I
TEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Centaurus
Diamond Technologies, Inc. was incorporated in the State of Nevada
on July 24, 2007 and has a fiscal year end of March
31. We are a development stage Company.
Implementing our planned business operation is dependent on our
ability to raise approximately $3,000,000.
Going Concern
To date
the Company has little operations and no revenues, and consequently
has incurred recurring losses from operations. No
revenues are anticipated until we complete the implement our
initial business plan, as described in this Form
10-Q. The ability of the Company to continue as a going
concern is dependent on raising capital to fund our business plan
and ultimately to attain profitable
operations. Accordingly, these factors raise substantial
doubt as to the Company’s ability to continue as a going
concern.
Our
activities have been financed primarily from the proceeds of share
subscriptions.
The
Company plans to raise additional funds through debt or equity
offerings. There is no guarantee that the Company will
be able to raise any capital through this or any other offerings.
PLAN OF OPERATION
To date
we have not generated any revenue. The operations of Innovative
have historically been funded by its founder and sole shareholder,
Alvin A. Snaper, through advances from Mr. Snaper. From
time to time, Mr. Snaper has advanced funds to Innovative for
working capital purposes.
Our
current cash requirements are moderate and will be used for
development, and we anticipate generating losses. In
order to execute on our business strategy, we will require
additional working capital, commensurate with the operational needs
of our planned marketing, development and production
efforts. We believe that our cash on hand and working
capital will be sufficient to meet our anticipated cash
requirements for the next eight (8) months and we have no short
term plans to raise additional funds. We are currently
focused on developing a prototype process for our
technology. As we proceed to commercialize our product,
we may seek additional debt or equity financing to assist with
manufacturing and distribution. There is no guarantee we will be
successful in raising capital or obtaining loans in the future, or
upon terms that are favorable or satisfactory to us, and any
failure could have a material adverse effect on our business
objectives and operations.
Since
inception, Innovative has had on-going operations, including
creating a strategic plan, identifying significant employees and
management, drafting and filing a patent, negotiating terms with
manufacturers and designers and developing a marketing
plan.
Our
current and future operations are and will be focused on
researching and developing our technology for the manufacture of
industrial grade cultured diamonds that are chemically, optically
and physically the same as their natural counterparts, the
integration of the intellectual property we have acquired through
the Acquisition, and the continued evaluation of potential
strategic acquisitions and/or partnerships.
Our
first year after Closing will be dedicated to research and
development, with the goal being the creation of a commercially
viable production process derived from our proprietary
technology.
We
intend to lease the equipment and space necessary for us to conduct
the next stage of research and development into our
technologies. We have begun negotiations with the owners
of the required equipment and facilities but do not, at present,
have any such lease agreements in place. We anticipate
that the cost of leasing the equipment and space necessary for our
research and development efforts to cost approximately $130,000
over the next twelve months.
Provided
our research and development activities are successful, we will
thereafter seek to develop the equipment, protocols and systems for
ongoing batch production of industrial cultured diamonds on a
volume basis. Upon completion of the development phase, we
anticipate we will need to relocate because we believe we will need
approximately 10,000 square feet to house our employees and
production machines.
RESULTS OF OPERATIONS
For the three months ended June 30, 2019 and 2018.
We have
generated no revenues since inception.
For the
three months ended June 30, 2019, we incurred $51,235 in operating
expenses, comprised of $7,500 of rent - related parties and $43,735
in general and administrative expenses. For the three
months ended June 30, 2018, we incurred $40,361 in operating
expenses, comprised of $13,781 of rent and $26,580 in general and
administrative expenses.
The
following table provides selected financial data about our company
as of June 30, 2019 and March 31, 2019.
|
|
|
|
|
Cash and Cash
Equivalents
|
$
-
|
$
-
|
|
Total
Assets
|
$
100,425
|
$
100,425
|
|
Total
Liabilities
|
$
611,945
|
$
560,710
|
|
Shareholders’
Deficit
|
$
(511,520
)
|
$
(460,285
)
|
GOING CONCERN
Although
we have recognized some nominal amount of revenues since inception,
we are still devoting substantially all of our efforts on
establishing the business and, therefore, still qualifies as a
development stage company. From inception to June 30, 2019, the
Company had accumulated losses of $3,627,638. Our independent
public accounting firm included an explanatory paragraph in their
report on the accompanying financial statements regarding concerns
about our ability to continue as a going concern. Our financial
statements contain additional note disclosures describing the
circumstances that lead to this disclosure by our independent
public accounting firm. Our financial statements do not
include any adjustments related to the recoverability or
classification of asset-carrying amounts or the amounts and
classifications of liabilities that may result should the Company
be unable to continue as a going concern.
LIQUIDITY AND CAPITAL RESOURCES
At June
30, 2019, we had a cash balance of $0. Our expenditures over the
next 12 months are expected to be approximately
$250,000.
We must
raise approximately $250,000, to complete our plan of operation for
the next 12 months. Additionally, we anticipate spending an
additional $250,000 on general and administration expenses and
complying with reporting obligations, and general administrative
costs. Additional funding will likely come from equity
financing from the sale of our common stock, if we are able to sell
such stock. If we are successful in completing an equity financing,
existing stockholders will experience dilution of their interest in
our Company. We do not have any financing arranged and we cannot
provide investors with any assurance that we will be able to raise
sufficient funding from the sale of our common stock to fund our
plan of operation. In the absence of such financing, our business
will fail.
There
are no assurances that we will be able to achieve further sales of
our common stock or any other form of additional financing. If we
are unable to achieve the financing necessary to continue our plan
of operations, then we will not be able to continue our business
and our business will fail.
OFF BALANCE SHEET ARRANGEMENTS
We have
no off-balance sheet arrangements including arrangements that would
affect our liquidity, capital resources, market risk support and
credit risk support or other benefits.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The
Company’s 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 the 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 period
presented. Unaudited interim results are not necessarily
indicative of the results for the full fiscal
year. These financial statements should be read in
conjunction with the financial statements of the Company for the
fiscal year ended March 31, 2019 and notes thereto contained in the
information filed as part of the Company’s Form 10-K, which
was filed on August 15, 2019.
The
financial statements include all accounts of the Company as of June
30, 2019 and March 31, 2019 and for the three months ended June 30,
2019 and 2018.
Use of 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 of the financial
statements and the reported amounts of revenues and expenses during
the reporting period.
The
Company’s significant estimates include the fair value of
financial instruments; the carrying value and recoverability of
long-lived assets, including the values assigned to and the
estimated useful lives of property and equipment and patent;
expected term of share options and
similar instruments
, expected volatility of the
entity’s common shares and the method used to estimate it,
expected annual rate of quarterly
dividends, and risk free rate(s)
; income tax rate, income
tax provision and valuation allowance of deferred tax assets; and
the assumption that the Company will continue as a going
concern. Those significant accounting estimates or
assumptions bear the risk of change due to the fact that there are
uncertainties attached to those 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 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 reviews its estimates utilizing currently available
information, changes in facts and circumstances, historical
experience and reasonable assumptions. After such reviews, 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 has adopted 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 of the FASB
Accounting Standards Codification establishes a framework for
measuring fair value in generally accepted accounting principles
(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 of the FASB
Accounting Standards Codification 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 of the FASB Accounting Standards Codification are
described below:
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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.
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, and prepayments and other current
assets, approximate their fair values because of the short maturity
of the instrument.
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.
It is
not, however, practical to determine the fair value of advances
from stockholder, if any, due to their related party
nature.
Carrying Value, Recoverability and Impairment of Long-Lived
Assets
The
Company has adopted paragraph 360-10-35-17 of the FASB Accounting
Standards Codification for its long-lived assets. The
Company’s long-lived assets, which include property and
equipment, and patent, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
The
Company assesses the recoverability of its long-lived assets by
comparing the projected undiscounted net cash flows associated with
the related long-lived asset or group of long-lived assets over
their remaining estimated useful lives against their respective
carrying amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those
assets. Fair value is generally determined using the
asset’s expected future discounted cash flows or market
value, if readily determinable. If long-lived assets are
determined to be recoverable, but the newly determined remaining
estimated useful lives are shorter than originally estimated, the
net book values of the long-lived assets are depreciated over the
newly determined remaining estimated useful lives.
The
Company considers the following to be some examples of important
indicators that may trigger an impairment review:
(i) significant under-performance or losses of assets relative
to expected historical or projected future operating results;
(ii) significant changes in the manner or use of assets or in
the Company’s overall strategy with respect to the manner or
use of the acquired assets or changes in the Company’s
overall business strategy; (iii) significant negative industry
or economic trends; (iv) increased competitive pressures; and
(v) regulatory changes. The Company evaluates
acquired assets for potential impairment indicators at least
annually and more frequently upon the occurrence of such
events.
The
impairment charges, if any, is included in operating expenses in
the accompanying statements of operations.
Fiscal Year End
The
Company elected March 31st as its fiscal year ending
date.
Cash Equivalents
The
Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash
equivalents. The Company did not have cash equivalent as of June
30, 2019.
Property and Equipment
Property
and equipment is recorded at cost. Expenditures for
major additions and betterments are
capitalized. Maintenance and repairs are charged to
operations as incurred. Depreciation of property and
equipment is computed by the straight-line method (after taking
into account their respective estimated residual values) over the
assets estimated useful life of five (5) to seven (7)
years. Upon sale or retirement of property and
equipment, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in the
statements of operations.
Patent
The
Company follows the guidelines as set out in paragraph 350-30-25-3
and paragraph 350-30-35-6 of the FASB Accounting Standards
Codification for patent. For acquired patents the
Company records the costs to acquire patents as patent and
amortizes the patent acquisition cost over its remaining legal
life, or estimated useful life, or the term of the contract,
whichever is shorter. For internal developed patents, all costs
incurred to the point when a patent application is to be filed are
expended as incurred as research and development expense; patent
application costs, generally legal costs, thereafter incurred are
capitalized, which are to be amortized once the patents are granted
or expended if the patent application is rejected. The Company
amortizes the internal developed patents over the shorter of the
expected useful lives or the legal lives of the patents, which are
generally 17 to 20 years for domestic patents and 5 to 20 years for
foreign patents from the date when the patents are granted. The
costs of defending and maintaining patents are expended as
incurred. Upon becoming fully amortized, the related cost and
accumulated amortization are removed from the
accounts.
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.
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 or combined 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 potentially 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.
Revenue Recognition
The
Company applies paragraph 605-10-S99-1 of the FASB Accounting
Standards Codification for revenue recognition. The
Company recognizes revenue when it is realized or realizable and
earned. The Company considers revenue realized or
realizable and earned when all of the following criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) the product
has been shipped or the services have been rendered to the
customer, (iii) the sales price is fixed or determinable, and (iv)
collectability is reasonably assured.
The
Company will derive its revenue from sales contracts with customers
with revenues being generated upon the shipment of products upon
commencing operations. Persuasive evidence of an
arrangement is demonstrated via invoice, product delivery is
evidenced by warehouse shipping log as well as a signed bill of
lading from the trucking company or third party carrier and title
transfers upon shipment, based on free on board (“FOB”)
warehouse; the sales price to the customer is fixed upon acceptance
of the purchase order and there is no separate sales rebate,
discount, or volume incentive.
Equity Instruments Issued to Parties Other Than Employees for
Acquiring Goods or Services
The
Company accounts for equity instruments issued to parties other
than employees for acquiring goods or services under guidance of
Sub-topic 505-50 of the FASB Accounting Standards Codification
(“Sub-topic 505-50”).
Pursuant
to ASC Section 505-50-30, 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 measurable. The
measurement date used to determine the fair value of the equity
instrument issued is the earlier of the date on which the
performance is complete or the date on which it is probable that
performance will occur. If the Company is a newly formed
corporation or shares of the Company are thinly traded the use of
share prices established in the Company’s most recent private
placement memorandum (“PPM”), or weekly or monthly
price observations would generally be more appropriate than the use
of daily price observations as such shares could be artificially
inflated due to a larger spread between the bid and asked quotes
and lack of consistent trading in the market.
The
fair value of share options and similar instruments is estimated on
the date of grant using a Black-Scholes option-pricing valuation
model. The ranges of assumptions for inputs are as
follows:
●
Expected term of
share options and similar instruments: Pursuant to Paragraph
718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification
the expected term of share options and similar instruments
represents the period of time the options and similar instruments
are expected to be outstanding taking into consideration of the
contractual term of the instruments and holder’s expected
exercise behavior into the fair value (or calculated value) of the
instruments. The Company uses historical data to
estimate holder’s expected exercise behavior. If
the Company is a newly formed corporation or shares of the Company
are thinly traded the contractual term of the share options and
similar instruments is used as the expected term of share options
and similar instruments as the Company does not have sufficient
historical exercise data to provide a reasonable basis upon which
to estimate expected term.
●
Expected volatility
of the entity’s shares and the method used to estimate
it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a
thinly-traded or nonpublic entity that uses the calculated value
method shall disclose the reasons why it is not practicable for the
Company to estimate the expected volatility of its share price, the
appropriate industry sector index that it has selected, the reasons
for selecting that particular index, and how it has calculated
historical volatility using that index. The Company uses
the average historical volatility of the comparable companies over
the expected contractual life of the share options or similar
instruments as its expected volatility. If shares of a
company are thinly traded the use of weekly or monthly price
observations would generally be more appropriate than the use of
daily price observations as the volatility calculation using daily
observations for such shares could be artificially inflated due to
a larger spread between the bid and asked quotes and lack of
consistent trading in the market.
●
Expected annual
rate of quarterly dividends. An entity that uses a
method that employs different dividend rates during the contractual
term shall disclose the range of expected dividends used and the
weighted-average expected dividends. The expected
dividend yield is based on the Company’s current dividend
yield as the best estimate of projected dividend yield for periods
within the expected term of the share options and similar
instruments.
●
Risk-free rate(s).
An entity that uses a method that employs different risk-free rates
shall disclose the range of risk-free rates used. The
risk-free interest rate is based on the U.S. Treasury yield curve
in effect at the time of grant for periods within the expected term
of the share options and similar instruments.
Pursuant
to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable
equity instruments are issued at the date the grantor and grantee
enter into an agreement for goods or services (no specific
performance is required by the grantee to retain those equity
instruments), then, because of the elimination of any obligation on
the part of the counterparty to earn the equity instruments, a
measurement date has been reached. A grantor shall recognize the
equity instruments when they are issued (in most cases, when the
agreement is entered into). Whether the corresponding cost is an
immediate expense or a prepaid asset (or whether the debit should
be characterized as contra-equity under the requirements of
paragraph 505-50-45-1) depends on the specific facts and
circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may
conclude that an asset (other than a note or a receivable) has been
received in return for fully vested, non-forfeitable equity
instruments that are issued at the date the grantor and grantee
enter into an agreement for goods or services (and no specific
performance is required by the grantee in order to retain those
equity instruments). Such an asset shall not be displayed as
contra-equity by the grantor of the equity instruments. The
transferability (or lack thereof) of the equity instruments shall
not affect the balance sheet display of the asset. This guidance is
limited to transactions in which equity instruments are transferred
to other than employees in exchange for goods or services. Section
505-50-30 provides guidance on the determination of the measurement
date for transactions that are within the scope of this
Subtopic.
Pursuant
to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant
fully vested, non-forfeitable equity instruments that are
exercisable by the grantee only after a specified period of time if
the terms of the agreement provide for earlier exercisability if
the grantee achieves specified performance conditions. Any measured
cost of the transaction shall be recognized in the same period(s)
and in the same manner as if the entity had paid cash for the goods
or services or used cash rebates as a sales discount instead of
paying with, or using, the equity instruments. A recognized asset,
expense, or sales discount shall not be reversed if a share option
and similar instrument that the counterparty has the right to
exercise expires unexercised.
Pursuant
to ASC paragraph 505-50-30-S99-1, if the Company receives a right
to receive future services in exchange for unvested, forfeitable
equity instruments, those equity instruments are treated as
unissued for accounting purposes until the future services are
received (that is, the instruments are not considered issued until
they vest). Consequently, there would be no recognition at the
measurement date and no entry should be recorded.
Income Tax Provision
The
Company follows paragraph 740-10-30-2 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. 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 Company had no
material adjustments to its liabilities for unrecognized income tax
benefits according to the provisions of paragraph
740-10-25-13.
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
adjustments to its income tax liabilities or benefits pursuant to
the provisions of Section 740-10-25 for the interim period ended
June 30, 2019 and 2018.
Limitation on Utilization of NOLs due to Change in
Control
Pursuant
to the Internal Revenue Code Section 382 (“Section
382”), certain ownership changes may subject the NOL’s
to annual limitations which could reduce or defer the
NOL. Section 382 imposes limitations on a
corporation’s ability to utilize NOLs if it experiences an
“ownership change.” In general terms, an
ownership change may result from transactions increasing the
ownership of certain stockholders in the stock of a corporation by
more than 50 percentage points over a three-year
period. In the event of an ownership change, utilization
of the NOLs would be subject to an annual limitation under Section
382 determined by multiplying the value of its stock at the time of
the ownership change by the applicable long-term tax-exempt rate.
Any unused annual limitation may be carried over to later
years. The imposition of this limitation on its ability
to use the NOLs to offset future taxable income could cause the
Company to pay U.S. federal income taxes earlier than if such
limitation were not in effect and could cause such NOLs to expire
unused, reducing or eliminating the benefit of such
NOLs.
Net Income (Loss) per Common Share
Net
income (loss) per common share is computed pursuant to section
260-10-45 of the FASB Accounting Standards
Codification. Basic net income (loss) per common share
is computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the
period. Diluted net income (loss) per common share is
computed by dividing net income (loss) by the weighted average
number of shares of common stock and potentially outstanding shares
of common stock during the period to reflect the potential dilution
that could occur from common shares issuable through stock options
and warrants.
Cash Flows Reporting
The
Company adopted paragraph 230-10-45-24 of the FASB Accounting
Standards Codification for cash flows reporting, classifies cash
receipts and payments according to whether they stem from
operating, investing, or financing activities and provides
definitions of each category, and uses the indirect or
reconciliation method (“Indirect method”) as defined by
paragraph 230-10-45-25 of the FASB Accounting Standards
Codification to report net cash flow from operating activities by
adjusting net income to reconcile it to net cash flow from
operating activities by removing the effects of (a) all deferrals
of past operating cash receipts and payments and all accruals of
expected future operating cash receipts and payments and (b) all
items that are included in net income that do not affect operating
cash receipts and payments. The Company reports the
reporting currency equivalent of foreign currency cash flows, using
the current exchange rate at the time of the cash flows and the
effect of exchange rate changes on cash held in foreign currencies
is reported as a separate item in the reconciliation of beginning
and ending balances of cash and cash equivalents and separately
provides information about investing and financing activities not
resulting in cash receipts or payments in the period pursuant to
paragraph 830-230-45-1 of the FASB Accounting Standards
Codification .
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.
Recently Adopted Accounting Guidance
Revenue Recognition -
In May 2014, the FASB issued an ASU
which amends the guidance for revenue recognition. This amendment
contains principles that will require an entity to recognize
revenue to depict the transfer of goods and services to customers
at an amount that an entity expects to be entitled to in exchange
for goods or services. The amendment sets forth a new revenue
recognition model that requires identifying the contract,
identifying the performance obligations and recognizing the revenue
upon satisfaction of performance obligations. In August 2015, the
FASB issued an additional ASU that deferred the effective date of
the new revenue standard for public entities to periods beginning
after December 15, 2017, with early adoption permitted but not
earlier than the original effective date of periods beginning after
December 15, 2016. There have also been various additional ASUs
issued by the FASB in 2016 that further amend this new revenue
standard. The updated standard permits the use of either the
retrospective or cumulative effect transition method. The Company
adopted these standards on April 1, 2018 using the modified
retrospective transition method. The Company has generated no
revenue to date.
Cash Flow Classification
-
In
August 2016, the FASB issued an ASU which provides amended guidance
on the classification of certain cash receipts and cash payments in
the statement of cash flows, including related to debt prepayment
or debt extinguishment costs, contingent consideration payments
made after a business combination, proceeds from the settlement of
insurance claims, proceeds from the settlement of corporate-owned
life insurance and distributions received from equity method
investees. This update is effective for fiscal years beginning
after December 15, 2017, including interim periods within
those years, and early adoption is permitted. This amended guidance
must be applied retrospectively to all periods presented but may be
applied prospectively if retrospective application would be
impracticable. The Company adopted this update effective
April 1, 2018 using the retrospective method. The new standard
did not have a material impact on the Condensed Financial
Statements.
Goodwill Impairment
-
In January 2017, the
FASB issued an ASU
which
removes the requirement to compare the implied fair value of
goodwill with its carrying amount as part of step 2 of the goodwill
impairment test. As a result, under the standards update, an entity
should perform its annual, or interim, goodwill impairment test by
comparing the fair value of a reporting unit with its carrying
amount and should recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair
value; however, the loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. The amendments
are effective for annual periods beginning after December 15, 2019.
Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1, 2017.
The Company adopted this update effective April 1, 2018. The
new standard did not have an impact on the Condensed Financial
Statements.
Definition of a Business
-
In January 2017, the
FASB issued an ASU to clarify the definition of a business. The
definition of a business affects many areas of accounting including
acquisitions, disposals, goodwill, and consolidation. The
amendments are intended to help companies and other organizations
evaluate whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The amendments
provide a more robust framework to use in determining when a set of
assets and activities is a business. The amendments are
effective for annual periods beginning after December 15,
2017, including interim periods within those periods.
The Company adopted this update
effective April 1, 2018. The new standard did not have an
impact on the Condensed Financial Statements.
Stock-Based Compensation -
In May 2017, the FASB issued an
ASU to clarify when modification accounting should be applied for
changes to the terms or conditions of share-based payment awards.
The amendments clarify that modification accounting guidance should
only be applied if there is a change to the value, vesting
conditions, or award classification and would not be required if
the changes are considered non-substantive. The amendments are
effective for annual periods beginning after December 15, 2017,
including interim periods within those periods.
The Company adopted this update effective
April 1, 2018. The new standard did not have an impact on the
Condensed Financial Statements.
Recent Accounting Guidance Not Yet Adopted
Leases
-
In February 2016, the FASB issued an ASU which
amends the guidance for leases. This standard contains principles
that will require an entity to recognize most leases on the balance
sheet by recording a right-of-use asset and a lease liability,
unless the lease is a short-term lease that has an accounting lease
term of twelve months or less. The standard also contains other
changes to the current lease guidance that may result in changes to
how entities determine which contractual arrangements qualify as a
lease, the accounting for executory costs, such as property taxes
and insurance, as well as which lease origination costs will be
capitalizable. This standard is effective for fiscal years
beginning after December 15, 2018, including interim periods
within those years. Early adoption of this standard is permitted.
The standard allows the use of the modified retrospective
transition method, whereby the new guidance will be applied at the
beginning of the earliest period presented in the financial
statements of the period of adoption. The modified retrospective
transition approach includes certain practical expedients that
entities may elect to apply in transition. In July 2018, the FASB
amended ASC 842 to provide another transition method, allowing a
cumulative effect adjustment to the opening balance of retained
earnings during the period of adoption. The Company has implemented
a new software solution to improve the process of tracking and
accounting for leases under the current and new standards. The
Company will adopt this standard effective April 1, 2019 using the
modified retrospective transition method which does not require
adjustments to comparative periods or require modified disclosures
for those periods. The Company expects to elect the transition
relief practical expedients. The Company is continuing to evaluate
the impact on its Condensed Financial Statements. The Company
currently does not expect the adoption of ASC 842 to have a
material impact on the Statement of Operations or Statement of Cash
Flows. The recording of right-of-use assets and lease liabilities
is expected to have a material impact on the Company’s
Condensed Balance Sheet.
Fair Value Measurement
– In August 2018, the FASB
issued an ASU that is intended to improve the effectiveness of
disclosures in notes to financial statements. The standard removes,
modifies and adds certain disclosure requirements related to fair
value measurements. This standard is effective for fiscal years
beginning after December 15, 2019. The standard requires the use of
the retrospective transition method for specific amendments within
the ASU and the prospective treatment of other amendments. Early
adoption is permitted.
The Company
will early adopt this ASU, effective for the Company’s
Annual Report on Form 10-K for the year ending March 31,
2019
. The Company is currently
evaluating the impact of this standard on the Condensed Financial
Statements.
With
the exception of the pronouncements described above, there have
been no new accounting pronouncements issued or adopted since the
filing of the Fiscal 2018 Form 10-K that have significance, or
potential significance, to the Condensed Financial
Statements.