XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US dollars)
|
|
|
Year
ended
December 31,
2015
|
|
For the Period from October 23, 2014 (inception) to
December 31,
2014
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
Net loss
|
$
|
(156,450)
|
$
|
(484)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Accretion of discounts on convertible debt
|
|
40,000
|
|
–
|
|
Amortization of license
|
|
34
|
|
–
|
|
Issuance of stock for consulting services
|
|
60,000
|
|
–
|
|
Stock-based compensation
|
|
15
|
|
–
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
18,460
|
|
–
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
(37,941)
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|
(484)
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
Proceeds from related parties
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|
37,964
|
|
484
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
37,964
|
|
484
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
23
|
|
–
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD
|
|
–
|
|
–
|
|
|
|
|
|
|
|
CASH, END OF PERIOD
|
$
|
23
|
$
|
–
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
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Cash paid for interest
|
$
|
–
|
$
|
–
|
|
Cash paid for taxes
|
$
|
–
|
$
|
–
|
|
SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt for license
|
$
|
97,211
|
$
|
–
|
|
Accounts payable assumed on recapitalization of Xalles Holdings Inc.
|
$
|
14,450
|
$
|
–
|
|
Amount due to related party assumed on recapitalization of Xalles Holdings Inc.
|
$
|
15,000
|
$
|
–
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. There is no guarantee that the Company will be successful in these efforts. As of December 31, 2015, the Company has not commenced its planned operations, has a working capital deficit of $283,531, and has accumulated losses of $156,934 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 1 – GENERAL ORGANIZATION AND BUSINESS
Xalles Holdings Inc. (“the Company”) was incorporated in the State of Nevada on December 14, 2009 under the name Stella Blu, Inc. On August 24, 2015, the Company changed its name to Xalles Holdings Inc.
On July 14, 2015, the Company entered into a Share Exchange Agreement (the “Agreement”) with Xalles Limited ("Xalles"), a Delaware corporation (incorporated in October 2014), ArrowVista Corporation ("ArrowVista"), a Delaware corporation, Xalles Singapore Pte. Ltd. ("Xalles Singapore"), a Singapore corporation, and the shareholders of Xalles, ArrowVista, and Xalles Singapore. Pursuant to the Agreement, Xalles, ArrowVista, and Xalles Singapore will become wholly-owned subsidiaries of the Company in exchange for the issuance of certain shares. Xalles became a wholly-owned subsidiary by the issuance of 19,500,000 shares of common stock on July 16, 2015 (the "First Tranche"). Please refer to Note 3. ArrowVista will become a wholly-owned subsidiary by the issuance of 4,500,000 shares of common stock on or before June 30, 2016. Xalles Singapore will become a wholly-owned subsidiary by the issuance of 2,250,000 shares of common stock on or before June 30, 2016. The consummation of the transactions set forth in the Agreement are subject to certain conditions.
On July 1, 2015, prior to the closing of the First Tranche of the Agreement, ArrowVista transferred a note receivable and a license to Xalles in consideration of a note payable in the amount of $97,211. The amount owed is unsecured, non-interest bearing, and due on demand. Please refer to Note 8(d).
On August 19, 2015, the Company effected a 3-for-1 forward stock split of its common stock. All common share and per common share amounts in these consolidated financial statements have been retroactively restated to reflect the stock split.
The Company is engaged in the patent monetization business. The Company’s principal operations will include the acquisition, licensing, and enforcement of patented technologies. The Company will develop portfolios from patents whose rights are obtained from third parties. The Company expects to generate revenues and related cash flows from the subsequent sale, licensing and enforcement of those patents.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
These consolidated financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. These financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States. The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 fiscal year end.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Xalles Limited. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of these 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 of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year. The Company regularly evaluates estimates and assumptions related to valuation of license, stock-based compensation, and deferred income tax asset valuation allowances.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
License
The Company acquired a license from a company controlled by our CEO on July 1, 2015 in consideration for a note payable of $97,211. License has been capitalized in accordance with ASC 350-30 “Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill.” Amortization commenced on July 1, 2015 when the license was acquired and became ready for its intended use. Amortization is calculated on a straight-line basis over its estimated useful life of 15 years.
If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the excess of the carrying value over the fair value of the asset.
Financial Instruments and Fair Value Measures
ASC 820, “
Fair Value Measurements and Disclosures
” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, convertible debenture, stock-settled debt obligation, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial statements.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718 “Compensation – Stock Compensation” and ASC 505, “Equity Based Payments to Non-Employees”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measureable.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Loss per Share
The Company computes net loss per share in accordance with ASC 260, “Earnings per Share”
,
which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statements of operations. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2015, the Company has 10,000,000 (2014 – nil) potentially dilutive shares outstanding.
Comprehensive Loss
ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. As at December 31, 2015 and 2014, the Company had no items representing comprehensive income or loss.
Income Taxes
A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
When required, the Company records a liability for unrecognized tax positions, defined as the aggregate tax effect of differences between positions taken on tax returns and the benefits recognized in the financial statements. Tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet this threshold. The Company has no uncertain tax positions that require the Company to record a liability. The Company’s tax years ended December 31, 2009, 2010, 2011, 2012, 2013, 2014, and 2015 remain subject to examination by Federal and state jurisdictions.
The Company recognizes penalties and interest associated with tax matters as part of the income tax provision and includes accrued interest and penalties with the related tax liability in the balance sheet. The Company had no accrued penalties and interest as of December 31, 2015 and 2014.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – ACQUISITION OF XALLES LIMITED
On July 14, 2015, the Company entered into an Agreement with Xalles Limited ("Xalles"), a Delaware corporation, ArrowVista Corporation ("ArrowVista"), a Delaware corporation, Xalles Singapore Pte. Ltd. ("Xalles Singapore"), a Singapore corporation, and the shareholders of Xalles, ArrowVista, and Xalles Singapore. Pursuant to the Agreement, Xalles, ArrowVista, and Xalles Singapore will become wholly-owned subsidiaries of the Company in exchange for the issuance of certain shares. Xalles became a wholly-owned subsidiary by the issuance of 19,500,000 shares of common stock on July 16, 2015. ArrowVista will become a wholly-owned subsidiary by the issuance of 4,500,000 shares of common stock on or before June 30, 2016. Xalles Singapore will become a wholly-owned subsidiary by the issuance of 2,250,000 shares of common stock on or before June 30, 2016. The consummation of the transactions set forth in the Agreement are subject to certain conditions. The original shareholders of the Company agreed to fund $300,000 to support the current operations and continued development of the business. Refer to Note 12.
The share purchase agreement was a capital transaction in substance and therefore has been accounted for as a reverse capitalization. Under reverse capitalization accounting, Xalles was considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical amounts. These consolidated financial statements include the accounts of the Company since the effective date of the recapitalization and the historical accounts of Xalles since inception.
NOTE 4 – NOTE RECEIVABLE
As at December 31, 2015, the Company is owed $45,642 (2014 - $nil) in a promissory note receivable which was transferred from a company controlled by our CEO. Under the terms of the note, the amount is unsecured, bears interest at 8% per annum, and is due on demand. As of December 31, 2015, the Company recorded a reserve of $45,642 (2014 - $nil) on the estimated uncollectible note receivable and the accrued interest receivable of $16,656 (2014 - $nil) has been written off as a reduction of additional paid-in capital prior to the recapitalization of Xalles Holdings Inc., due to the related party nature.
NOTE 5 – LICENSE
On July 1, 2015, the Company acquired the license from a company controlled by our CEO. The license was recorded at the historical cost incurred by the related party and amortized over its estimated useful life of 15 years. The following represents the carrying value of the license at December 31, 2015:
|
License
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|
$
|
1,000
|
|
|
|
|
|
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Accumulated depreciation
|
|
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|
34
|
|
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Carrying value as at December 31, 2015
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$
|
966
|
NOTE 6 – CONVERTIBLE DEBENTURE
On August 28, 2015, in consideration for future consulting services, the Company issued a $60,000 convertible note which is unsecured, bears interest at 2% per annum and was due on November 28, 2015. The note is convertible into shares of common stock 90 days after the date of issuance (November 26, 2015) at a conversion rate of 60% of the average of the three lowest closing bid prices of the Company’s common stock for the twenty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. If, at the time of conversion, the lowest trading prices during the applicable 20 trading day period is equal to or less than $0.0001, then the conversion price shall equal the lesser of the (1) variable conversion price or (2) $0.00001.
In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company recognized the intrinsic value of the conversion feature of $40,000 as a stock-settled debt obligation and an equivalent discount which was charged to operations over the term of the convertible debenture from the effective date to the convertible date. During the year ended December 31, 2015, the Company accreted $40,000 of the debt discount which was recorded as interest expense. As of December 31, 2015, the carrying value of the debenture was $60,000 (2014 - $nil). As of December 31, 2015, accrued interest of $411 (2014 - $nil) has been recorded in accounts payable and accrued liabilities.
NOTE 7 – NOTES PAYABLE
a)
As of December 31, 2015, the Company owed $52,600 (2014 - $nil) to a former director of the Company. The amounts are unsecured, non-interest bearing and are due on demand.
b)
As of December 31, 2015, the Company owed $833 (2014 - $nil) to the CEO of the Company. The amount is unsecured, non-interest bearing and is due on demand.
c)
As of December 31, 2015, the Company owed $97,211 (2014 - $nil) to a company controlled by the CEO of the Company. The amount is unsecured, non-interest bearing and is due on demand.
All debt is due on demand and has been included in current liabilities on the balance sheet.
NOTE 8 – RELATED PARTY TRANSACTIONS
a)
On January 9, 2015, the Company entered into an agreement whereby a director of the Company paid $11,629 to service providers on behalf of the Company. The amount was recorded as additional paid-in-capital prior to the recapitalization.
b)
As of December 31, 2015, the Company owed $52,600 (2014 - $nil) to a former director of the Company. The amounts are unsecured, non-interest bearing and are due on demand.
c)
As of December 31, 2015, the Company owed $833 (2014 - $nil) to the CEO of the Company. The amount is unsecured, non-interest bearing and is due on demand.
d)
As of December 31, 2015, the Company owed $97,211 (2014 - $nil) to a company controlled by the CEO of the Company. The amount is unsecured, non-interest bearing and is due on demand.
NOTE 9 – STOCKHOLDERS’ EQUITY
Authorized:
The Company is authorized to issue 500,000,000 shares of $0.0001 par value common stock and 5,000,000 shares of preferred stock, par value $0.001. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.
On August 3, 2015, the Company filed a Certificate of Designation of Series A Preferred Stock (the "Certificate of Designation”) with the Nevada Secretary of State designating 1,000,000 of the Company's previously authorized preferred stock. The holders of the Series A Preferred Stock are granted 51% voting power on all matters to be voted on by the holders of the Company’s common stock and is not convertible into any shares of the Company's common stock. With respect to rights on liquidation, dissolution or winding up, shares of Series A Preferred Stock rank on a parity with the Company's common stock.
Issued and Outstanding:
a)
On July 16, 2015, the Company issued 19,500,000 shares of common stock pursuant to the Share Exchange Agreement with Xalles Limited, a Delaware corporation, to effect the acquisition and reverse capitalization. Refer to Note 3.
b)
On July 16, 2015, the Company cancelled 19,500,000 shares of common stock held by the former President of the Company.
c)
On August 19, 2015, the Company effected a 3-for-1 forward stock split of its common stock. All common share and per common share amounts in these consolidated financial statements have been retroactively restated to reflect the stock split.
d)
On October 7, 2015, the Company issued 1,000,000 shares of Series A preferred stock to the CEO of the Company and a former director of the Company. The issuance of the Series A preferred stock was made pursuant to the share exchange agreement, and recorded as contributed capital. Refer to Note 1.
e)
On December 30, 2015, the Company issued 15,000 shares of common stock with a fair value of $15 to a consultant for services performed pursuant to an agreement dated August 28, 2015.
f)
On December 30, 2015, a former director cancelled 500,000 shares of Series A preferred stock, which were reissued to a new director. The cancellation and re-issuance of the Series A Preferred Stock was made pursuant to the share exchange agreement, and recorded as contributed capital.
As valuable consideration for services to be incurred, the Company also issued 100,000 shares of common stock to this director. As the amounts were for future services, no value was assigned to these shares of common stock.
NOTE 10 – CONFLICTS OF INTEREST
The officer and director of the Company is involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such person may face a conflict in selecting between the Company and his other business interests. The Company has not formulated a policy for the resolution of such conflicts.
NOTE 11 - INCOME TAXES
The Company is subject to income taxes at a combined rate of 35% (2014 – 43.7%). The reconciliation of the provision for income taxes at the combined statutory rate compared to the Company’s income tax expense as reported is as follows:
|
|
2015
$
|
2014
$
|
|
|
|
|
|
Income tax expense (recovery) at statutory rate
|
(54,754)
|
(212)
|
|
|
|
|
|
Permanent difference and other
|
5
|
–
|
|
Difference in tax rates between foreign jurisdictions
|
(1,249)
|
–
|
|
Valuation allowance change
|
55,998
|
212
|
|
|
|
|
|
Provision for income taxes
|
–
|
–
|
The significant components of deferred income tax assets and liabilities as at December 31, 2015 and 2014, after applying enacted income tax rates, are as follows:
|
|
2015
$
|
2014
$
|
|
|
|
|
|
Net operating losses carried forward
|
56,224
|
212
|
|
License
|
(14)
|
–
|
|
Valuation allowance
|
(56,210)
|
(212)
|
|
|
|
|
|
Net deferred income tax asset
|
–
|
–
|
The Company has net operating losses carried forward of $156,952 which may be carried forward to apply against future year taxable income, subject to the final determination by taxation authorities, expiring in the following years:
|
|
$
|
|
|
|
|
2034
|
484
|
|
2035
|
156,468
|
|
|
|
|
|
156,952
|
NOTE 12 – SUBSEQUENT EVENTS
On January 4, 2016, the Company entered into a consulting agreement for a term of six months (the "Initial Term"), which would automatically extend for a subsequent six-months term (the "Renewal Term") unless terminated with written notice. In consideration for future services, the Company issued a $90,000 convertible note for the Initial Term and will issue additional $90,000 convertible notes for any future Renewal Terms. The note is unsecured, bears interest at 6% per annum, and due on April 4, 2016. The note is convertible into shares of common stock during the period from 90 days after the date of issuance (April 2, 2016) to three years from the date of issuance (January 4, 2019), at a conversion rate of 60% of the average of the three lowest intraday trading prices of the Company’s common stock for the twenty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company.
On February 29, 2016, the Company closed an Asset Purchase Agreement dated July 14, 2015 and amended December 2, 2015 (the “Agreement”) with Co-Owners Inc. ("Co-Owners"), a Florida corporation, and the shareholders of Co-Owners. Pursuant to the Agreement, the Company agreed to purchase certain assets and assume certain liabilities of Co-Owners and transfer these assets and liabilities to a newly incorporated company, named Co-Owners Rewards Inc. (“Subco”). In consideration, Subco will issue 2,200,000 shares of common stock to the Company and 2,330,000 shares of common stock to certain shareholders of Co-Owners.
Subsequent to December 31, 2015, the Company received $33,000 from the original shareholders of the Company prior to the acquisition of Xalles. The proceeds received were pursuant to the agreement as described in Note 3.