Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. NATURE OF BUSINESS
ORGANIZATION
Joey New York, Inc. ("the Company") was incorporated under the laws of the State of Nevada on December 22, 2011. Effective August 27, 2013, the Board of Directors approved a name change to Joey New York, Inc. On May 12, 2014, the Company merged with a Florida limited liability company, RAR Beauty, LLC, which distributes natural skin care and beauty products on the wholesale and retail levels and operates under the name of Joey New York and with Pronto Corp a registered company. The Company accounted for the acquisition as a reverse merger whereby, the operations of RAR Beauty, LLC is the continuing entity for financial reporting purposes and the former members of RAR Beauty, LLC owning approximately 75% of the Company. On May 12, 2014, RAR Beauty, LLC became a wholly owned subsidiary of the Company.
The Company through its wholly owned subsidiary, RAR Beauty, LLC doing business under the name Joey New York, distributes natural skin care and beauty products on wholesale and retail levels.
The Company's headquarters is based in Sunny Isles Beach, Florida. The Company seeks to increase market share and introduce its product line through multiple channel markets. The Company faces competition from nationally recognized firms that may have greater resources of personnel, capitalization, and reputation. The Company has therefore concentrated its efforts on product quality and performance.
Joey New York product lines include skin care treatments and beauty enhancements that are health conscious, effective and affordable. In keeping with our beauty mission, we have utilized the water from tender young green coconuts, blended with Indian ginseng extract, into our new fast-acting QUICK RESULTS skincare collection.
NOTE 2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America ("GAAP") for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine month period ended November 30, 2015, are not necessarily indicative of the results that may be expected for the year ending February 29, 2016. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2015, as filed with the Securities and Exchange Commission ("SEC") on June 1, 2016.
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 as well as the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates.
Joey New York, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. For the nine months ended November 30, 2015 the Company has incurred a loss from operations of $269,669. The Company has a history of losses resulting in an accumulated deficit of $1,299,431. The Company has negative working capital, in the amount of $4,093,680, as of November 30, 2015. The Company intends to fund operations and continuing product development through debt and equity financing arrangements, which efforts may be insufficient to fund its capital expenditures, working capital and other cash requirements. The Company cannot be certain that it will be successful in its efforts to attain such capital or that the terms of capital will be at acceptable terms.
These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. general accepted accounting principles 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 consolidated financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The Company's balance sheet includes certain financial instruments, primarily, cash, accounts receivable, inventory, accounts payable, and debt to related parties. The carrying amounts of current assets and current liabilities approximate their fair value due to the relatively short period of time between the origination of these instruments and their expected realization.
ASC 820,
Fair Value Measurements and Disclosures
, defines fair value 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 measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Joey New York, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
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Level 1
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Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
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Level 2
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Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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Level 3
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Inputs that are both significant to the fair value measurement and unobservable.
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Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of February 28, 2015. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
CASH
For purposes of the statement of cash flows, cash equivalents include demand deposits, money market funds, and all highly liquid debt instruments with original maturities of three months or less.
ACCOUNTS RECEIVABLE
The company uses the reserve method of accounting for doubtful accounts. There were no bad debts as of November 30, 2015 and February 28, 2015. Based on prior experience no provision for doubtful accounts was deemed necessary.
CONCENTRATIONS AND CREDIT RISKS
The Company's financial instruments that are exposed to concentrations and credit risk primarily consist of its cash and accounts receivable.
Cash -
The Company places its cash and cash equivalents with financial institutions of high credit worthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company's management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
Receivables
- The Company issues credit to its customers, based on their credit worthiness. The Company does not have a long history with its customers, to base its credit history and therefore has credit risk. The Company has not incurred bad debts and therefore has not set a provision for doubtful accounts.
INVENTORY
Inventory is stated at the lower of cost or market, determined by the first-in, first-out method. Inventory consists solely of finished goods.
Joey New York, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
PROPERTY AND EQUIPMENT AND LONG-LIVED ASSETS
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the assets, five years, utilizing the straight method. Maintenance and repairs are expensed as incurred. Expenditures which significantly increase value or extend useful asset lives are capitalized. When property or equipment is sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is recognized. The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation period or balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of property and equipment existed at November 30, 2015.
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
REVENUE RECOGNITION
The Company recognizes revenue when it is realized or realizable and estimable in accordance with ASC 605, "
Revenue Recognition
". The Company will recognize revenue only when all of the following criteria have been met:
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i)
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Persuasive evidence for an agreement exists;
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ii)
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Service has been provided;
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iii)
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The fee is fixed or determinable; and,
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iv)
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Collection is reasonably assured.
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We recognize a sale when the product has been shipped at which time risk of loss has passed to the customer and the above criteria have been met.
SHARE-BASED EXPENSE
ASC 718,
Compensation – Stock Compensation
, prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized in the period of grant.
Joey New York, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50,
Equity – Based Payments to Non-Employees.
Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Share-based expense for the nine months ending November 30, 2015 and 2014 was $0 and $67,027, respectively.
RESEARCH AND DEVELOPMENT
The Company expenses research and development costs when incurred. Research and development costs include testing of product and outputs. We spent $0 and $0 in research and development costs for the three months ending November 30, 2015 and 2014, respectively.
DEFERRED INCOME TAXES AND VALUATION ALLOWANCE
The Company accounts for income taxes under ASC 740,
Income Taxes
. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Deferred tax assets or liabilities were off-set by a 100% valuation allowance, therefore there has been no recognized benefit as of November 30, 2015.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share is calculated in accordance with ASC 260, "
Earnings Per Share
." The weighted-average number of common shares outstanding during each period is used to compute basic earning or loss per share. Diluted earnings or loss per share is computed using the weighted average number of shares and diluted potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised.
Basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding at November 30, 2015 and 2014. Due to net operating loss, there is no presentation of dilutive earnings per share, as it would be anti-dilutive. As of November 30, 2015, the Company had no dilutive potential common shares.
COMMITMENTS AND CONTINGENCIES
The Company follows ASC 450-20, "Loss Contingencies," to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no commitments or contingencies as of November 30, 2015.
Joey New York, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
RECENTLY ACCOUNTING PRONOUNCEMENTS
In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
. The revenue recognition standard affects all entities that have contracts with customers, except for certain items. The new revenue recognition standard eliminates the transaction-and industry-specific revenue recognition guidance under current GAAP and replaces it with a principle-based approach for determining revenue recognition. Public entities are required to adopt the revenue recognition standard for reporting periods beginning after December 15, 2016, and interim and annual reporting periods thereafter. Early adoption is not permitted for public entities. The Company has reviewed the applicable ASU and has not, at the current time, quantified the effects of this pronouncement, however it believes that there will be no material effect on the consolidated financial statements.
In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-12
Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.
A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718,
Compensation — Stock Compensation
. As a result, the target is not reflected in the estimation of the award's grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after 15 December 2015 and interim periods within those annual periods. Early adoption is permitted. Management has reviewed the ASU and believes that they currently account for these awards in a manner consistent with the new guidance, therefore there is no anticipation of any effect to the consolidated financial statements.
In August 2014, FASB issued Accounting Standards Update (ASU) No. 2014-15
Preparation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.
Under generally accepted accounting principles (GAAP), continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements—Liquidation Basis of Accounting. Even when an entity's liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this Update should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will evaluate the going concern considerations in this ASU, however, at the current period, management does not believe that it has met conditions which would subject these financial statements for additional disclosure.
Recent accounting pronouncements issued by the FASB (Accounting Standards Update, including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future consolidated financial statements.
Joey New York, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4. INVENTORY
Inventory consists of finished goods. Inventory is carried at cost on a first-in-first-out basis (FIFO) and held at public warehouse, which performs shipping and distribution function. All products held in inventory are of our popular brands ordered and anticipated minimal order quantities are held in inventory necessary to operate without backlog or delays in order fulfillment. Products have not significantly changed from year to year and there is no concentration of suppliers.
NOTE 5. PROPERTY AND EQUIPMENT
Property consists of equipment purchased for the production of revenues. As of November 30, 2015 and February 28, 2015:
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November 30, 2015
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February 28, 2015
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Property and equipment
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$
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10,459
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$
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9,240
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Less accumulated depreciation
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5,169
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4,677
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Property and equipment, net
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$
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5,290
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$
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4,563
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Depreciation for the nine months ending November 30, 2015 and 2014 was $491 and $981, respectively.
NOTE 6. RELATED PARTY ADVANCES
The Company's management has advanced funds and has made payments on behalf of the Company for the purpose of meeting obligations. These accumulated advances have been formalized by demand notes payable and accrue interest at 2.6%. The Company is indebted to its two majority shareholders for an aggregate amount of $631,737 and $592,238, as of November 30, 2015 and February 28, 2015, respectively.
NOTE 7. LONG-TERM DEBT
On May 12, 2014, in accordance with the acquisition agreement, the Company issued promissory notes payable, amounting $3,000,000 to its two majority shareholders. The terms of the notes (2, each at $1,500,000) are at a stated interest rate of 5% and mature on May 12, 2016. The Company recorded this as an equity transaction as the notes did not represent any prior or future compensation.
In accordance with the acquisition agreement, the previous majority shareholder of Pronto Corp. received a promissory note payable of $15,600 for costs incurred prior to the acquisition. The note has a stated interest rate of 5% and matures on July 12, 2014.
Joey New York, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 8. EQUITY
The Company is authorized to issue 1,500,000,000 shares of $0.001 par value common stock.
In June 2015, the Company received stock subscriptions for 250,025 restricted shares of common stock ($0.20 per share) in exchange for cash in the amount of $50,005.
There are no warrants or options outstanding.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
The Company's operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.
Related Party
The controlling members have pledged support to fund continuing operations; however there is no written commitment to this effect. The Company is dependent upon the continued support of these parties in the immediate future, in order to meet its current obligations, until such time that revenues are generated to meet all current obligations or until such time that adequate capital is raised for its growth plans.
The Company has limited needs for office administration and does not own or lease property or lease office space. The office space used by the Company was arranged by the officers and directors of the Company to use at no charge.
The Company does not have employment contracts with its key employees, including the controlling shareholders who are officers of the Company.
The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
Legal and other matters
In the normal course of business, the Company may become a party to litigation matters involving claims against the Company. The Company's management is unaware of any pending or threatened assertions and there are no current matters that would have a material effect on the Company's financial position or results of operations.
NOTE 10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date of filing the consolidated financial statements with the Securities and Exchange Commission, the date the consolidated financial statements were available to be issued. Management is not aware of any significant events that occurred subsequent to the balance sheet date that would have a material effect on the consolidated financial statements thereby requiring adjustment or disclosure.
NOTE 11. RESTATEMENT
These financial statements are being restated to properly present financial position, results of operations, changes in stockholders' equity and cash flow resulting from the following revisions:
As of and for the quarter ended November 30, 2015:
(1) Increase accrued liabilities by $54,784 for liabilities associated with legal fees not previously recorded
(2) Reduce additional paid-in capital by $1,944 for an error associated with the re-characterization of equity resulting from the share exchange agreement of May 12, 2014
(3) Reduced related party advances by $43,326
(4) Increase accumulated deficit by $52,839
(5) Eliminate an account receivable in the amount of $11,399 originally reflected as a receivable from a customer resulting from a revenue transaction which was actually a credit provided by a vendor resulting from a purchase transaction
(6) Increase accounts payable by $36,340
(7) Reduce proceeds from related party advances by $24,942
The impact to the financial statements as of November 30, 2015 is detailed in the following table:
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As
Originally
Filed
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As
Restated
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Restatement
Adjustment
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Balance sheet
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Accrued liabilities
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$
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302,850
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$
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357,634
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$
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54,784
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Additional paid in capital
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$
|
(2,858,703
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)
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$
|
(2,860,647
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)
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$
|
(1,944
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)
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Accumulated deficit
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$
|
(1,299,431
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)
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$
|
(1,352,270
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)
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|
$
|
(52,839
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)
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Statement of cash flow
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Accounts receivable
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$
|
11,930
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$
|
531
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$
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(11,399
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)
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Accounts payable
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$
|
107,904
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$
|
144,244
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$
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36,340
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Proceeds from related party advances
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$
|
64,441
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$
|
39,499
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$
|
(24,942
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)
|