| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES This
summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial
statements. The financial statements and notes are representation of the company’s management who are responsible for the
integrity and objectivity of the financial statements. These accounting policies confirm to accounting principles generally accepted
in the United State of America and have been consistently applied in the preparation of the financial statements. Basis
of Presentation and Consolidation These
accounting policies conform to generally accepted accounting principles in the United States of America (“GAAP”) and
have been consistently applied in the preparing the Firm’s financial statements. The accounting and reporting policies of
the Company are in accordance with accounting principles generally accepted in the United States of America, which is based on
the accrual method of accounting. 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 assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include, but are
not limited to, the estimated useful lives of property and equipment, patent and trademark, the ultimate collection of accounts
receivable and accrued expenses. Actual results could materially differ from those estimates. Revenue
Recognition The
Company recognizes revenue when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectability
is reasonably assured, and delivery has occurred or services have been rendered. The Company offers the CB5 proprietary formula
various channels, e-commerce, and brick and mortar retail The
Company includes shipping and handling costs in cost of sales. Amounts billed for shipping and handling are included with revenues
in the statement of operation. The
Company recognizes an allowance for estimated future sales returns in the period revenue is recorded, based on pending returns
and historical return data, among other factors. Management did not believe any allowance for sales returns was required at January
31, 2020. Advertising
Expense Advertising
costs are expensed as incurred. Advertising expense amounted to $639,653 and $380,568 for the six and three months ended January
31, 2020, respectively. Accounts
Receivable Accounts
receivable are carried at original invoice amount less the allowance for doubtful accounts based on a review of all outstanding
amounts at year end. Management determines the allowance for doubtful accounts based on a combination of write-off history, aging
analysis, and any specific known troubled accounts. Trade receivables are written off when deemed uncollectible. Inventories Inventories
primarily consist of finished goods and are stated at the lower of cost (first-in-first-out) or market. The Company maintains
an allowance for potentially excess and obsolete inventories and inventories that are carried at costs that are higher than their
estimated net realizable values. Property
and Equipment Property
and equipment consist of leasehold improvements, furniture and fixtures, machinery and equipment are stated at cost. Property
and equipment are recorded at cost. Depreciation of property and equipment is provided using the straight-line method over the
estimated useful lives of the assets, generally 5-7 year. Leasehold improvements are depreciated over the shorter of the useful
life of the improvement or the lease term, including renewal periods that are reasonably assured. Impairment
of Long-lived Assets In
accordance with ASC 360, “Property, Plant, and Equipment,” the Company reviews for impairment of long-lived assets
and certain identifiable intangibles whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. The
Company considers the carrying value of assets may not be recoverable based upon our review of the following events or changes
in circumstances: the asset’s ability to continue to generate income from operations and positive cash flow in future periods;
loss of legal ownership or title to the assets; significant changes in our strategic business objectives and utilization of the
asset; or significant negative industry or economic trends. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset are less than its carrying amount. Fair
Value of Financial Instruments The
Company records its financial assets and liabilities at fair value, which is defined under the applicable accounting standards
as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measure date.
The Company uses valuation techniques to measure fair value, maximizing the use of observable outputs and minimizing the
use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the
first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
· Level 1 –
Quoted prices in active markets for identical assets or liabilities.
· Level 2 –
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
· Level 3 –
Inputs include management's best estimate of what market participants would use in pricing the asset or liability at the measurement
date. The inputs are unobservable in the market and significant to the instrument's valuation. As
of January 31, 2020, the Company believes that the carrying value of cash, account receivables, accounts payable, accrued expenses,
and other current assets and liabilities approximate fair value due to the short maturity of theses financial instruments. The
financial statements do not include any financial instruments at fair value on a recurring or non-recurring basis. Income
Taxes The
Company has elected to be taxed as an S-corporation. Accordingly, except for a minimal state tax, the Company is not taxed at
the corporate level; rather, the tax on corporate income is paid and the benefits of losses are recognized at the stockholder
level. Therefore, no provision or credit for federal income taxes has been included in the financial statements. Certain
transactions of the Company are subject to accounting methods for income tax purposes which differ from the accounting methods
used in preparing the financial statements. Accordingly, the net income of the Company reported for federal income tax purposes
may differ from the net income reported in these financial statements. The major differences relate to accounting for depreciation
on property and equipment, stock compensation, and research credits. The
Company has adopted ASC 740-10-25, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain
tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The
tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate resolution. The Company did not recognize additional liabilities for
uncertain tax positions as a result of the implementation of ASC 740-10-25 for the three months ended January 31, 2020. The
Company is no longer subject to federal and state income tax examination by tax authorities for year ended before 2019, respectively. Concentration
of Credit Risk Financial
instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and other receivables
arising from its normal business activities. The Company has a diversified customer base. The Company controls credit risk related
to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial
strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectable
accounts and, as a consequence, believes that its accounts receivable related credit risk exposure beyond such allowance is limited. All
of the Company’s revenues are derived from the sale of the proprietary CB5 formula and related products. E-commerce accounted
for 48% of revenues for the six months ended January 31, 2020, respectively and brick and mortar retail accounted for 52% of revenues
for the six months ended January 31, 2020, respectively. The Company’s principal market in 2019 was the United States, but
the Company plans to expand internationally in 2020. The Company maintains its cash and cash equivalents with various credit institutions.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, deposits of up to $250,000 at FDIC-insured institutions are
covered by FDIC insurance. At times, deposits may be in excess of the FDIC insurance limit; however, management does not believe
the Company is exposed to any significant related credit risk. Leases Prior
to December 31, 2019, the Company accounted for leases under Accounting Standards Codification (ASC) 840, Accounting for Leases.
Effective from December 31, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a
right-of-use asset and a lease liability for virtually all leases On
February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about
leasing transactions. ASC 842 requires that lessees recognize right of use assets and lease liabilities calculated based on the
present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC
842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented
in the statement of operations and statement of cash flows. Recent
accounting pronouncement ASC
842 supersedes nearly all existing lease accounting guidance under GAAP issued by the Financial Accounting Standards Board (“FASB”)
including ASC Topic 840, Leases. For
operating leases, we calculated right of use assets and lease liabilities based on the present value of the remaining lease payments
as of the date of adoption using the IBR as of that date. The
adoption of ASC 842 resulted in recording an adjustment to operating lease right of use assets and operating lease liabilities
of $$1,162,113 million and $1,200,091, respectively as of January 31, 2020. The difference between the operating lease ROU
assets and operating lease liabilities at transition represented tenant improvements, and indirect costs that was derecognized.
The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof. FASB
ASU 2016-02 “Leases (Topic 842)” – In February 2016, the FASB issued ASU 2016-02, which will require lessees
to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement
purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification
will be based on criteria that are largely similar to those applied in current lease accounting but without explicit bright lines.
Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model and the
new revenue recognition standard. This ASU is effective for the fiscal year beginning after December 15, 2019, including
interim periods within those fiscal year beginning after December 15, 2020. The Company adopted ASC 842 (ASU 2016-02). The adoption
of ASC 842 resulted in recording an adjustment to operating lease right of use assets and operating lease liabilities of $1,162,113
million and $1,200,091 million, respectively as of January 31, 2020. The difference between the operating lease ROU assets and
operating lease liabilities at transition represented tenant improvements, and indirect costs that were derecognized. The adoption
of ASC 842 did not materially impact the Company’s results of operations, cash flows, or presentation thereof FASB
ASU 2016-15 “Statement of Cash Flows (Topic 230)” – In August 2016, the FASB issued 2016-15. Stakeholders
indicated that there is a diversity in practice in how certain cash receipts and cash payments are presented and classified in
the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues to reduce the existing diversity in practice.
This ASU is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal
year beginning after December 15, 2019. Early adoption is permitted. Adoption of this ASU will not have a significant impact
on the Company’s statement of cash flows. FASB
ASU 2016-12 “Revenue from Contracts with Customers (Topic 606)” – In May 2016, the FASB issued 2016-12.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. ASU 2016-12 provides clarification on assessing collectability, presentation of sales taxes, noncash
consideration, and completed contracts and contract modifications. This
ASU is effective for quarterly reporting periods beginning after December 15, 2018, and interim periods beginning after December
15, 2019. The Company is currently assessing the potential impact this standard will have on the Company’s financial statements
and related disclosures. |
