UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2020
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: 333-237603

 

HYGGE INTEGRATED BRANDS CORP.

( Exact name of registrant as specified in its charter)

 

Nevada		84-5155876
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or organization)

 

1 Yonge St., Unit 1801, Toronto, ON		M5E 1W7
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code (416) 214-3656

 

Securities registered under Section 12(b) of the Exchange Act: None

 

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 short r period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

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

 

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

 

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

 

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

 

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

 

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.

 

Class		Outstanding as of October 9, 2020
Common Stock, $0.001 par value		2,471,000

  

    

HYGGE INTEGRATED BRANDS CORP.

   

TABLE OF CONTENTS 

			Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		20
Item 4.	Controls and Procedures.		20
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.		21
Item 1A.	Risk Factors.		21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		21
Item 3.	Defaults Upon Senior Securities.		21
Item 4.	Mine Safety Disclosures.		21
Item 5.	Other Information.		21
Item 6.	Exhibits.		22
SIGNATURES			23

 

2

   

HYGGE INTEGRATED BRANDS CORP.

    

Index to the Financial Statements

   

Contents		Page
Consolidated Balance Sheets at August 31, 2020 (unaudited) and May 31, 2020		4
Unaudited Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended August 31, 2020 and 2019		5
Unaudited Consolidated Statements of Stockholders’ Deficit for the Three Months Ended August 31, 2020 and 2019		6
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended August 31, 2020 and 2019		7
Notes to the Consolidated Financial Statements		8

 

3

 

HYGGE INTEGRATED BRANDS CORP. CONSOLIDATED BALANCE SHEETS

  

		August 31, 2020				May 31, 2020
ASSETS		(Unaudited)
Current Assets:
Cash and cash equivalents		$	12,144			$	17,509
Accounts receivable			-				1,399
Inventory			1,766				2,583
Prepaids and other current assets			195				306
Total current assets			14,105				21,797
Total Assets		$	14,105			$	21,797
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable and accrued liabilities		$	1,055			$	969
Accounts payable - related party			25,538				22,417
Loan payable - related party			45,354				45,031
Total current liabilities			71,947				68,417
Total Liabilities			71,947				68,417
Commitments and Contingencies			-				-
Stockholders’ Deficit:
Common stock, par value $0.001 per share, 75,000,000 shares authorized; 2,471,000 shares issued and outstanding as of August 31, 2020 and May 31, 2020, respectively			2,471				2,471
Additional paid-in capital			23,304				23,304
Accumulated deficit			(82,951	)			(71,245	)
Accumulated other comprehensive loss			(666	)			(1,150	)
Total stockholders’ deficit			(57,842	)			(46,620	)
Total Liabilities and Stockholders’ Deficit		$	14,105			$	21,797

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

   

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HYGGE INTEGRATED BRANDS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

 

		Three Months Ended August 31, 2020				Three Months Ended August 31, 2019
Revenue		$	1,877			$	-
Cost of revenue			1,342				-
Gross profit			535				-
Operating Expenses:
Professional fees			8,715				-
Executive compensation			1,500				-
Travel and promotion			527				-
General and administrative			1,175				65
Total operating expenses			11,917				65
Loss from Operations			(11,382	)			(65	)
Other Expense
Interest expense			(324	)			(264	)
Total Other Expense			(324	)			(264	)
Loss Before Income Taxes			(11,706	)			(329	)
Income tax provision			-				-
Net Loss		$	(11,706	)		$	(329	)
Other Comprehensive Income (Loss)
Foreign currency translation gain (loss)			484				(38	)
Comprehensive Loss		$	(11,222	)		$	(367	)
Net Loss Per Common Share:
Net loss per common share - Basic and Diluted		$	(0.00	)		$	(0.00	)
Weighted Average Shares Outstanding - Basic and Diluted			2,471,000				1,500,000

   

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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HYGGE INTEGRATED BRANDS CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT For the Three Months Ended August 31, 2020 and 2019 (Unaudited)

  

		Common stock								Additional								Accumulated Other
Description		Shares				Amount				Paid-in Capital				Accumulated Deficit				Comprehensive Loss				Total
Balances at May 31, 2020			2,471,000			$	2,471			$	23,304			$	(71,245	)		$	(1,150	)		$	(46,620	)
Net loss			-				-				-				(11,706	)			-				(11,706	)
Foreign currency translation gain			-				-				-				-				484				484
Balances at August 31, 2020			2,471,000			$	2,471			$	23,304			$	(82,951	)		$	(666	)		$	(57,842	)
Balances at May 31, 2019			1,500,000			$	1,500			$	-			$	(38,699	)		$	(143	)		$	(37,342	)
Net loss			-				-				-				(329	)			-				(329	)
Foreign currency translation loss			-				-				-				-				(38	)			(38	)
Balances at August 31, 2019			1,500,000			$	1,500			$	-			$	(39,028	)		$	(181	)		$	(37,709	)

    

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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HYGGE INTEGRATED BRANDS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

		Three Months Ended August 31, 2020				Three Months Ended August 31, 2019
Operating Activities:
Net loss		$	(11,706	)		$	(329	)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in Operating Assets and Liabilities-
Accounts receivable			1,399				-
Inventory			894				-
Prepaids and other current assets			118				(5	)
Accounts payable and accrued liabilities			38				105
Accounts payable - related party			2,924				-
Interest on loan payable - related party			324				264
Net Cash Provided by (Used in) Operating Activities			(6,009	)			35
Investing Activities:			-				-
Financing Activities:			-				-
Effects of exchange rates on cash			644				(38	)
Net Change in Cash			(5,365	)			(3	)
Cash - Beginning of Period			17,509				17
Cash - End of Period		$	12,144			$	14
Cash paid during the period for:
Interest		$	-			$	-
Income tax paid		$	-			$	-

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

  

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HYGGE INTEGRATED BRANDS CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 – Organization and Operations

 

Hygge Integrated Brands Corp., a Nevada corporation, (the “Company”) was formed under the laws of the State of Nevada on February 15, 2018. Hygge Integrated Brands Corp., operating as Hygge Hound, is a contemporary lifestyle brand for pet owners that embodies true Scandinavian minimalism combined with practical functionality. Our products, made with pets, humans and homes in mind, focuses on natural materials and clean, simple, minimalist design for pets. Hygge Hound produces a range of dog products, including dog beds and grooming products that embody the hygge philosophy - living in comfort, happiness and in complete absence of stress and nuisance.

 

On May 4, 2018, the Company formed a wholly owned subsidiary, Hygge Integrated Brands Corp. (Canada), an Ontario, Canada Corporation (“HIBC CAD”).

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the year ended May 31, 2020 and notes thereto contained in the information as part of the Company’s Annual Report on the Form 10-K filed with Securities and Exchange Commission on August 18, 2020.

 

Principle of consolidation

 

The accompanying consolidated financial statements include all of the accounts of the Company as of August 31, 2020 and 2019. All intercompany balances and transactions have been eliminated.

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s). Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

 

	(I)	Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
	(ii)	Allowance for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole.

 

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	(iii)	Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors;
	(iv)	Inventory reserve. Management did not establish an inventory reserve due to insufficient historical data of inventory losses. The Company will establish the inventory reserve based on the historical data collected during the year ended May 31, 2021. We will maintain reserves for excess and obsolete inventories to reflect our inventory at the lower of its stated cost or market value. Our estimate for excess and obsolete inventory will be based upon our assumptions about future demand and market conditions. If actual conditions are less favorable than those we have projected, we may need to increase our reserves for excess and obsolete inventories. Any increases in our reserves will adversely impact our results of operations. The establishment of a reserve for excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold. If we are able to sell such inventory any related reserves would be reversed in the period of sale.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements.

 

To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

	Level 1	Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
	Level 2	Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
	Level 3	Pricing inputs that are generally observable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

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The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued expenses, approximate their fair value because of the short maturity of those instruments.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.

 

Accounts Receivable

 

The Company’s accounts receivable are comprised of customer receivables. The Company’s net customer receivables were $0 and $1,399 as of August 31, 2020 and May 31, 2020, respectively, and consist of credit and debit card receivables from online payment processor, which typically settle within five business days. The Company does not maintain an allowance for doubtful accounts as historical losses on customer and vendor receivables have not been significant.

 

Inventory

 

The Company’s inventories consist of raw materials and finished goods, which are products available for sale and are accounted for using the first-in, first-out (FIFO) method and valued at the lower of cost or net realizable value.

 

Inventory costs consist of product manufacturing costs including materials and labor and inbound shipping and handling costs. Inventory valuation requires the Company to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers or returns to product vendors. Inventory valuation losses are recorded as cost of goods sold and historical losses have not been significant.

 

Revenue Recognition

 

In May 2014, FASB issued an update Accounting Standards Update (“ASU”) (“ASU 2014-09”) establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to 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 and also requires certain additional disclosures. The Company adopted this standard June 1, 2019, using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

 

Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers.

 

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The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

	-	identify the contract with a customer;
	-	identify the performance obligations in the contract;
	-	determine the transaction price;
	-	allocate the transaction price to performance obligations in the contract; and
	-	recognize revenue as the performance obligation is satisfied.

   

The Company recognizes revenues from product sales when the customer orders an item through the Hygge Hound’s website or mobile applications via the electronic shopping cart, funds are collected from the customer and the item is delivered to the local customer, or shipped from the Company’s facilities and delivered to the carrier.

 

Revenue is recognized on a gross basis as the Company is (i) the primary entity responsible for fulfilling the promise to provide the specified products in the arrangement with the customer and provides the primary customer service for all products sold on Company’s website or mobile applications, (ii) has inventory risk before the products have been transferred to a customer and maintains inventory risk upon accepting returns, and (iii) has discretion in establishing the price for the specified products sold on Company’s website or mobile applications.

 

The Company generates net sales from sales of pet grooming products and pet accessories, and related shipping fees. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. To encourage customers to purchase its products, the Company periodically provides incentive offers. Generally, these promotions include current discount offers, such as percentage discounts off current purchases and other similar offers. These offers, when accepted by customers, are treated as a reduction to the transaction price. Revenue typically consists of the consideration received from the customer when the order is executed less a refund allowance, which is estimated using historical experience.

 

Taxes collected from customers for remittance to governmental authorities are excluded from net sales.

 

The following table presents our revenues disaggregated by products for the three months ended August 31, 2020 and 2019, respectively. Sales and other similar taxes are excluded from revenues.

 

		2020				2019
Dog beds		$	1,756			$	-
Pet shampoo			121				-
Total revenue:		$	1,877			$	-

 

Cost of Sales

 

Cost of goods sold includes the purchase price, or manufacturing cost, of inventory sold, freight costs associated with inventory, shipping supply costs, inventory shrinkage costs and valuation adjustments and reductions for promotions and discounts offered by the Company’s third-party manufacturers and suppliers of raw materials.

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include: a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

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The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements.

 

The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Commitments and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

Income Tax Provision

 

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

 

Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. 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 the statements of operations in the period that includes the enactment date.

 

The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may 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.

 

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The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no unrecognized tax liabilities or benefits in accordance with the provisions of Section 740-10-25 at August 31, 2020 and 2019.

 

Foreign currency transactions

 

The Company applies the guidelines as set out in Section 830-20-35 of the FASB Accounting Standards Codification (“Section 830-20-35”) for foreign currency transactions. Pursuant to Section 830-20-35 of the FASB Accounting Standards Codification, foreign currency transactions are transactions denominated in currencies other than U.S. Dollar, the Company’s reporting currency. Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the reporting currency and the currency in which a transaction is denominated increases or decreases the expected amount of reporting currency cash flows upon settlement of the transaction. That increase or decrease in expected reporting currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled. The exceptions to this requirement for inclusion in net income of transaction gains and losses pertain to certain intercompany transactions and to transactions that are designated as, and effective as, economic hedges of net investments and foreign currency commitments. Pursuant to Section 830-20-25 of the FASB Accounting Standards Codification, the following shall apply to all foreign currency transactions of an enterprise and its investees: (a) at the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date as defined in section 830-10-20 of the FASB Accounting Standards Codification; and (b) at each balance sheet date, recorded balances that are denominated in currencies other than the functional currency or reporting currency of the recording entity shall be adjusted to reflect the current exchange rate.

 

The Company’s wholly owned Canadian subsidiary uses the CAD Dollar as its reporting currency as well as its functional currency. The change in exchange rates between the U.S. Dollar, the Company’s reporting and functional currency and the Canadian Dollar, the currency in which a transaction is denominated increases or decreases the expected amount of reporting currency cash flows upon settlement of the transaction. That increase or decrease in expected reporting currency cash flows is a foreign currency transaction gain or loss that generally is included in determining net income (loss) for the period in which the exchange rate changes.

 

Translation

 

The adjustments resulting from the translation process of the Company’s Canadian subsidiary accounts are reported in other comprehensive income. The cumulative foreign currency translation adjustments are only reclassified to net income when the gains or losses are realized upon sale or upon complete (or substantially complete) liquidation in the foreign subsidiary. These translation adjustments impact the subsidiary’s net assets and the Company’s net investment in the subsidiary.

 

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Earnings per Share

 

Earnings Per Share is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. Earnings per share (“EPS”) is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period.

 

Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income.

 

The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

 

Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied.

 

Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation.

 

There were no potentially dilutive debt or equity instruments issued and outstanding at any time during the three-month periods ended August 31, 2020 and 2019.

 

Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued.

 

Recently Issued Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, will have a material effect on the accompanying financial statements.

 

Note 3 – Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the accompanying financial statements, the Company had an accumulated deficit at August 31, 2020 and 2019, which raises substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.

 

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The Company is generating revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. While the Company believes in the viability of its strategy to continue operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

 

The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

 

Note 4 – Inventory

 

Inventory consisted of the following at August 31, 2020 and 2019:

 

		August 31, 2020				August 31, 2019
Inventory – finished goods		$	1,222			$	-
Inventory – raw materials			544				-
Less: Inventory impairment allowance			-				-
Total		$	1,766			$	-

 

Note 5 – Related Party Transactions

 

On January 1, 2020, the Company entered into a Management Consultant Agreement with our President and CEO. The term of the agreement is two years and either party can terminate it unilaterally with 60 days’ notice. During the term of this agreement, the Company shall pay the Consultant a consultant fee in consideration of the provision of the consulting services equal to USD $500 per month. The Board of Directors may increase or decrease the amount of compensation paid to our President and CEO from time to time.

 

Accounts Payable – Related Party

 

As of August 31, 2020 and May 31, 2020 the Company owed its director and officer $25,538 and $22,417, respectively. These amounts are comprised of cash advances, accrued management consulting fees, and unpaid expenses incurred on behalf of the Company as of the end of the reporting period.

 

Loan Payable – Related Party

 

The loans provided by the Company’s CEO are payable on demand, unsecured, and bear interest at 3.0% per annum. As at August 31, 2020 and May 31, 2020, the Company had accrued $2,515 and $2,192 respectively in interest expense related to these loans.

 

During the three-month periods ended August 31, 2020 and 2019 the Company incurred interest expense of $324 and $264, respectively. As of August 31, 2020 and May 31, 2020 the Company owed its officer $45,354 and $45,031 for loan principle and accrued interest.

 

Note 6 – Stockholders’ Deficiency

 

Shares authorized

 

Upon formation the total number of shares of all classes of stock which the Company is authorized to issue is seventy-five million (75,000,000) shares of common stock, par value $0.001 per share.

 

Registered shares of common stock

 

In April of 2020, the Company filed a Form S-1 Registration Statement with the Securities and Exchange Commission to register previously issued 971,000 shares of common stock. This Registration Statement was declared effective on July 2, 2020.

    

Note 7 – Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

  

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward-Looking Statements and Associated Risks.

 

The following discussion should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements contained in the MD&A are forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in other sections of this Quarterly Report on Form 10-Q.

 

Our Business

 

Hygge Integrated Brands Corp., a Nevada corporation, was formed under the laws of the State of Nevada on February 15, 2018. Hygge Integrated Brands Corp., operating as Hygge Hound, is a contemporary lifestyle brand for pet owners that embodies true Scandinavian minimalism combined with practical functionality. Our products, made with pets, humans and homes in mind, focuses on natural materials and clean, simple, minimalist design for pets.

 

Hygge Hound intends to expand production of a range of dog products, including dog beds and grooming products, which embody the hygge philosophy - living in comfort, happiness and in complete absence of stress and nuisance. Currently we offer through our website www.myhyggehound.com hypoallergenic pet shampoo and premium dog beds. Our pet shampoo is manufactured in the United States and dog beds are manufactured in Canada.

 

On May 4, 2018, the Company formed a wholly owned subsidiary, Hygge Integrated Brands Corp. (Canada), an Ontario, Canada Corporation (“HIBC CAD”).

 

Our Products

 

Shampoo

 

We at Hygge Hound are true believers in less-is-more holistic approach to clean, nourished skin and coat. Our company is committed to making pet grooming products without harmful parabens or sulfates and mineral oils. We strive to use only a few high-performance products with the right key ingredients such as real oats and aloe extracts in our shampoos and other grooming products. Currently we are working with a contract manufacturer located in Montana, USA. We have begun the production and sale of our own brand of hypoallergenic shampoo in April of 2020.

 

Dog Beds

 

Our Hygge Hound Cushion dog bed brings together comfort, simplicity and style. We offer our beds in three sizes: small (30x20x6 inches), medium (35x25x8 inches) and large (40x32x8 inches). Our beds are handcrafted and manufactured in Toronto, Canada, with tough and durable cotton canvas that has a tight weave to withstand puppy scratching. The dog bed has a hidden zipper in the back, allowing the owner to remove the cover for washing. Both the covers and inner pillows are all machine washable and can be put in the dryer.

   

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We only use cotton for our bed covers, as well as for the inner pillows. Cotton is better for your dog because it is breathable, non-allergenic, and is ideal for those with sensitive skin. We also offer replacement parts for our beds. We stuff our dog beds by hand with down alternative microfiber fill used in high quality human bedding. Our synthetic down is 100% hypoallergenic white polyester microfiber that looks and feel just like real goose down feather fill, but cruelty and allergen free.

 

Key Features:

 

	·	Super soft internal cushion, generously hand stuffed with down alternative used in human bedding. Our synthetic down fill is mold and mildew resistant and 100% hypoallergenic;
	·	High quality, 100% USA made, cotton canvas cover and unbleached 100% cotton inner pillow cover;
	·	Cover and inner pillow are machine washable and dryable;
	·	Contemporary minimalistic design without compromising on your home decor.

 

Our dog beds are manufactured by our Canadian wholly owned subsidiary in Toronto, Canada. The subsidiary’s manufacturer identification number assigned by the Competition Bureau of Canada is CA64388. The subsidiary sources raw materials and employs seamstresses on a contract basis. The contractors work from their own premises and with their own equipment. We have a verbal agreement with our seamstresses to manufacture our dog beds and pay for the finished products upon completion based on the number of units produced.

   

COVID-19 Update

 

The coronavirus (also known as COVID-19) pandemic has been a highly disruptive economic and societal event that has affected our business and has had a significant impact on consumer shopping behavior.

 

Since March 2020, the Province of Ontario, where we manufacture our dog beds, issued a state of emergency and all non-essential businesses were required to temporarily suspend operations. The effects of the public health directives and orders have negatively disrupted our business, our ability to continue manufacturing of our products and to start a direct marketing campaign targeting independent pet store owners. We paused the manufacturing of dog beds until restrictions under the emergency orders is lifted and it will be safe to resume operations. In the meantime, we launched our website www.myhyggehound.com and started selling and advertising pet shampoos and dog beds through our website in the fourth quarter of our 2020 fiscal year.

 

In addition, our pet shampoo manufacturer, located in Montana, U.S.A., advised us about future orders delays due to the priority of fulfillment of orders for sanitizing products.

 

We cannot predict the duration or severity of the economic impact of COVID-19 or its ultimate impact on our operations and liquidity, as such the situation remains unpredictable and risks still remain.

 

Results of operations for the three months ended August 31, 2020 and 2019.

 

Revenue

 

We started generating revenues from selling our products in the fourth quarter of our fiscal 2020. Our gross revenue from sales of our dog beds and pet shampoos for the three-month periods ended August 31, 2020 and 2019 was $1,877 and $0 respectively.

 

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Operating Income (Loss)

 

During the three months ended August 31, 2020 and 2019, we had operating expenses of $11,917 and $65, respectively. This was due primarily to the advertising and marketing, professional fees and general and administrative expenses incurred. Operations for the Company didn’t begin until the second quarter of our fiscal 2020.

 

Comprehensive loss

 

We reported a comprehensive loss of $11,222 and $367 for the three-month periods ended August 31, 2020 and 2019, respectively. The comprehensive loss includes the gain on foreign exchange of $484 for the quarter ended August 31, 2020 and the loss of $38, for the quarter ended August 31, 2019.

 

Working Capital

 

		As of				As of
		August 31,				May 31,
		2020				2020
Total current assets		$	14,105			$	21,797
Total current liabilities			(71,947	)			(68,417	)
Working capital (deficiency)		$	(57,842	)		$	(46,620	)

   

We anticipate generating losses and, therefore, may be unable to continue operations in the future. We started generating revenues in the fourth quarter of our fiscal 2020. However, our revenues may not be sufficient to cover our operating costs. We cannot guarantee that we will be successful in generating significant revenues in the future. Failure to achieve a sustainable sales level will cause us to go out of business.

 

Going Concern

 

The Company commenced generating revenues during the fourth quarter of the year ended May 31, 2020. As of August 31, 2020 the Company has recognized $3,866 in total revenues from sale of its products and had an accumulated deficit of $82,951 and $71,245 as of August 31, 2020 and May 31, 2020, respectively. This raises substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Liquidity and Capital Resources

 

The table below, for the period indicated, provides selected cash flow information:

 

		For the Three Months Ended August 31, 2020				For the Three Months Ended August 31, 2019
Net cash provided (used) by operating activities		$	(6,009	)		$	35
Cash used in investing activities			-				-
Cash provided by financing activities			-				-
Effects of exchange rates on cash			644				(38	)
Net increase (decrease) in cash		$	(5,365	)		$	(3	)

 

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Cash Flows from Operating Activities

 

Our cash used by operating activities as of August 31, 2020 of $6,009 (August 31, 2019: $38) is a net result of a net loss of $11,706 and $329 for the three months ended August 31, 2020 and 2019, respectively and changes in our current assets and liabilities.

 

Cash flows resulting from changes in assets and liabilities for the three months ended August 31, 2020, include a decrease in accounts receivable of $1,399, the decrease in the inventory of finished goods and raw materials of $894 and in prepaid expenses and other current assets of $118, the increase in accounts payable and accrued liabilities of $38, the increase in accounts payable due to related party of $2,924 and in interest on cash advances from related party of $324.

 

During the year ended May 31, 2020, the company acquired manufacturing supplies for production of the dog beds, manufactured finished products (dog beds) and received an order of pet shampoo from the third-party manufacturer. The decrease in inventory correlates with sales of finished products, usage of raw materials in manufacturing and associated shipping supplies.

 

The increase in accounts payable is a net result of operating expenses incurred during the quarter and payments made by the company to its vendors during the same period. The increase in the amounts due to related party was due to expenses incurred on behalf of the Company and accrued interest on cash advances from the Company’s officer and director.

 

The decrease in prepaid expenses was due to decrease in our prepaid office rent and website hosting. The increase in the sales tax payable is a net result of the sales taxes collected on sales of our products and sales taxes paid on purchases during the quarter.

 

Cash flows resulting from changes in assets and liabilities for the three months ended August 31, 2019, include an increase in prepaid expenses of $5, the increase in interest on cash advances from our officer and director of $264 and the increase in accounts payable and accrued liabilities of $105. The increase in the amounts due to related party was due to accrued interest on cash advances from the Company’s officer and director. The increase in accounts payable is a net result of operating expenses incurred during the quarter and payments made by the company to its vendors during the same period.

 

Cash Flows from Investing and Financing Activities

 

We did not generate or use any cash in our investing and financing activities during the quarter ended August 31, 2020 and 2019.

 

Management expects to keep operating costs to a minimum until cash is available through financing or operating activities. Management plans to continue to seek, in addition to equity financing, other sources of financing (e.g. bank loan, line of credit, shareholder loan) on favorable terms; however, there are no assurances that any such financing can be obtained on favorable terms, if at all. If we are unable to generate profits sufficient to cover our operating costs or to obtain additional funds for our working capital needs, we may need to cease or curtail operations.

 

Recent Accounting Pronouncements

 

See Note 2 to the Unaudited Financial Statements.

 

Off Balance Sheet Arrangements

 

As of August 31, 2020, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

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

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

 

In connection with this quarterly report, as required by Rule 13a -15d and 15d-15e under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s principal executive officer and principal financial officer. Based upon that evaluation, our company’s principal executive officer and principal financial officer concluded that as of August 31, 2020 our disclosure controls and procedures were not effective due to the existence of material weaknesses in our internal controls over financial reporting.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the small business issuer’s three-month period ended August 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

We were not subject to any legal proceedings during the three-month periods ended August 31, 2020 and 2019, and currently we are not involved in any pending litigation or legal proceeding.

 

ITEM 1A. RISK FACTORS.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

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 to our Company.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

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ITEM 6. EXHIBITS

 
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:

   

EXHIBIT NUMBER		DESCRIPTION
31.1		Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2		Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS		XBRL Instance Document *
101.SCH		XBRL Taxonomy Extension Schema Document *
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB		XBRL Taxonomy Extension Label Linkbase Document *
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *

 

* Filed herewith.

 

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SIGNATURES

 

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: October 9, 2020

 

Hygge Integrated Brands Corp.
/s/ Elena Krioukova
By: Elena Krioukova
Its: Principal Executive Officer, Principal Accounting Officer, Secretary and Director

  

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of Hygge Integrated Brands Corp. and in the capacities and on the dates indicated.

 

 

Name		Title		Date
/s/ Elena Krioukova		Principal Executive Officer, Principal Accounting Officer,		October 9, 2020
Elena Krioukova		Principal Financial Officer, Secretary and Director

   

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