Notes
to the Consolidated Financial Statements
Note
1 - Organization and Operations
Sweets
& Treats, Inc. (the “Predecessor”)
Sweets
& Treats, Inc. (the “Predecessor”), a bakery out of Sylmar, California was incorporated on April 13, 2011 under
the laws of the State of California. The Predecessor is a bakery shop specializing in freshly-made cakes, cupcakes, desserts and
special events catering and was traded as a public company under the ticker symbol “SWTS” on the OTCQB markets.
Atlas
Technology International, Inc. (the “Company”)
Atlas
Technology International, Inc. (the “Company”), was incorporated on July 7, 2014 under the laws of the State
of Delaware. Upon formation, the Company issued 10,000,000 shares of its common stock to Ms. Aguayo (the “Founder”)
of the Company as Founder’s shares valued at par value of $0.00001 and recorded as compensation of $100.
On
July 18, 2014, the Company acquired the Predecessor through the issuance of 5,000,000 shares of the Company’s common stock
to the Founder of the Predecessor for all of the Predecessor’s issued and outstanding capital stock. No value was given
to the common stock issued by the newly formed corporation. Therefore, the shares were recorded to reflect the $0.00001 par value
and paid in capital was recorded as a negative amount of ($50). The acquisition process utilizes the capital structure of the
Company and the assets and liabilities of Predecessor, which were recorded at historical cost.
The
Company applied paragraph 505-10-S99-3 of the FASB Accounting Standards Codification (formerly Topic 4B of the Staff Accounting
Bulletins (“SAB”) (“SAB Topic 4B”) issued by the United States Securities and Exchange Commission (the
“SEC”), by reclassifying the Predecessor’s undistributed retained earnings of $942 at July 17, 2014 to additional
paid-in capital.
On
March 11, 2016, the Company entered into certain Spin-Off Agreement with the Founder, pursuant to which Tiffany Aguayo (“the
Shareholder”) agreed to cancel 14,000,000 pre-split shares of Company's common stock in exchange for the consummation
and execution of the Spin Off agreement and sale of the Predecessor to the Founder. The Spin-Off agreement was not consummated
and was replaced by a divestment agreement executed on December 15, 2016. Ms. Aguayo still agreed to cancellation of her shares.
On
July 5, 2016, the Founder entered into two separate Stock Purchase Agreements for the sale of 13,000,000 and 3,000,000 shares
of the Company’s common stock equivalent to her complete ownership of the Company with Ying-Chien Lin and Lynx Consulting
Group Ltd (“LCG”), respectively. Pursuant to the execution of the Stock Purchase Agreements, Mr. Lin and LCG owned
approximately 62.5% and 14.4% of the total voting rights of the Company, respectively.
On
July 19, 2016, the Company filed with the Secretary of State of Delaware, amending its Articles of Incorporation by changing the
name of the Company to “Atlas Technology International, Inc.”
On
August 23, 2016, the Company filed with the Secretary of State of Delaware an Amended and Restated Certificate of
Incorporation in which the Company confirmed its name change to Atlas Technology International, Inc. The Company started its
business in touchscreen industry and became a high-tech touchscreen company based out of Sherman Oaks, California, and set
forth therein the designations for the Series A, B and C Preferred Stock. The Company is a rapidly growing provider of
touchscreen technologies to a vertically and geographically diversified blue-chip client base.
Atlas
Tech Trading Limited (“Atlas Trading”)
Atlas
Tech Trading Limited (“Atlas Trading”), a wholly-owned subsidiary of the Company, was incorporated on August 18, 2016
under the laws of Hong Kong for the purpose of facilitating the Company’s business growth strategy across Eastern Asia.
Atlas Trading uses the Company’s proprietary touchscreen technologies to design touchscreen solutions for its growing global
client base. The Company’s primary business activities are to design touchscreens, source manufacturers for the production
of the designed touchscreens, inspects and ensures the quality of the products made by the manufacturers, purchases the qualified
finished-goods and then sells and delivers the touchscreens to their corporate clients.
Atlas
Technology Shenzhen Trading Co., Ltd. (“Atlas China”)
Atlas
Technology Shenzhen Trading Co., Ltd. (“Atlas China”), a wholly-owned subsidiary of Atlas Trading, was incorporated
on March 23, 2017 under the laws of China for the purposes of facilitating the Company’s expansion into China’s untapped
market, decreasing the Company’s dependency on existing exporters/distributors and improving margins.
Atlas
Tech Limited. (“Atlas Cayman Islands”)
Atlas
Tech Limited. (“Atlas Cayman Island”), a wholly-owned subsidiary of Atlas Trading, was incorporated on July 7, 2017
under the laws of the Cayman Islands for the purposes of tax planning and optimizing business capacity in terms of deal follows.
Fiscal
Year
On
July 7, 2016, the Company changed its fiscal year end from July 31 to June 30. As a result of this change, we reported our
fiscal 2016 as the 11-month transition period from August 1, 2015 to June 30, 2016. Accordingly, our consolidated balance
sheets are presented as of June 30, 2017 and 2016. The accompanying consolidated financial statements, and the notes thereto,
include our results of operations and cash flows for the fiscal year ended June 30, 2017 and the 11-month transition period of
fiscal 2016.
Disposal
of Predecessor
On
December 15, 2016, the Company entered into a Divestment Agreement with the Founder, who was then the Company’s Chief Executive
Officer, pursuant to which the Founder agreed to cancel all amounts due to her by the Predecessor in exchange for the acquisition
and purchase of all of the Predecessor’s business. The transaction was closed on December 15, 2016. The Company determined
that disposal of the Predecessor did not constitute a discontinued operation as it did not represent a strategic shift of the
Company’s business.
Note
2 - Significant and Critical Accounting Policies and Practices
The
Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness
of accounting policies and their application. Critical accounting policies and practices are those that are both most important
to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective,
or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted
accounting principles.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial statements. The financial statements and notes are representations of the Company’s
management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted
accounting principles in the United States ("US GAAP") and have been consistently applied in the preparation of the
consolidated financial statements.
Use
of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The
preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company believes
the estimates and assumptions utilized are reasonable; however actual results could differ from those estimates.
Stock-based
Compensation
We
account for the grant of stock options, warrants and restricted stock awards in accordance with ASC 718, "Compensation-Stock
Compensation". ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock
options and other equity based compensation. Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties,
compensation expense is determined at the "measurement date". The expense is recognized over the vesting period of the
award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records
compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties
are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting
date.
Research
and development
Research
and development costs are charged to expense as incurred. Research and development costs for the year ended June 30, 2017 and
the eleven months ended June 30, 2016 were $473,931 and $0, respectively.
Accounts
Receivable
Accounts
receivable are customer obligations due under normal trade terms. In the ordinary course of business, the Company extends unsecured
credit to its customers based on their credit-worthiness and history with the Company. The Company performs continuing credit
evaluations of its customers’ financial condition and generally does not require collateral.
The
Company carries its accounts receivable at cost and uses the allowance method to estimate uncollectible accounts receivable when
necessary. Management reviews accounts receivable on a regular basis to determine if any receivables will be uncollectible.
Principles
of Consolidation
The
Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification ("ASC")
to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all
entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest
with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely
to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee.
Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting
interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent
of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also
exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.
The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.
The
Company consolidates the following subsidiaries as of June 30, 2017:
Name
of consolidated subsidiary
|
|
State
or other jurisdiction of incorporation or organization
|
|
formation
(date of acquisition if applicable)
|
|
Attributable
interest
|
Atlas
Tech Trading Limited
|
|
Hong
Kong
|
|
August
18, 2016
|
|
|
100
|
%
|
Atlas
Technology Shenzhen Trading Co., Ltd.
|
|
Shenzhen,
China
|
|
March
23, 2017
|
|
|
100
|
%
|
The
consolidated financial statements include all accounts of the Company and its subsidiaries as of reporting period dates and for
the reporting periods then ended. All inter-company balances and transactions have been eliminated.
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
generally accepted accounting principles (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.
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 amounts of our financial assets and liabilities, such as cash and cash equivalents, accounts receivable, prepaid
expenses and other current assets, accounts payable, accrued expenses and other payables, income tax payable, short term
loans, and convertible debt, approximate their fair values because of the short maturity of
these 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
Cash
and cash equivalents include cash on hand and cash in time deposits, and all highly liquid instruments with original maturities
of three months or less.
Concentration
of Credit Risk
Financial
instruments which potentially subject the Company to concentrations of credit risk include cash, cash equivalents and accounts
receivable. The Company places all cash and cash equivalents with high-credit quality financial institutions.
The
Company performs ongoing credit valuations of its customers’ financial condition whenever deemed necessary and generally
does not require deposits or collateral to support customer receivables. The company have not recognized any issues on uncollectible
accounts and generated much of its revenue from a limited number of customers.
Lease
Commitments
The
Company has adopted FASB ASC 840. If the lease terms meet one or all of the following four criteria, it will be classified as
a capital lease, otherwise, it is an operating lease: (1) The lease transfers the title to the lessee at the end of the term;
(2) the lease contains a bargain purchase option; (3) the lease term is equal to 75% of the estimated economic life of the leased
property or more; (4) the present value of the minimum lease payment in the term equals or exceeds 90% of the fair value of the
leased property.
Payments
made under operating leases are charged to the consolidated statements of operations and comprehensive income (loss) on a straight-line
basis over the lease period.
Related
Parties
A related party is generally defined as (i)
any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s
management, (iii) someone that directly indirectly controls, is controlled by or is under common control with the Company, or
(iv) anyone who can significantly influence the financial and operating decision of the Company. A transaction is
considered to be a related party transaction where there is a transfer of resources or obligations between related parties.
Revenue
Recognition
The
Company follows 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’s business is mainly operated through Atlas Trading, and operates on a FOB destination model, where
sale is recognized once the products have been delivered to the customer.
The
Company also follows Section 606-10-55 of the FASB Accounting Standards Codification relating to revenue from contracts with customers
for revenue recognition. The Company recognizes gross revenue when the Company: (i) is the primary obligor, (ii) have general
inventory risk, (iii) has discretion in establishing the price for the specified products, (iv) changes the product or performs
part of the service, (iv) has discretion in supplier selection, (v) is involved in the determination of product specifications,
(vi) bears physical loss inventory risk, and (vii) has credit risk. The number of the above criteria met and to which extent shall
determine whether the Company considers the revenue to be reported as gross or net.
Foreign
Currency and Other Comprehensive Loss
The
accompanying consolidated financial statements are presented in United States dollars (“US$”), which is the reporting
currency of the Company. The functional currency of the Company and Atlas Trading are United States dollars. Foreign currency
transactions are those that required settlement in a currency other than United States dollars. Gain or loss from foreign currency
transactions, are recognized in income in the period they occur. For the year ended June 30, 2017, the Company had gain of $4,828
resulted from foreign currency transactions, which was included in other income.
The
functional currency of Atlas China is Renminbi (“RMB”). The financial statements of Atlas China are translated to
United States dollars in accordance with FASB Accounting Standards Codification (ASC) No. 830, “Foreign Currency Matters”,
using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs,
and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency
financial statements into United States dollars are included in determining other comprehensive loss.
Translation
of amounts from the functional currency of Atlas China into US$1 has been made at the following exchange rates:
|
|
|
|
|
Average
Exchange
Rate
|
As
of
June
30, 2017
|
Atlas
China
|
Currency
RMB
|
US$1
exchange rate
|
|
|
6.8626
|
6.7769
|
Income
taxes
Income
taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under
this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that is more likely than not
to be realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
Earnings
per Share
Earnings
per share ("EPS") 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.
Under
the provisions of ASC 260, “Earnings Per Share,” 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 and the dividends accumulated for the period on cumulative preferred stock from income from continuing operations.
Diluted
earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income
of the company, subject to anti-dilution limitations.
Recently
Issued Accounting Pronouncements
In
August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU")
No. 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”. The
main objective of this update is to reduce the diversity in practice in how certain cash receipts and cash payments are presented
and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This update addresses
eight specific cash flow issues with the objective of reducing the existing diversity in practice. The eight cash flow updates
relate to the following issues: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments
or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the
borrowing; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of insurance
claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;
6) distributions received from equity method investees; 7) beneficial interest in securitization transactions; and 8) separately
identifiable cash flows and application of the predominance principle. The amendments in this update are effective for public
business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption
of ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial statements.
In
November, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. It is intended to reduce
diversity in the presentation of restricted cash and restricted cash equivalents in the statement. The statement requires that
restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the
statement of cash flows. This pronouncement goes into effect for periods beginning after December 15, 2017. The adoption of ASU
2016-18 is not expected to have a material impact on the Company’s consolidated financial statements.
In
December, 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts
with Customers”. The amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09 including Loan
Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining
Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable,
Refund Liability, Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors
to Private Funds and Public Funds. The effective date of these amendments is at the same date that Topic 606 is effective. Topic
606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting
periods therein. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial
statements.
In
January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments - Equity
Method and Joint Ventures (Topic 323)”. This pronouncement amends the SEC’s reporting requirements for public filers
in regard to new accounting pronouncements or existing pronouncements that have not yet been adopted. Companies are to provide
qualitative disclosures if they have not yet implemented an accounting standards update. Companies should disclose if they are
unable to estimate the impact of a specific pronouncement, and provide disclosures including a description of the effect on accounting
policies that the registrant expects to apply. These provisions apply to all pronouncements that have not yet been implemented
by registrants. There are additional provisions that relate to corrections to several other prior FASB pronouncements. The Company
has incorporated language into other recently issued accounting pronouncement notes, where relevant for the corrections in FASB
ASU 2017-03. The Company is implementing the updated SEC requirements on not yet adopted accounting pronouncements with these
consolidated financial statements.
Note
3 – Going Concern
The
Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which
contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
We
first generated revenues in the year ended June 30, 2017, and as reflected in the consolidated financial statements, our operating
activities have resulted a net cash outflow of $191,217 for the year ended June 30, 2017. These factors raise substantial doubt
from our auditor about our ability to continue as a going concern.
The
Company is attempting to generate sufficient revenue; however, its cash position may not be sufficient to support its daily operations.
While the Company believes in the viability of its strategy to generate sufficient revenues 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, generate sufficient revenue and in its ability to raise additional
funds.
The
consolidated 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 should the Company be unable to continue
as a going concern.
Note
4 – Accounts Receivable
|
|
As
of
|
|
|
June
30,
2017
|
|
June
30,
2016
|
Trade
receivable
|
|
$
|
2,516,755
|
|
|
$
|
25
|
|
Allowance
for doubtful accounts
|
|
|
—
|
|
|
|
—
|
|
Accounts
receivable
|
|
$
|
2,516,755
|
|
|
$
|
25
|
|
The
Company analyzed the collectability of accounts receivable based on historical collection and the customers’ intention of
payment, as a result of such analysis, the Company recognized $0 allowance for doubtful accounts for the year ended June 30, 2017
and the eleven months ended June 30, 2016.
Note
5 – Earnings (Loss) Per Share
The
following table presents the computation of basic and diluted earnings (loss) per share for the year ended June 30, 2017 and the
eleven months ended June 30, 2016:
|
For
the Year Ended
June 30, 2017
|
|
For
the Eleven Months Ended
June 30,
2016
|
Numerator:
|
|
|
|
|
|
|
|
Numerator
for basic EPS - net income (loss) allocable to common stockholders
|
$
|
263,162
|
|
|
$
|
(26,404
|
)
|
Effect of dilutive
security:
|
|
|
|
|
|
|
|
Interest expense
of convertible debt
|
|
42,237
|
|
|
|
—
|
|
Numerator for diluted
EPS - net income (loss) allocable to stockholders
|
$
|
305,399
|
|
|
$
|
(26,404
|
)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator for
basic EPS – weighted-average shares
|
|
53,019,596
|
|
|
|
169,912,239
|
|
Effect of dilutive
security:
|
|
|
|
|
|
|
|
Convertible debt
|
|
19,726,027
|
|
|
|
—
|
|
Denominator for
diluted EPS – adjusted weighted-average shares and assumed conversions
|
|
72,745,623
|
|
|
|
169,912,239
|
|
|
|
|
|
|
|
|
|
Earnings (loss)
per share – basic:
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
Earnings (loss)
per share – diluted:
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
Diluted
earnings (loss) per share is computed using the weighted average number of common shares and dilutive potential common shares
outstanding during the respective periods.
Note
6 – Income Taxes
For
the year ended June 30, 2017, The Company conducts businesses in Hong Kong through Atlas Trading, and is subject to tax under
the jurisdiction of Hong Kong. As a result of its business activities, the Company files tax returns that are subject to examination
by the local tax authority. The statutory tax rate for corporate income tax in Hong Kong is 16.5%
For
the year ended June 30, 2017 and the eleven months ended June 30, 2016, the Company has recognized $135,073 and $0 income tax
expenses, respectively. The effective tax rate for the respective periods then ended is 52% and 0%.
Atlas
Technology, which acts as a holding company on a non-consolidated basis, does not plan to engage any business activities and current
or future loss will be fully allowed.
Atlas
China was not engaged in any business activities for the year ended June 30, 2017, and current loss was fully allowed.
Note
7 – Stockholders' Equity (Deficit)
Common
Stock
On
June 24, 2016, the Company entered into a consulting agreement with Bright Light Marketing for various public relations and business
development services in exchange for 100,000 shares of its common stock valued at $25,000. The total value of shares issued will
be recognized over a period of one year. As of June 30, 2017, $24,586 stock based compensation expense had been recognized.
On
July 10, 2016, the Company issued 15,000,000 shares of its common stock to Mr. Ying-Chien Lin for his services as the Company’s
Chairman of the Board valued at $150,000. The total value of the shares issued will be recognized over a period of five years.
As of June 30, 2017, $29,244 stock based compensation expense had been recognized.
On
July 10, 2016, the Company issued 10,000,000 shares of its common stock to Mr. Ming-Shu Tsai
for his services as the
Company’s Chief Executive Officer and as a Board Member valued at $100,000. The total value of the shares issued will
be recognized over a period of five years. As of June 30, 2017, $19,442 stock based compensation expense has been
recognized.
On
July 14, 2016, the Company entered into a consulting agreement with Chronos Investments Ltd. for various services including, but
not limited to, strategic mergers and decisions related to the Company’s corporate performance, strategies related to macro
and micro economical forces, development of new revenue channels, and the overall creation of shareholder value. Under the terms
of this agreement, the Company issued 2,500,000 shares of its common stock in exchange for services valued at $25,000, which was
recognized as stock based compensation upon its issuance.
On
July 14, 2016, the Company entered into a consulting agreement with Cygnus Management Ltd. for various services including, but
not limited to, the pursuit of strategic mergers and acquisitions and/or partnerships, and improvement of financial efficiencies.
Under the terms of this agreement, the Company issued 2,500,000 shares of its common stock in exchange for services valued at
$25,000, which was recognized as stock based compensation upon its issuance.
On
July 15, 2016, the Company entered into a consulting agreement with Silverciti Group Ltd. for various asset management services.
Under the terms of this agreement, the Company issued 2,500,000 shares of its common stock in exchange for services valued at
$25,000, which was recognized as stock based compensation upon its issuance.
On
November 28, 2016, the Company entered into consulting agreements with two individual consultants for a new strategic marketing
development. On December 29, 2016, the Company issued 1,016,000 shares of its common stock in exchange for services valued at
$10,160 in strategic marketing development. On, March 17, 2017, the Company further issued 92,084 shares of its common stock in
exchange for services valued at $22,099 in strategic marketing development. The aggregate amount of $32,259 shares issued was
recognized as stock based compensation upon its issuance.
On
December 28, 2016, the Company entered into a consulting agreement with an individual consultant for analytic services in exchange
for 37,000 shares of its common stock valued at $370, which was recognized as stock based compensation upon its issuance on January
12, 2017.
On
January 3, 2017, the Company entered into a consulting agreement with an individual consultant for financial analysis services
in exchange for 100,000 shares of its common stock valued at $1,000 in financial analysis, which was recognized as stock based
compensation upon its issuance on January 13, 2017.
Note
8 – Related Party Transactions
Related
Parties
Related
parties with whom the Company had transactions are:
Related
Parties
|
Relationship
|
Related
Party Transactions
|
Business
Purpose of Transactions
|
Tiffany
Aguayo
|
Founder,
Former President and Former CEO
|
Advances
to the Company Divestiture of Predecessor
|
Working
capital funding
Disposal
of the Predecessor
|
Matthew
Tsai
|
Chief
Executive Officer, Board Member, and significant shareholder
|
Advances
to the Company
|
Working
capital funding
|
Jin-Xia
Wu
|
Family
member of Matthew Tsai
|
Office
space at approximately $1,300 per month
|
Providing
Office space in Taiwan
|
Sale
of Shares and Change of Ownership
On
July 5, 2016, Ms. Aguayo entered into two separate Stock Purchase Agreements for the sale of 13,000,000 and 3,000,000 shares
of the Company’s common stock equivalent to her complete ownership of the Company with Ying-Chien Lin and LCG, respectively.
Pursuant to the execution of the Stock Purchase Agreements, Mr. Lin and LCG owned approximately 62.5% and 14.4% of the total voting
rights of the Company, respectively.
On
December 15, 2016, the Company entered into a Divestment Agreement with Ms. Aguayo, pursuant to which Ms. Aguayo agreed to cancel
all amounts due to her by the Company in exchange for the acquisition and purchase of all of the Predecessor’s business.
The transaction was closed on December 15, 2016. The Company recorded a gain on disposal of subsidiary of $12,315, and a capital
contribution of $3,030, for the year ended June 30, 2017. Such divestment and disposal of the Predecessor does not constitute
a discontinued operation as it does not represent a strategic shift of the Company’s business.
During
the year and the eleven months ended June 30, 2017 and 2016, Ms. Aguayo advanced to the Company $305 and $44,739 to the Company,
and the Company repaid $0 and $91, respectively. The advances was non-interest bearing and due on demand. As of June 30, 2017
and 2016, the balance of debt payable to Ms. Aguayo was $0 and $54,800, respectively.
Advances
from Related-Parties
From
time to time, certain officers of the Company advances funds to the Company for working capital purpose.
Matthew
Tsai, Chief Executive Officer and significant shareholder, advanced the Company a total of $243,591 and paid $192,083
on behalf of the Company for the year ended June 30, 2017. The amounts are non-interest bearing and due on demand. $35,897
of the advance was repaid during the same period. As of June 30, 2017, the balance of loans from related parties and due to
related party was $397,143 and $1,594, respectively. Matthew Tsai did not made any advance to the Company for the eleven
months ended June 30, 2016.
Office
Space
One
of the Company’s offices is located at 1/F No. 103 Xin Yi Road, Lu Zhou District, Xin Bei, Taiwan. The office is rented
from Jin-Xia Wu, a family member of Ming-Shu Tsai, for a monthly rent of HKD10,000 (approximately $1,300). The space of the office
is 90 square meters, and the purpose of this office is to continue to focus on the Company’s research and development efforts.
The Company was provided office space by Ms. Aguayo free of charge for the eleven months ended June 30, 2016.
Note
9 – Concentration
During
the year ended June 30, 2017, the Company purchased its inventories solely from a long-standing relationship with a preferred
vendor.
During
the year ended June 30, 2017, the Company diversified its customer base while simultaneously growing its total revenues. Sales
were made to two significant distributors in Hong Kong that accounts for 66.81% and 28.42% individually and an aggregate of 95.23%
of the total sales of the Company.
The
Company continually evaluates the credit worthiness of its vendor and customers’ financial condition and has policies to
minimize any potential risk.
Note
10 – Commitments
The
Company leases facilities with expiration dates between October 2017 and January 2020. Rental expense for the year ended June
30, 2017 and the eleven months ended June 30, 2016 was $35,757 and $0, respectively. The Company has future minimum lease obligations
as of June 30, 2017 as follows:
2018
|
|
|
$
|
64,609
|
|
2019
|
|
|
|
63,385
|
|
2020
|
|
|
|
25,282
|
|
2021
|
|
|
|
—
|
|
2022
|
|
|
|
—
|
|
Thereafter
|
|
|
|
—
|
|
Total
|
|
|
$
|
153,276
|
|
Note
11 – Debt
Convertible
Debt
On
July 5, 2016, Ms. Aguayo entered into a Debt Assignment Agreement and sold $40,000 debt that was non-interest bearing and
due on demand to Growth Point Advisors Ltd. Pursuant to this Agreement, the Company entered into a Convertible Promissory
Note (the “Note”) with Growth Point Advisors Ltd. to replace the Debt Assignment Agreement. The Note bears an
interest rate of 8% per annum, becomes due on July 4, 2017, and has a conversion feature allowing conversion by giving five
days’ notice to the Company to convert the debt into the Company’s common shares at a rate of $0.002 per share.
The assignment qualified for a debt extinguishment under ASC 470-50, no gain or loss was recorded due to this extinguishment
based on the term of debt. As part of the modification, a Beneficial Conversion Feature value of $40,000 was calculated and
included in additional paid-in capital. As of June 30, 2017 and 2016, the carrying amount of the Note was $39,667 and $0, net
of $333 and $0 unamortized discount, respectively. Interest expense incurred on the principal amount was $3,156 and $0 for
the year ended June 30, 2017 and the eleven months ended June 30, 2016, respectively. The potential conversion effect is
included in the diluted EPS calculation for the year ended June 30, 2017. The Company is in the process of negotiating to
extend the maturity of this debt. The two parties have not reached to a consent as of the date of this filing.
Short
Term Loans
For
the year ended June 30, 2017, The Company entered into short-term loan agreements with seven creditors for total amount of $135,756,
of which the proceeds were all paid directly to vendors. The loans bear interest rate of 6% APR compounded monthly. A summary
of balance of loans as of June 30, 2017, is presented below:
Creditors
|
Due
Dates
|
Balance
|
Arc
Capital Ltd.
|
From
November 1, 2017 to June 30, 2018
|
$
|
81,023
|
Growth
Point Advisors Ltd.
|
November
1, 2017
|
|
6,530
|
Chronos
Investments Limited
|
November
1, 2017
|
|
575
|
Cygnus
Management Limited
|
From
April 30, 2018 to May 31, 2018
|
|
11,950
|
Lynx
Consulting Group Ltd.
|
From
January 31, 2018 to February 28, 2018
|
|
35,000
|
|
|
$
|
135,078
|
F
or
the year ended June 30, 2017 and the eleven months ended June 30, 2016
,
the
Company repaid $678 and $0, and recognized interest expense incurred from these loans for the amount of $6,211 and $0, respectively.
As a result of loan repayments, the Company also recognized a gain on forgiveness of interest of $2, which was included in other
income. As of June 30, 2017 and 2016, interest payable of $6,209 and $0, respectively, was included in accrued expenses and other
payables.
Note
12 – Subsequent Events
On
July 10, 2017, Matthew Tsai, Chief Executive Officer and significant shareholder, advanced Atlas Technology a total of $7,692
for paying for office rent and salaries. The advance was non-interest bearing and due on July 9, 2018.
On
July 7, 2017 , Atlas Tech Limited, a wholly-owned subsidiary of Atlas Technology International, Inc. was incorporated in
the Cayman Islands for the purposes of tax planning and optimizing business capacity in terms of deal follows.
On
July 11, 2017. the Company entered in to a Convertible Promissory Note (the “Note”) with Lynx Consulting Group ("Lynx"),
pursuant to which the Company will receive $40,000 loan proceeds from Lynx. The Note bears an interest rate of 6% per annum, due
on July 11, 2018, and has a conversion feature allowing conversion by giving five days’ notice to the Company to convert
the debt into the Company’s common shares at a price of 50% discount of the lowest closing price during the fifteen (15)
day period ending the latest complete trading day prior to the conversion date.
On
July 21, 2017, the Company issued 924,495 shares pursuant to consulting agreements signed on November 18, 2016, November 28, 2016,
March 3, 2017 and June 10, 2017 with consultants for a strategic marketing development, corporate strategy development, analytic
services, intellectual property and patent consulting, respectively for the service valued at $206,781.
On
July 27, 2017, the Company issued 50,711 shares pursuant to a consulting agreement signed on March 1, 2017 with one consultant
for analytic services for the services valued at $20,165.
On
July 31, 2017, the Company entered into a consulting agreement with one individual consultant for analytic services in exchange
for 500,000 shares of its common stock valued at $120,000, which was recognized as stock based compensation upon its issuance
on August 25, 2017.