NOTES
TO THE AUDITED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
Huale
Acoustics Corporation was formed as Illumitry Corp. (“the Company,” “we,” “us,” or “our”)
and incorporated in the State of Nevada on October 17, 2014.
On
February 7, 2017 (the date of the “Change of Control”), Jaeson Cayne (“Cayne”), on behalf of and as agent
for PetsZX, Inc. has acquired control of Three Million (3,000,000) restricted shares of the Company’s issued and outstanding
common stock, representing approximately 83% of the Company’s total issued and outstanding common stock, from Arusyak Sukiasyan
(“Sukiasyan”), the former officer and director of the Company, in exchange for $315,000 per the terms of a Stock Purchase
Agreement by and between Cayne and Sukiasyan.
On
May 31, 2017, the Company entered into an agreement to acquire approximately 98.8% of the issued and outstanding shares of PetsZX,
Inc., a company affiliated with Cayne. This agreement was cancelled on September 1, 2017, pursuant to the terms of a Cancellation
of Stock Purchase Agreement.
On
October 6, 2017, as a result of a private transaction, the control block of voting stock of Illumitry Corp., represented by 3,000,000
shares of common stock was transferred from Jaeson Cayne to a syndicated group of investors led by Xu Dantong (“Purchasers”).
The consideration paid for the Shares, which represents 82.75% of the issued and outstanding share capital of the Company on a
fully-diluted basis, was $342,000. The source of the cash consideration for the shares was personal funds of the Purchasers. In
connection with the transaction, Jaeson Cayne and Collin McMullen released the Company from all debts owed. The extinguishment
of the Company’s accounts payable and related party note payable was recorded as of the date of the transaction.
There
are no arrangements or understandings among members of both the former and new control persons and their associates with respect
to the election of directors of the Company or other matters. Upon the change of control of the Company the existing director
and officer resigned immediately. Accordingly, Collin McMullen, serving as the sole director and as the only officer, ceased to
be the Company’s President and Principal Accounting Officer. At the effective date of the transfer, Xu Dantong (“Xu”)
consented to act as the new President, CEO, CFO, Treasurer, Secretary and Chairman of the Board of Directors of the Company.
On
October 26, 2017, an amendment to the Company’s Articles of Incorporation became effective with the State of Nevada. The
amendment changed the name of the Company to Huale Acoustics Corporation and increased the number of authorized shares of common
stock to 700,000,000 shares and preferred stock to 100,000,000 shares.
NOTE
2 – GOING CONCERN
The
accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company had no revenues and incurred losses as of December
31, 2017. The Company currently has negative working capital, and has not completed its efforts to establish a stabilized source
of revenues sufficient to cover operating costs over an extended period of time. Due to these factors, there is substantial doubt
about the Company’s ability to continue as a going concern.
Management
anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses
The Company intends to position itself so that it will be able to raise additional funds through the capital markets. In light
of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or
become financially viable and continue as a going concern.
NOTE
3 – BASIS OF PRESENTATION
The
accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America, and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”)
and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present
the financial position, results of operations and cash flows of the Company for the year ended December 31, 2017 and December
31, 2016.
Use
of Estimates
The
timely preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Discontinued
Operations
Due
to the Change of Control, the operations of the Company prior to the date of the Change of Control are reflected on the financial
statements as discontinued operations.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. The
Company had cash and cash equivalents of $0 and $3,463 as of December 31, 2017 and December 31, 2016, respectively.
Prepaid
Expenses
The
Company had prepaid certain filing fees of $11,458 as of December 31, 2017, of which covers OTC Markets service fee for the period
covering from December 1, 2017 to November 30, 2018 originally amounted to $12,500.
Inventory
The
Company had $0 and $2,755 in raw materials inventory as of December 31, 2017 and December 31, 2016 (included in discontinued net
assets), respectively. As part of the settlement of debt with Sukiasyan, the inventory was netted against the outstanding balance
due Sukiasyan on the date of the Change of Control (see also Note 4).
Income
Taxes
The
Company follows ASC Topic 740 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based
upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal
tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or
benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce
the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of change.
Deferred
income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and
tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of
assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset
or liability are classified as current or non-current depending on the periods in which the temporary differences are expected
to reverse.
The
Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition
of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities.
As of December 31, 2017, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions
with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not
had a material effect on the Company.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC topic 605 “Revenue Recognition.” The Company recognizes revenue
when products are fully delivered or services have been provided and collection is reasonably assured.
Fair
Value of Financial Instruments
AS
topic 820 “Fair Value Measurements and Disclosures” establishes a three-tier fair value hierarchy, which prioritizes
the inputs in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs
used in measuring fair value are observable in the market.
The
carrying value of cash and the Company’s loan from shareholder approximates its fair value due to their short-term maturity.
Stock-Based
Compensation
The
Company records stock based compensation in accordance with the guidance in ASC 718 which requires the Company to recognize expenses
related to the fair value of its employee stock option awards. This requires that such transactions be accounted for using a fair-value-based
method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
The
Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance
with ASC 718-10 and the conclusions reached by the ASC 505-50. Costs are measured at the estimated fair market value of the consideration
received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity
instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or
completion of performance by the provider of goods or services as defined by ASC 505-50.
Net
Loss Per Share
The
Company follows ASC Topic 260 to account for the loss per share. Basic loss per common share calculations are determined by dividing
net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share
calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents
outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
There were no potentially dilutive debt or equity instruments issued or outstanding as of December 31, 2017 and 2016.
Recent
Accounting Pronouncements
We
have reviewed all the recently issued, but not yet effective, accounting pronouncements and we do not believe any of these pronouncements
will have a material impact on the Company.
NOTE
4 – RELATED PARTY TRANSACTIONS
At
December 31, 2017 and December 31, 2016, the Company had loans payable to Ms. Sukiasyan, our former sole director of $0
and $24,000, respectively, pursuant to the verbal agreement. This loan was unsecured, non-interest bearing and due on demand.
The imputed interest on this note was deemed immaterial. As part of the Change of Control, the balance of $24,000 due to Ms. Sukiasyan
was offset against various net liabilities (assets minus liabilities) resulting in a capital contribution of $29,895 from the
change in control which was recorded to additional paid-in capital.
On January 5, 2017, the Company
entered into a loan with Ms. Sukiasyan for up to $15,000, of which $12,507 was funded to the Company. This loan was unsecured,
non-interest bearing and due on demand. The imputed interest was deemed immaterial. As part of the Change of Control, the balance
due of $12,507 was netted against various assets and netted a contribution of $29,895 which was recorded to additional paid-in
capital.
On
February 9, 2017, the Company entered into a loan with the father of Collin McMullen, the former officer and former director of
the Company, for $2,500. The loan was unsecured, with 10% interest, and was due on demand. The Company entered into additional
loan agreements on the same terms on the following dates and for the following amounts: February 16, 2017 for $26,526; March 17,
2017 for $1,700; May 9, 2017 for $1,850; May 25, 2017 for $4,685; and June 23, 2017 for $11,005. The loan balances were paid and
reduced by $2,500 on August 4, 2017 and by $7,330 on September 6, 2017. According to the terms of the Stock Purchase Agreement
dated October 6, 2017, the remaining balances of these loans were retained by the selling shareholders and recorded as
additional capital contribution at closing, totaling $58,751.
Ms.
Xu, the Company’s Chief Executive Officer and controlling shareholder, subsequently loaned $21,346 to the Company between
October 6, 2017 and December 31, 2017 as part of continuing operations. This loan is unsecured, non-interest bearing and due on
demand.
NOTE
5 – FIXED ASSETS
As
of December 31, 2017, the Company had no fixed assets. At December 31, 2016, the Company had net fixed assets of $3,468.
NOTE
6 – NOTES PAYABLE
As
of December 31, 2017, the Company had a note payable to Ms. Xu, the Company’s Chief Executive Officer and controlling shareholder,
in the amount of $21,346. This loan is unsecured, non-interest bearing and due on demand. As of December 31, 2016, the Company
had a note payable of $0.
NOTE
7 – STOCKHOLDERS’ EQUITY
The
Company has 700,000,000, $0.001 par value shares of common stock authorized.
During
January 2016, the Company issued a total of 50,000 common shares for cash contribution of $955 at $0.02 per share.
During
February 2016, the Company issued a total of 525,000 common shares for cash contribution
of $10,392 at $0.02 per share.
During
March 2016, the Company issued a total of 25,000 common shares for cash contribution of $500 at approximately $0.02 per
share.
There
were 3,625,000 shares of common stock issued and outstanding as of December 31, 2017.
NOTE
8 – COMMITMENTS AND CONTINGENCIES
Legal
Matters
From
time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of its
business. The Company is not currently a party to any material legal proceedings, nor is the Company aware of any other pending
or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows
or financial condition should such litigation be resolved unfavorably.
NOTE
9 – RECLASSIFICATION OF DISCONTINUED OPERATIONS
We
have reclassified certain prior-period amounts to conform to the current-year’s presentation. The reclassifications relate
to operations which have been discontinued as of the current period due to the change in control.
Through
October 6, 2017, the Company’s primary business activity was to commence operations in a field of embroidery on fabric and
cloth in Armenia. Going forward, the Company’s operations will be determined and structured by the new investor group. As
such, at December 31, 2017, the Company accounted for all of its assets, liabilities and results of operations up to October 6,
2017 as discontinued operations.
|
|
Year
Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
12,680
|
|
Cost
of goods sold
|
|
|
-
|
|
|
|
1,523
|
|
Gross profit
|
|
|
-
|
|
|
|
11,157
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
77,971
|
|
|
|
31,541
|
|
Total expense
|
|
|
77,971
|
|
|
|
31,541
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, Net of Tax Benefits
|
|
$
|
(77,971
|
)
|
|
$
|
(20,384
|
)
|
NOTE
10 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10 the Company has analyzed its operations from December 31, 2017 to the date of when the financial statements
were issued and has determined that it does not have any material subsequent events to disclose in these financial statements.