30, 2018 all parties involved in the lawsuit agreed to a settlement and mutual release. Under the settlement agreement, the Company agreed to dismiss that lawsuit. In return, certain shareholders of the Company agreed to return to the Company 72,324 shares of the Company’s common stock upon the filing by the Company of a Form 15 with the U.S. Securities and Exchange Commission. The returned common stock will be immediately retired. Additionally, the shareholders agreed to place 120,000 shares of common in an attorney trust account and that such shares will be surrendered for retirement to the Company on January 1, 2020 should the Company refrain from trading its stock other and a “pink sheet system or OTC market.” |
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Promissory Notes |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Debt Disclosure [Abstract] | |
| Promissory Notes |
7. Promissory Notes
UPS Capital
On November 8, 2017 the Company entered into an agreement with UPS Capital Corporation (UPS) for a $500,000 credit facility. Under the terms of the agreement UPS will loan 100% of the invoice amount on incoming offshore shipments carried by UPS. Upon funding the loan, the Company pays a transaction fee of 1.85% or 2.75% for air shipment or ocean shipment, respectively. Repayment of amounts funded are due in 60 days for air shipments and 90 days for ocean shipment. Amounts funded are secured by inventory on hand and are personally guaranteed by the Company’s Chief Executive Officer and the Company’s principal controlling shareholder. As of September 30, 2018, and December 31, 2017 the Company owed $409,511 and $177,390, respectively under the facility. |
Stockholders' Equity |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Equity [Abstract] | |
| Stockholders' Equity |
8. Stockholders’ Equity
On January 31, 2017, the Company effected a 1-for-2 reverse stock split effective January 31, 2017. The par value was not adjusted as a result of the reverse stock split. On April 9, 2018, the Company effected a 1-for-6 reverse stock split effective April 9, 2018. All references to numbers of shares of our common stock and per-share information in the accompanying condensed consolidated financial statements and in these notes to the condensed consolidated financial statements have been adjusted retroactively to reflect these splits.
As described in Note 1, on November 28, 2016, the Company entered into an Asset Share Purchase & Business Agreement with Cabello to acquire the exclusive U.S. rights to the Her Imports trademark. In exchange for these rights, and other digital assets, the Company issued to Cabello 10,000,000 shares of unregistered non-voting, non-cumulative, callable preferred stock (subsequently revised to 5,000,000 shares) and 1,250,000 unregistered common stock with a combined value of $8,200,000. All shares of callable preferred stock rank superior to all the Company’s preferred stock and common stock currently outstanding and hereafter issued, as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (with the exception of a merger), including the payment of dividends. The callable preferred stock is subject to a monthly dividend payment equal to a rate of $0.144 per share of preferred stock per annum. The declaration and payment of the dividend on a monthly basis is subject to the approval of the Company’s Board of Directors. Such dividend is non-cumulative should the Company not pay the dividend. The Company has a right of first refusal to purchase the callable preferred stock, should the shareholder decide to sell all or part of their callable preferred stock. The callable preferred stock has no voting rights. Through September 30, 2018, the Board of Directors has declared and approved, preferred stock dividends of $1,320,000 ($60,000 each month) to Cabello related to the 5,000,000 shares of callable, non-voting, non-cumulative preferred stock. Because the dividends on the preferred stock are non-cumulative and at the discretion of the Company, these preferred shares are considered to be equity.
At September 30, 2018 and December 31, 2017, the Company had 10,000,000 shares of preferred stock authorized and 5,000,000 issued and outstanding and 70,000,000 shares of common stock authorized. At September 30, 2018 and December 31, 2017 there were 8,656,459 and 4,150,039 shares of common stock outstanding, respectively.
As described in Note 1, on October 13, 2016, the Company entered into a five-year maintenance agreement on its eCommerce platform with Leader in exchange for 250,000 shares of the Company’s common stock valued at $375,000 based on the fair market value of a service maintenance contract provided to other third parties which approximates the fair value of the common stock at the time it was issued. In January 2018 the Company converted to a new cloud-based eCommerce platform from its server-based eCommerce platform. As a result, the Company wrote off $265,625 of unamortized prepaid software maintenance related to the agreement.
As described in Note 1, on June 20, 2018 the Company issued 4,500,000 shares of restricted common stock to Cabello in exchange for cancelation of the MIP Agreement and forgiveness of monies owed to Cabello for program that was run in April 2018. |
Stock-based Compensation |
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation |
9. Stock-based Compensation
On September 5, 2017 the Company adopted the 2017 Her Imports Stock Incentive Plan. For the three and nine months ended September 30, 2018, the Company recognized $15,110 and $70,932, respectively in stock-based compensation related to stock options and common stock issued under the plan. Stock-based compensation expense is included in the following captions on the condensed consolidated statements of operations.
Changes in the Company’s outstanding stock options under the plan during the nine months ended September 30, 2018 were as follows:
The weighted average remaining contractual term and aggregate intrinsic value of outstanding options as of September 30, 2018 was 3.86 years and $99,538, respectively.
The Company’s stock options are measured at fair value using the Black-Scholes Option Pricing Model methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s stock options that are categorized within Level 3 of the fair value hierarchy for nine months September 30, 2018 is as follows:
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Income Taxes |
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| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes |
10. Income Taxes
The tax reform bill that Congress voted to approve December 20, 2017, also known as the “Tax Cuts and Jobs Act”, made sweeping modifications to the Internal Revenue Code, including a much lower corporate tax rate, changes to credits and deductions, and a move to a territorial system for corporations that have overseas earnings. The act replaced the prior-law graduated corporate tax rate, which taxed income over $10 million at 35%, with a flat rate of 21%.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. An approximate estimated blended tax rate of 16.3% was used to calculate the benefit for taxes based on operations for the nine months ended September 30, 2018 and 23.1% to calculate the provision for taxes based on income for the nine months ended September 30, 2017. For financial reporting purposes the benefit for income taxes is based on a pre-tax loss of $709,213 for the nine months ended September 30, 2018 and pre-tax income of $724,247 for the nine months ended September 30, 2017. In 2018, and for fourteen years thereafter, there will be a permanent book versus tax difference of $546,667 each year related to the amortization of the trademark, which is deductible for tax purposes but is not amortized and expensed for financial reporting purposes. The provision (benefit) for income taxes for the three and nine months ended September 30, 2018 and 2017 consisted of the following:
As of September 30, 2018, we had a tax loss carryforward of approximately $1,436,657 which can be used to offset future Federal income taxes. |
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Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Subsequent Events [Abstract] | |
| Subsequent Events |
11. Subsequent Events
On October 3, 2018, the Board of Directors approved the monthly $60,000 dividend related to 5,000,000 shares of Callable Preferred Stock owned by Cabello Real Ltd. This dividend was offset against amounts owed to the Company by Cabello.
On and effective October 30, 2018 all parties involved in the EnzymeBio lawsuit agreed to a settlement and mutual release. Under the settlement, the Company agreed to dismiss that lawsuit. In return, certain shareholders of the Company agreed to return to the Company 72,324 shares of the Company’s common stock upon the filing by the Company of a Form 15 with the U.S. Securities and Exchange Commission. The returned common stock will be retired. Additionally, the shareholders agreed to place 120,000 shares of common stock in an attorney trust account and that such shares will be surrendered for retirement to the Company on January 1, 2020 should the Company refrain from trading its stock other and a “pink sheet system or OTC market.”
On November 7, 2018, the the sole member of the Board of Directors approved the monthly $60,000 dividend related to 5,000,000 shares of Callable Preferred Stock owned by Cabello Real Ltd. This dividend was offset against amounts owed to the Company by Cabello. |
Summary of Significant Accounting Policies (Policies) |
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation |
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company (a Nevada corporation) and its wholly owned subsidiary, Her Marketing. All significant intercompany transactions have been eliminated in consolidation. |
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| Basis of Presentation of the Condensed Consolidated Financial Statements |
Basis of Presentation of the Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Her Marketing. The Company maintains its books of account and prepares consolidated financial statements in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). The Company’s fiscal year ends on December 31. All significant intercompany balances and transactions have been eliminated in consolidation.
On January 31, 2017, the Company effected a 1-for-2 reverse stock split effective January 31, 2017. The par value was not adjusted as a result of the reverse stock split. On April 9, 2018, the Company effected a 1-for-6 reverse stock split effective April 9, 2018. All references to numbers of shares of our common stock and per-share information in the accompanying condensed consolidated financial statements and in these notes to the condensed consolidated financial statements have been adjusted retroactively to reflect these splits. |
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| Use of Estimates |
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates its estimates on an ongoing basis, including those related to the fair values of stock-based awards, income taxes and contingent liabilities, among others. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates and such differences could be material to the consolidated financial position and results of operations. |
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| Fair Value of Financial Instruments |
Fair Value of Financial Instruments
The Company measures fair value based on the prices 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. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).
The Company did not have any assets measured at fair value on a recurring basis at September 30, 2018 and December 31, 2017.
The Company believes the carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, and other accrued liabilities are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved. |
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| Deposits |
Deposits
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| Intangibles |
Intangibles
Intangible assets are comprised primarily of trademarks that represent the Company’s exclusive ownership of the HER trademarks in the US and are inclusive all related social media sites and domain names in the US., all used in connection with (consisting of the name, Her Imports and the Her Imports Logo) the manufacture, sale and distribution of human hair extensions and related beauty products. In accordance with Financial Accounting Standards Board Accounting Standard Codification 350 (FASB ASC 350), intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists through the use of discounted cash flow models. The Company calculates impairment as the excess of the carrying value of its indefinite-lived assets over their estimated fair value. If the carrying value exceeds the estimate of fair value a write-down is recorded. For the three and nine months ended September 30, 2018 and 2017 there were no impairments recorded. |
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| Revenue Recognition |
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. ASU No. 2014-09, as amended, is effective for the Company as of January 1, 2018.
The adoption did not result in any material change in the timing of recognizing revenue The adoption will also result in a change in the timing of recognizing revenue for sales where we ship the merchandise to the customer from a distribution center or store, as revenue for sales where we ship the merchandise to customers will be recognized when control of the merchandise transfers to the customer, which is generally at the time of shipment rather than upon delivery of the products to the customer. Additionally, the Company has had a deminimis amount of sales returns.
The Company, through the Her Imports retail locations, its eCommerce Website, www.herimports.com and Amazon.com sells a variety of hair extensions and related products.
Revenue is recognized at the “point of sale” in the stores. Customers pay for the products using either cash, a debit card or a credit card. All sales are final. In the case of cash sales at the store, the store manager makes a nightly deposit of the cash. For credit card and debit sales, the Company recognizes the sale when the card is charged and approved. Sales tax collected from customers is excluded from revenue and is included in accrued liabilities on our condensed consolidated balance sheets.
Product purchases on the Company’s Website are paid for using either debit cards, credit cards, or PayPal Revenue for online product sales are recognized upon shipment of the product. Additionally, customers have the option of making installment payments on products purchased. In this case fifty percent of the purchase price is paid at the time of sale and the remainder withdrawn from the customer’s account via ACH. Because there is a significant amount of uncertainty related to the subsequent collections via ACH, those payment are only recognized as revenue upon receipt. Finally, customers may purchase product using a payment facility called PayNearMe where a customer who doesn’t have a debit/credit/PayPal account can place an online order with an agreement to take cash and pay for the order at a PayNearMe location. The product is then shipped at time PayNearMe notifies the Company that the payment has been received. Revenue is recognized at the time of the shipment of the product.
Also included in revenue is shipping revenue from our e-commerce customers. Sales taxes collected from retail customers are excluded from reported revenues when control of the merchandise transfers to the customers, which is generally at the time of shipment rather than upon delivery of the products to the customer.
Revenue from sales on Amazon.com are recorded net of certain expenses paid to Amazon.com including selling fees, transaction fees, service fees, administrative fees and inventory and inbound service fees. All advertising fees paid to Amazon.com is recognized as a period expense and is booked to selling expense. |
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| Earnings (Loss) Per Share |
Earnings (Loss) per Share
The Company utilizes FASB ASC 260. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. |
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| Reverse Stock Split |
Reverse Stock Split
All references to numbers of shares of our common stock and per-share information in the accompanying financial statements have been adjusted retroactively to reflect the Company’s 1-for-2 reverse stock split effected on January 31, 2017, and a 1-for-6 reverse stock split effective April 9, 2018. The par value was not adjusted because of the reverse stock splits. |
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| Stock-based Compensation |
Stock-based compensation
The Company records stock-based compensation issued to external entities for goods and services at either the fair market value of the shares issued, or the value of the services received, whichever is more readily determinable, using the measurement date guidelines enumerated in FASB ASC 505-50-30. For the three months and nine months ended September 30, 2018, the Company recognized stock-based compensation expense of $15,110 and $70,932, respectively. There was no stock-based compensation for the three months and nine months ended September 30, 2017. |
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| Recent Accounting Pronouncements |
Recent Accounting Pronouncements
Except as noted below, the Company has considered all recent accounting pronouncements and has concluded that there are no recent accounting pronouncements that may have a material impact on its condensed consolidated financial statements, based on current information.
In July 2018, the FASB issued ASU 2018-10 Leases (Topic 842), Codification Improvements and ASU 2018-11 Leases (Topic 842), Targeted Improvements, to provide additional guidance for the adoption of Topic 842. ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ equity. ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842. In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases with terms greater than 12 months. ASU 2018-11, ASU 2018-10, and ASU 2016-02 (collectively, “the new lease standards”) are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect the new lease standards will have on its Condensed Consolidated Financial Statements; however, the Company anticipates recognizing assets and liabilities arising from any leases that meet the requirements under the new lease standards on the adoption date and including qualitative and quantitative disclosures in the Company’s Notes to the Condensed Consolidated Financial Statements.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in ASU 2018-09 affect a wide variety of Topics in the FASB Codification and apply to all reporting entities within the scope of the affected accounting guidance. The Company has evaluated ASU 2018-09 in its entirety and determined that the amendments related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, are the only provisions that currently apply to the Company. The amendments in ASU 2018-09 related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, clarify that an entity should recognize excess tax benefits related to stock compensation transactions in the period in which the amount of the deduction is determined. The amendments in ASU 2018-09 related to Topic 718-740 are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of the new standard to have a material impact on the Company’s Condensed Consolidated Financial Statements.
In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Reform Act) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. As described in the footnotes to the Annual Report on Form 10-K, the Company’s accounting for the tax effects of enactment of the Tax Reform Act is being assessed; however, in certain cases, as described below, we made a reasonable estimate of the effects on our existing deferred tax balances and valuation allowance. The Company determined that the $62.9 million recorded in connection with the re-measurement of certain deferred tax assets and liabilities, and corresponding valuation allowance was a provisional amount and a reasonable estimate at December 31, 2017. The Company has not completed the accounting with regard to the tax effects associated with an intra-entity transfer of certain intellectual property rights with the enactment of Tax Reform Act. Our accounting for the intra-entity transfer reflects the utilization of net operating losses on the basis of the laws in effect before the Tax Reform Act. The Company is evaluating the impact under Tax Reform Act on the Company’s global business structure. In all aspects, the Company will continue to make and refine calculations as additional analysis is completed. The Company expects to complete the accounting assessment during the one-year measurement period provided by SAB 118. |
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Summary of Significant Accounting Policies (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Deposits |
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Property, Equipment and Software (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Property, Equipment and Software |
Property and equipment consisted of the following:
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Commitments and Contingencies (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Schedule of Future Lease Payments |
Future lease obligation for these facilities are as follows:
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Stock-based Compensation (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock-based Compensation Expense |
Stock-based compensation expense is included in the following captions on the condensed consolidated statements of operations.
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| Schedule of Outstanding Stock Options |
Changes in the Company’s outstanding stock options under the plan during the nine months ended September 30, 2018 were as follows:
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| Summary of Weighted Average Stock Options Assumptions |
A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s stock options that are categorized within Level 3 of the fair value hierarchy for nine months September 30, 2018 is as follows:
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Income Taxes (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Provision (Benefit) for Income Taxes |
The provision (benefit) for income taxes for the three and nine months ended September 30, 2018 and 2017 consisted of the following:
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Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|---|
Apr. 09, 2018 |
Jan. 31, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Accounting Policies [Abstract] | ||||||
| Reverse stock split | 1-for-6 reverse stock split | 1-for- 2 reverse stock split | ||||
| Recognized stock base compensation expense | $ 15,110 | $ 70,932 | ||||
Summary of Significant Accounting Policies - Schedule of Deposits (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Deposits on Products | $ 168,059 | $ 175,819 |
| Security Deposits | 26,709 | 20,573 |
| Total | $ 194,768 | $ 196,392 |
Property, Equipment and Software (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation and amortization expense | $ 18,871 | $ 58,462 | $ 92,439 | |
Property, Equipment and Software - Summary of Property, Equipment and Software (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Property, Plant and Equipment [Abstract] | ||
| Software | $ 110,000 | $ 463,310 |
| Computers and equipment | 107,339 | 99,592 |
| Furniture | 42,064 | 30,391 |
| Leasehold improvements | 26,384 | 19,493 |
| Property, equipment and software, gross | 285,787 | 612,786 |
| Accumulated depreciation and amortization | (148,185) | (345,322) |
| Property, equipment and software, net | $ 137,602 | $ 267,464 |
Sales Tax Payable (Details Narrative) |
Sep. 30, 2018
USD ($)
|
|---|---|
| Sales Tax [Member] | |
| Tax amount | $ 18,792 |
Related Party Transactions (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 20, 2018 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Related party receivables | $ 188,170 | $ 188,170 | $ 108,026 | |||
| Dividend declared | 60,000 | 60,000 | ||||
| Royalty expense | 2,282 | $ 5,286 | 11,731 | $ 11,180 | ||
| Loss on termination of agreement | $ 3,397,500 | $ 3,397,500 | ||||
| Media Investor Purchaser Agreement [Member] | Cabello [Member] | ||||||
| Royalty expense | $ 11,731 | |||||
| Restricted common stock shares issued | 4,500,000 | |||||
Commitments and Contingencies (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Mar. 13, 2018 |
Feb. 28, 2017 |
Jan. 12, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Rent expense | $ 125,885 | $ 150,167 | $ 378,807 | $ 475,674 | ||||
| Other asset | $ 25,000 | 25,000 | $ 25,000 | |||||
| Investment in subsidiary | $ 25,000 | |||||||
| Legal fees | $ 25,000 | |||||||
| October 30, 2018 [Member] | ||||||||
| Number of shares retired | 72,324 | |||||||
| January 1, 2020 [Member] | ||||||||
| Number of shares retired | 120,000 | |||||||
| Business Purchase Agreement [Member] | EnzymeBioSystems, Inc [Member] | ||||||||
| Equity method investment, ownership percentage | 100.00% | |||||||
| Number of common stock shares exchanged | 9,167 | |||||||
| Number of common stock shares exchanged, value | $ 25,000 | |||||||
| Purchase of common stock from stockholder | $ 25,000 | |||||||
| Product Concentration Risk [Member] | Two Vendors [Member] | ||||||||
| Concentrations risk percentage | 94.50% | 96.60% | 92.40% | 92.10% | ||||
Commitments and Contingencies - Schedule of Future Lease Payments (Details) |
Sep. 30, 2018
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| 2018 (remaining three months) | $ 86,256 |
| 2019 | 257,990 |
| 2020 | 159,292 |
| 2021 | 148,804 |
| 2022 | 120,045 |
| Thereafter | 24,808 |
| Total | $ 797,195 |
Promissory Notes (Details Narrative) - USD ($) |
Nov. 08, 2017 |
Nov. 08, 2017 |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|---|---|
| Note payable | $ 409,511 | $ 177,390 | ||
| UPS Capital Corporation [Member] | ||||
| Line of credit facility | $ 500,000 | |||
| Percent of loan on invoice amount | 100.00% | 100.00% | ||
| UPS Capital Corporation [Member] | Air Shipment [Member] | ||||
| Transaction fee, percent | 1.85% | |||
| UPS Capital Corporation [Member] | Ocean Shipment [Member] | ||||
| Transaction fee, percent | 2.75% |
Stock-based Compensation (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||
| Stock-based compensation | $ 15,110 | $ 70,932 | ||
| Weighted average remaining contractual term | 3 years 10 months 10 days | |||
| Options outstanding value | $ 99,538 | $ 99,538 | ||
Stock-based Compensation - Schedule of Stock-Based Compensation Expense (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Total | $ 15,110 | $ 70,932 | ||
| Selling Expense [Member] | ||||
| Total | 9,451 | 38,041 | ||
| General and Administrative Expense [Member] | ||||
| Total | $ 5,659 | $ 32,891 | ||
Stock-based Compensation - Schedule of Outstanding Stock Options (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
$ / shares
shares
| |
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
| Number of Options Outstanding Beginning Balance | shares | 58,332 |
| Number of Options Granted | shares | 3,332 |
| Number of Options Exercised | shares | |
| Number of Options Forfeited of Expired | shares | (8,333) |
| Number of Options Outstanding Ending Balance | shares | 53,331 |
| Number of Options Exercisable Ending Balance | shares | 25,832 |
| Weighted Average Price Outstanding Beginning Balance | $ / shares | $ 9.42 |
| Weighted Average Price Granted | $ / shares | 1.65 |
| Weighted Average Price Exercised | $ / shares | |
| Weighted Average Price Forfeited of Expired | $ / shares | 10.68 |
| Weighted Average Price Outstanding Ending Balance | $ / shares | 8.73 |
| Weighted Average Price Exercisable Ending Balance | $ / shares | $ 8.99 |
Stock-based Compensation - Summary of Weighted Average Stock Options Assumptions (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
$ / shares
| |
| Volatility | 46.21% |
| Risk-free interest rate | 2.15% |
| Contractual life (in years) | 5 years |
| Dividend yield (per share) | 0.00% |
| Minimum [Member] | |
| Strike Price | $ 1.65 |
| Maximum [Member] | |
| Strike Price | $ 10.68 |
Income Taxes (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Income Tax Disclosure [Abstract] | ||
| Corporate taxed income | $ 10,000,000 | |
| Corporate tax rate | 35.00% | |
| Corporate flat rate | 21.00% | |
| Estimated blended tax rate | 16.30% | |
| Provision for tax percentage | 23.10% | |
| Benefit for income taxes on pre-tax loss (income) | $ 709,213 | $ 724,247 |
| Amortization of trademark expenses | 546,667 | |
| Tax loss carryforward | $ 1,436,657 | |
Income Taxes - Schedule of Provision (Benefit) for Income Taxes (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Income Tax Disclosure [Abstract] | ||||
| U.S. Federal | $ 42,115 | $ 78,811 | $ 142,870 | $ (146,947) |
| U.S. State | (3,799) | (2,051) | (10,667) | (21,949) |
| Total | 38,316 | 76,760 | 132,203 | (168,896) |
| Deferred | ||||
| Total benefit (provision) for income taxes | $ (38,316) | $ (76,760) | $ (132,203) | $ 168,896 |
Subsequent Events (Details Narrative) - USD ($) |
9 Months Ended | |||
|---|---|---|---|---|
Nov. 07, 2018 |
Oct. 30, 2018 |
Oct. 03, 2018 |
Sep. 30, 2018 |
|
| January 1, 2020 [Member] | ||||
| Number of shares retired | 120,000 | |||
| Subsequent Event [Member] | ||||
| Number of shares retired | 72,324 | |||
| Subsequent Event [Member] | Callable Preferred Stock [Member] | ||||
| Preferred stock monthly dividend payment | $ 60,000 | $ 60,000 | ||
| Preferred stock dividend payment shares | 5,000,000 | 5,000,000 |