(Stated in U.S. Dollars)
Notes to Condensed Financial Statements
1. NATURE
OF OPERATION AND ORGANIZATION HISTORY
National Art Exchange,
Inc. (f/k/a Tianhe Union Holdings Limited) (the “Company”) was incorporated in Nevada on May 9, 2014. The Company currently
does not have any operations.
Change in Company’s name and
reverse stock split
On August 8, 2017,
the Company filed a certificate of amendment to (i) a change of the Company’s name to National Art Exchange, Inc. (the “Name
Change”), (ii) an increase of the number of the Company’s authorized common stock from 75,000,000 to 150,000,000 (the
“Increase of Authorized Stock”), par value $0.001 per share (the “Common Stock”), and (iii) a 100 to 1
reverse stock split of the outstanding Common Stock of the Company (the “Reverse Stock Split”). All references in the
financial statements to share and per share data have been adjusted, including historical data which have been retroactively adjusted,
to give effect to the reverse stock split unless specified otherwise.
Enter into
a share exchange agreement and subsequently terminated
On September 15,
2017, a certain share exchange agreement (the “Agreement”) was entered into by and among the registrant, National Art
Exchange, Inc., a Nevada corporation (the “PubCo” or the “Company”), National Art Exchange LLC, a Delaware
(the “DECo”), and the members of DECo (collectively, “DECo Members”, together with the Pubco and DECo,
the “Parties”), whereby, upon execution of the Agreement, in exchange for the DECo Interests (the “Exchange”),
PubCo issued to the DECo Members an aggregate of 100,000,000 newly issued shares of Common Stock (the “Exchange Shares”).
On October 31,
2017, the parties entered into a Termination Agreement and Release (the “Termination Agreement”). The Termination Agreement
terminates the Agreement and any and all related agreements (collectively, the “Transaction Documents”) and rescinds
the Exchange. Pursuant to the Termination Agreement, all of the shares of Exchange Shares issued by the PubCo are cancelled, and
all of the DECo Interests received by the PubCo pursuant to the Transaction Documents are cancelled and returned to the DECo Members.
The transaction contemplated in the Agreement closed on the same day.
Securities Purchase Agreement
The Company entered
into a Securities Purchase Agreement (the “SPA”) with DECo, a related party of the Company, or its designee(s) (the
“Investor”), dated October 31, 2017. Pursuant to the SPA, Investor purchased 100,000,000 shares of the common stock
of the Company, par value $0.001 per share, for an aggregate price of $320,000 (the “Shares”) in a private sale transaction
(the “Private Sale”). The Private Sale contemplated in the SPA closed on the same day. As of December 31, 2017, the
Company has received the consideration for the purchase of shares.
The Shares issued
in the Private Sale are exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities
Act”), pursuant to Section 4(a)(2) of the Securities Act.
National Art Exchange, Inc.
(f/k/a Tianhe Union Holdings Limited)
Notes to Condensed Financial Statements
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
The
accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America and the rules of the Securities and Exchange Commission.
|
(b)
|
Development Stage Company
|
The Company is a development
stage company as defined by section 915-10-20 of the Financial Accounting Standards Board (the “FASB”) Accounting Standards
Codification. The Company is devoting substantially all of its efforts on establishing its business and its planned principal operations
have not yet commenced. All losses accumulated since inception have been considered to be part of the Company's development
stage activities.
The Company has elected to adopt
the early application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain
Financial Reporting Requirements. Subsequent to adoption, the Company no longer presents or discloses inception-to-date information
and other remaining disclosure requirements of Topic 915.
The
financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since
its inception on May 9, 2014, resulting in an accumulated deficit of $
95,981,375
as of December
31, 2017, and further losses may be incurred during the continued development of its business. Accordingly, there is substantial
doubt regarding the Company’s ability to continue as a going concern.
The
ability to continue as a going concern is dependent upon the Company generating profitable operations, making investments with
positive returns in the future, and/or obtaining the financing necessary to meet its obligations and repay its liabilities arising
from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with
existing cash on hand and loans from directors and/or the private placement of Common Stock.
Management has not made adjustments
to the
financial statements, or used an alternative basis of accounting, such as the liquidation
basis, in preparing these financial statements. Management has not performed assessments individually, or in the aggregate, of
the factors that give rise to the substantial doubt of the Company continuing as a going concern, or how to mitigate those factors.
The preparation of financial
statements in conformity with generally accepted accounting principles requires Company management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date the
financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
|
(e)
|
Cash and Cash Equivalents
|
For purposes of the statement
of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less
to be cash equivalents.
The Company's bank accounts
are deposited in insured institutions. The funds are insured up to $250,000. As of December 31, 2017, the Company's bank deposits
did not exceed the insured amounts.
National Art Exchange, Inc.
(f/k/a Tianhe Union Holdings Limited)
Notes to Condensed Financial Statements
|
(f)
|
Basic and Diluted Income (Loss) Per Share
|
The Company computes loss per
share in accordance with ASC-260, “Earnings per Share”, which requires presentation of both basic and diluted earnings
per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to holders
of our Common Stock by the weighted average number of outstanding shares of Common Stock during the period. Diluted loss per share
gives effect to all dilutive potential shares of Common Stock outstanding during the period. Dilutive loss per share excludes all
potential issuances of shares of Common Stock if their effect is anti-dilutive. Except for the note that is convertible into 150
million shares of the Company’s Common Stock, there were no potentially dilutive debt or equity securities outstanding during
the period from the inception (May 9, 2014) of the Company through December 31, 2017.
The Company has not adopted
any policies regarding payment of dividends. No dividends have been paid during any of the reported periods.
|
(h)
|
Impairment of Long-Lived Assets
|
The Company, when applicable,
continually monitors events and changes in circumstances that could indicate that carrying amounts of long-lived assets may not
be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived
assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows.
If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss
based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or the fair value less costs to sell.
The Company recognizes revenue
when products are fully delivered or services have been provided and collection is reasonably assured. No revenue has been earned
since the inception.
|
(j)
|
Stock-Based Compensation
|
Stock-based compensation is
accounted for at fair value in accordance with ASC 718, when applicable. To date, the Company has not adopted a stock option plan
and has not granted any stock options.
As of December 31, 2017, the
Company has not issued any stock-based payments to its employees.
National Art Exchange, Inc.
(f/k/a Tianhe Union Holdings Limited)
Notes to Condensed Financial Statements
The Company follows the asset
and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized
for the estimated tax consequences attributable to differences between financial statement carrying values and their respective
income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
The Company uses FASB ASC Topic
220, “Reporting Comprehensive Income”. Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized
under current accounting standards as components of comprehensive income are required to be reported in a financial statement that
is presented with the same prominence as other financial statements. For the periods presented, the Company does not have any item
that is required to be presented as a component of comprehensive income. As a result, a statement of comprehensive income is not
required to be presented.
|
(m)
|
Unaudited Interim Financial Information
|
These unaudited interim condensed
financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of
the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote
disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion
of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results
of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the year ending September 30, 2018.
The balance sheets and certain
comparative information as of September 30, 2017 are derived from the audited financial statements and related notes for the year
ended September 30, 2017 (“2017 Annual Financial Statements”), included in the Company’s 2017 Annual Report on
Form 10-K. These unaudited interim condensed financial statements should be read in conjunction with the 2017 Annual Financial
Statements.
|
(n)
|
Recent accounting pronouncements
|
On January 5, 2016, the FASB
issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets
and Financial Liabilities”, which amends U.S. GAAP guidance on the classification and measurement of financial instruments.
Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification
and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities
measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments.
The amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years.
The Company has reviewed all
the recently issued, but not yet effective, accounting pronouncements and it does not believe that the future adoption of any such
pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
National Art Exchange, Inc.
(f/k/a Tianhe Union Holdings Limited)
Notes to Condensed Financial Statements
3. RELATED
PARTY TRANSACTIONS
As of
December 31, 2016, a former director had advanced funds in the total amount of $410,200 to the Company to fund general corporate
activities. The advances were non-interest bearing, due upon demand and unsecured. On December 31, 2016, the former director agreed
to waive his creditor’s right against the company in the full amount of $410,200. Accordingly, the debt owed to the former
director was credited to the Company’s additional paid in capital.
From
January 1, 2017 to September 30, 2017, a current director had advanced funds in the total amount of $10,400 to fund general corporate
activities. The advances were non-interest bearing, due upon demand and unsecured.
From
October 1, 2017 to December 31, 2017, a current director and other related persons had advanced funds in the total amount of $39,068
to fund general corporate activities. During the same period, the Company repaid its related parties in the amount of $10,876.
The advances were non-interest bearing, due upon demand and unsecured.
From
October 1, 2017 to December 31, 2017, the Company prepaid funds to a current director in the total amount of $8,076 to pay certain
expenses on behalf of the Company. These amounts are settled shortly after balance sheet date.
4. COMMON
STOCK
The
Company has authorized 75,000,000 shares of Common Stock, par value of $ 0.001 per share. In August 2014, the Company issued 5,000,000
shares of Common Stock at $0.001 per share for total proceeds of $5,000. On September 5, 2014, the Company issued 2,000,000 shares
of Common Stock at $0.001 per share for total proceeds of $2,000. In February and March 2015, the Company issued 2,530,000 shares
of Common Stock at $0.01 per share for total proceeds of $25,300.
On March
30, 2016, the Company issued 50,000,000 shares of Common Stock in connection with the acquisition as discussed in Note 1 and subsequently
30,277,500 were cancelled.
On August
8, 2017, the Company filed a certificate of amendment to increase the number of the Company’s authorized common stock from
75,000,000 to 150,000,000 with par value of $0.001 per share, and executed a 100 to 1 reverse stock split of the outstanding Common
Stock of the Company. After the reverse split became effective, the Company’s outstanding common stock decreased from 28,807,500
shares to 288,079 shares.
On September
15, 2017, the Company issued to an aggregate of 100,000,000 newly issued shares of Common Stock as a result of a share exchange
agreement. The agreement was subsequently terminated on October 31, 2017. The shares are outstanding as of September 30, 2017 but
are subsequently terminated after balance sheet date.
The
Company entered into a Securities Purchase Agreement (the “SPA”) with DECo, a related party of the Company, or its
designee(s) (the “Investor”), dated October 31, 2017. Pursuant to the SPA, Investor purchased 100,000,000 shares of
the common stock of the Company, par value $0.001 per share, for an aggregate price of $320,000 (the “Shares”) in a
private sale transaction (the “Private Sale”). The Private Sale contemplated in the SPA closed on the same day. As
of December 31, 2017, the Company has received $320,000 for the purchase of shares.
As
of December 31, 2017, the Company had 100,288,709 shares of Common Stock issued and outstanding.
National Art Exchange, Inc.
(f/k/a Tianhe Union Holdings Limited)
Notes to Condensed Financial Statements
5. INCOME TAX
The Company is subject to US
Federal tax laws. The Company has not recognized an income tax benefit for its operating losses based on uncertainties concerning
its ability to generate taxable income in future periods. The tax benefit for the periods presented is offset by a valuation allowance
established against deferred tax assets arising from the net operating losses and other temporary differences, the realization
of which could not be considered more likely than not. Further, the benefit from utilization of NOL carryforwards could be subject
to limitations due to material ownership changes that could occur in the Company as it continues to raise additional capital. Based
on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain. In future periods, tax
benefits and related deferred tax assets will be recognized when management considers realization of such amounts to be more likely
than not.
As of December 31, 2017, and
September 30, 2017, the Company has accumulated net losses of $96,084,490 and $95,981,375, respectively. The deferred tax assets
will begin to expire in 2025. A significant portion of these losses were related to stock issuances. The Company will assess the
deductibility of such losses.
The net losses before income
taxes and its provision for income taxes as follows:
|
|
For the three-month ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net loss before income tax
|
|
$
|
(103,115
|
)
|
|
$
|
(78,492
|
)
|
|
|
|
|
|
|
|
|
|
Tax expenses (benefit) at the statutory tax rate
|
|
|
(35,059
|
)
|
|
|
(26,687
|
)
|
|
|
|
|
|
|
|
|
|
Tax effects of:
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
35,059
|
|
|
|
26,687
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax asset is calculated
based on the statutory average rate of 34%. A 100% valuation was taken as the realization of the NOL is more likely than not.
|
|
As of
|
|
|
|
December 31,
2017
|
|
|
September 30,
2016
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating losses (NOLs ) carryforwards:
|
|
|
32,668,727
|
|
|
|
32,663,667
|
|
Valuation allowance
|
|
|
(32,668,727
|
)
|
|
|
(32,663,667
|
)
|
Deferred tax assets, net:
|
|
|
-
|
|
|
|
-
|
|
National Art Exchange, Inc.
(f/k/a Tianhe Union Holdings Limited)
Notes to Condensed Financial Statements
6. LOSS PER SHARE
|
|
For the three months ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Loss per share numerator
|
|
|
|
|
|
|
Loss for the year attributable to owners of the Company
|
|
$
|
(103,115
|
)
|
|
$
|
(78,492
|
)
|
|
|
|
|
|
|
|
|
|
Diluted loss per share numerator
|
|
|
|
|
|
|
|
|
Loss for the year attributable to owners of the Company
|
|
$
|
(103,115
|
)
|
|
$
|
(78,492
|
)
|
|
|
|
|
|
|
|
|
|
Basic loss per share denominator
|
|
|
|
|
|
|
|
|
Original shares:
|
|
|
100,288,075
|
|
|
|
288,075
|
|
Additions from actual events:
|
|
|
|
|
|
|
|
|
- Issuance of common stock, weighted
|
|
|
-
|
|
|
|
-
|
|
Basic weighted average shares outstanding
|
|
|
100,288,075
|
|
|
|
288,075
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share denominator
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
100,288,075
|
|
|
|
288,075
|
|
Diluted weighted average shares outstanding
|
|
|
100,288,075
|
|
|
|
288,075
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
- Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.27
|
)
|
- Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.27
|
)
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
10,288,075
|
|
|
|
288,075
|
|
- Diluted
|
|
|
10,288,075
|
|
|
|
288,075
|
|
For the periods presented, there is no dilutive securities that
could potentially dilute loss per shares that is not included in the computation because the effect was antidilutive.
7. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events from December 31, 2017 through the date the financial statements were available to be
issued and has determined that there were no subsequent events after December 31, 2017 which requires disclosure.