Notes to the Condensed Financial Statements
March 31, 2018
In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-10, “Development Stage Entities”. The amendments in this update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification (“ASC”), thereby removing the financial reporting distinction between development stage entities and other reporting entities from the U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments in this update are applied retrospectively. The adoption of ASU 2014-10 removed the development stage entity financial reporting requirements for the Company.
The Financial Statements and related disclosures as of March 31, 2018 are reviewed pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Unless the context otherwise requires, all references to “Apex”, “Apex Resources”, “we”, “us”, “our” or the “company” are to Apex Resources, Inc.
Note 2: Significant Accounting Policies and Recent Accounting Pronouncements
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles 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 period. Actual results could differ from those estimates.
Due to the limited level of operations, the Company has not had to make material assumptions or estimates other than the assumption that the Company is a going concern.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Bank overdraft, if any, is presented as a current liability in the balance sheet.
Fair Value of Financial Instruments
ASC 825, “Disclosures about Fair Value of Financial Instruments”, requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2018.
The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash, accrued liabilities and notes payable. Fair values were assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair value.
Apex Resources, Inc.
Notes to the Condensed Financial Statements
March 31, 2018
Basic and Diluted Loss Per Share
The Company computes earnings (loss) per share in accordance with ASC 260-10-45 “Earnings per Share”, which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings (loss) per share excludes all potential common shares if their effect is anti-dilutive. The Company has no potential dilutive instruments, and therefore, basic and diluted earnings (loss) per share are equal as of March 31, 2018.
Revenue Recognition
The company follows the guidelines of ASC 605-15 for revenue recognition. Revenue is recognized when all the following conditions have been met:
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(1)
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persuasive evidence of an arrangement exists;
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(2)
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delivery has occurred;
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(3)
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the selling price is fixed and determinable;
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(4)
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collectability is reasonably assured; and
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(5)
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the amount of future return can be reasonably estimated.
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Income Taxes
We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. 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 results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Income taxes are calculated and accrued for U.S. taxes only. The company did not accrue any Lithuanian taxes under Lithuanian corporate rules, as we believe our business activities prior to the April 7, 2018 discontinuance of steam room products sales generated no taxable income under the local tax rules.
Recent Accounting Pronouncements
Management has reviewed all the recently issued, but not yet effective, accounting pronouncements, and does not believe any of these pronouncements will have a material impact on the Company.
Apex Resources, Inc.
Notes to the Condensed Financial Statements
March 31, 2018
Unaudited Financial Statements
The balance sheet as of March 31, 2018, the statements of operations and cash flows for the three and nine-month periods ended March 31, 2018, have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted as allowed by such rules and regulations, and the Company believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the three and nine months ended March 31, 2018 are not necessarily indicative of results expected for the full year ending June 30, 2018. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in financial position at March 31, 2018 have been made.
It is suggested that these statements be read in conjunction with the June 30, 2017 audited financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K and related amendments filed with the Securities and Exchange Commission.
Note 3: Going Concern
The accompanying financial statements and notes have been prepared assuming that the Company will continue as a going concern for one year after the date the financial statements were issued.
For the period from its inception on March 31, 2015 to March 31, 2018, the Company had an accumulated net loss of $44,287. The Company’s net worth was $6,644 as of March 31, 2018. This raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The ability to continue as a going concern is dependent upon the Company’s ability to successfully execute its business plan and generate profitable operations in the future, and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operation when they become due. Management intends to finance operating costs over the next twelve months with loans from related parties or the issuance of equity and debt securities.
The failure to achieve the necessary levels of profitability or obtain the additional funding would be detrimental to the Company.
Note 4: Concentrations
For its steam room products business, the Company’s sales are concentrated with one customer. Although sales are made without collateral, management believes the credit-related losses are insignificant or non-existent. Accordingly, there is no provision made to include an allowance for doubtful accounts.
Note 5: Legal Matters
The Company has no known legal proceedings pending.
Apex Resources, Inc.
Notes to the Condensed Financial Statements
March 31, 2018
Note 6: Debt Discharge
Since June 2015 the former principal shareholder, and sole officer and director of the Company Mr. Dabasinkas, has loaned the Company funds and paid business expenses on behalf of the Company from time to time. These loans are non-interest bearing, unsecured and due upon demand. As of March 23, 2018, the outstanding principal balance of such loans from and advances by Mr. Dabasinkas was in the amount of $3,731. As a result of the change in control on March 23, 2018, and as more fully described in Note 8: “Change in Control”, the entire unpaid principal balance of- these loans was discharged by Mr. Dabasinkas. Therefore, the balance of the loan at March 31, 2018 is $0. The Company recorded additional paid-in capital as of March 23, 2018 for the $3,731 debt discharged by Mr. Dabasinkas.
During the three and nine months ended March 31, 2018, Mr. Dabasinkas loaned the Company $500 and $2,500, respectively.
Note 7: Capital Stock
As of March 31, 2018 the Company has 75,000,000 shares of common stock, par value of $0.001 per share, authorized.
On June 15, 2015 the Company issued 4,000,000 shares of common stock for a purchase price of $0.001 per share to its then-sole Director. The Company received aggregate gross proceeds of $4,000. As of March 31, 2018 there were no outstanding stock options or warrants.
In October 2016 the Company sold and issued 1,080,000 shares at $0.04 per share pursuant to an offering pursuant to a Registration Statement on Form S-1, which was declared effective by the SEC on October 4, 2016. The shares were issued to 31 individuals for aggregate gross proceeds of $43,200.
Note 8: Change in Control
On March 23, 2018, three parties acquired an aggregate 4,000,000 shares of the Company’s common stock (or 78.74% of the total issued and outstanding shares of the Company as of the date of acquisition) from Tadas Dabasinkas pursuant to the SPA. Mr. Dabasinkas received an aggregate $443,079 for the 4,000,000 shares; the Company received no proceeds from this transaction. Pursuant to the SPA and other related agreements, Mr. Dabasinkas resigned from all management and Board positions; and all of the Company’s outstanding loan balance owed to Mr. Dabasinkas, in the amount of $3,731, was fully forgiven by Mr. Dabasinkas.
Note 9: Fixed Assets/Assets Held for Sale
In June 30, 2015, the Company purchased land and a small office located at Aytaus g. 100, Varena, Lithuania. The purchase price of $8,655 was allocated as $4,327.50 for the building and $4,327.50 for the land. As of March 31, 2018 and prior to April 7, 2018 the Company utilized the space as its principal office to conduct the Company’s former steam room products sales activities. As the Company discontinued the steam room products sales activities on April 7, 2018, the office in Lithuania is treated as an asset held for sale under ASC 250-45 and ASC 360-10 post-April 6, 2018.
Fixed assets are stated at cost. The Company utilizes straight-line depreciation over the estimated useful life of the asset.
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Land
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0 years
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Buildings
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15 years
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Office Equipment
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7 years
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For the three- and nine-month periods ended March 31, 2018, the Company recorded depreciation expense of $72 and $216, respectively, for the building.
Note 10: Income Taxes
Apex Resources Inc. is registered in the State of Nevada and is subject to the tax law of the United States of America and a federal corporate statutory tax rate of 21% starting January 1, 2018.
As of March 31, 2018, the Company had net operating loss carry forwards of approximately $44,287 that may be available to reduce future years’ taxable income through 2035 and 2038. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.
Benefit of income taxes for the three and nine month-periods ended March 31, 2018 were $1,298 and $1,298, respectively. The income tax benefit results from a March 31, 2018 reversal of previously accrued income tax payable in the amount of $1,298.
Apex Resources, Inc.
Notes to the Condensed Financial Statements
March 31, 2018
Note 11: Related Party Transactions
The Company had a related party transaction involving the Company’s former principal shareholder and sole director and officer, Tadas Dabasinkas. The nature and details of the transaction are described in Note 6, “Debt Discharge”.
Note 12: Subsequent Events
The Company has evaluated events subsequent through the date these financial statements have been issued to assess the need for potential recognition or disclosure in this report. Such events were evaluated through the date these financial statements were available to be issued.
As discussed in Note 1, “Organization and Basis of Presentation”, a change in control of the Company occurred on March 23, 2018, followed by the discontinuation of its steam room products business on April 7, 2018. Subsequently the Company entered into the ADC Agreement on April 26, 2018, to develop a facility to host cryptocurrency mining operations. No adjustment was recorded in the Company’s financial statements as of March 31, 2018 to reflect any effect on the financial statements by the above events.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Recent Developments
On March 23, 2018, three parties purchased an aggregate 4,000,000 shares, or approximately 78.7%, of the Company’s common stock from Tadas Dabasinkas, the principal shareholder, sole director and sole executive officer of the Company, being all the shares owned by him. Mr. Dabasinkas received an aggregate $443,079 for the 4,000,000 shares; the Company received no proceeds from this transaction. As a result of this transaction, control of the company changed from Mr. Dabasinkas to these three parties. On the same date, five additional individuals purchased an aggregate 1,078,450 shares, or approximately 21.2%, of the Company’s common stock from the Company’s other shareholders. The Company received no proceeds from this transaction. None of the purchasing shareholders is an affiliate of Mr. Tadasinkas or the other selling shareholders.
In connection with the transactions described above, Mr. Dabasinkas resigned from all of his positions with the Company, including Chief Executive Officer, President and director. The new majority shareholders of the Company elected new directors who, in turn, appointed new officers.
It is the intention of the Company’s new management to pursue a different business from that the steam room products business pursued by prior management, and which business was discontinued on April 7, 2018. The Company intends to pursue one or more business opportunities using blockchain technology related products and services in various areas, which may include financing, gaming, education and data storage.
Plan of Operations
Our cash balance as of March 31, 2018 was $507, which is insufficient to fund our intended business operations. The following plan of operations is dependent upon our ability to raise significant amounts of capital, in the form of equity and/or debt. There is no commitment from any person for any such capital and there can be no assurances that capital will be available to us on favorable terms, or at all. See “Liquidity and Capital Resources” below.
Blockchain technology is a decentralized ledger, providing a secure way to store information and data. Hash function links records together, and once records are created, they are stored by a distributed network of computers. Cryptocurrencies like Bitcoin, Bitcoin cash and Ethereum are one of the products utilizing blockchain technology, to protect transaction data from embezzlement or other malicious acts, as well as speed up the transferring process. This essentially takes out the middle man and makes transactions fair and without the costs or prohibitions inherent with centralized systems such as banks or the government. This is especially useful for international trades where traditionally parties may have to pay both countries for tax as well as banking fees in both countries. We intend to operate our business with the goal of furthering block chain technology through investment, research, partnership and pioneering this new field.
Apex Agreement
In furtherance of our new business, we entered into an agreement dated April 26, 2018 (the “ADC Agreement”) with Chongqing Puxin Blockchain Technology Co., Ltd. (“Puxin”), a cryptocurrency mining company in China, pursuant to which we will contribute $2.0 million to a new company, Apex Data Center Inc. (“ADC”), incorporated by Puxin, in exchange for an 80% equity in ADC. Puxin will retain 20% of the equity of ADC. ADC will build a “mining pool”, or a facility with rig machines that mine cryptocurrencies, for a hosting or management fee, with the capability of accommodating up to 100,000 dedicated servers in a facility to be built in Washington State. While we do not currently own any rig machine, it is expected that we will receive and host 2,000 to 3,000 rig machines owned by Puxin in China into ADC’s facilities in the first phase. We will either host additional machines for other third parties or raise the capital to acquire additional machines. The target is to host a total of 10,000 rig machines in the facility in the next 12 months.
Under the ADC agreement, we have agreed to invest a total of $2 million for the construction and operation of the new ADC data center. Puxin will offer its expertise and assist the Company to design, budget, construct, and manage the day-to-day operations of the new ADC data center. Upon execution of the ADC Agreement, we are required to provide the first $280,000 of the total $2 million investment to ADC as working capital for development of the new ADC data center. As of the date of the filing of this quarterly report we have provided $20,000 of the required working capital amount.
If we fail to make our total capital contribution of $2 million, Puxin may increase its capital contribution for any unfulfilled amount, diluting our ownership interest in ADC proportionately. Alternatively, the parties may agree to admit a third party as a new investor, with the resulting dilution in ownership of ADC being borne completely by us.
We do not have sufficient funds to meet our financial obligations under the ADC Agreement. Because we are not generating operating revenue at this time, we must raise capital, in the form of equity and/or debt, to meet our financial obligations under the ADC Agreement. There are no agreements for any such funding at this time. There can be no assurance that any such funding will be available to us on favorable terms, or at all. Our failure to raise the necessary capital to meet our financial obligations under the ADC Agreement could result in significant dilution of our ownership interest in ADC or even the abandonment of the ADC project altogether. See “Liquidity and Capital Resources” below.
Results of Operations
Three-Month Period Ended March 31, 2018 compared to the Three-Month Period Ended March 31, 2017
Revenue,
Cost of Goods Sold and Gross Profit
For the three months ended March 31, 2018, we generated $0 in revenues and $0 in cost of goods sold, compared to revenue of $31,237 and cost of goods sold of $30,387 during the same period of 2017. The changes represent decreases in revenue and cost of goods sold in the amounts of $31,237 and $30,387, respectively. The Company did not make any delivery of sales during the three months ended March 31, 2018, but did receive a deposit of $33,790 from a customer for steam room products ordered in February 2018. However, the merchandise ordered was not delivered by our supplier directly to our customer until April 6, 2018, when we officially recognized the revenue and related cost under our accounting policy and ASC 605-15. The $33,790 deposit received, along with the cost of the merchandise of $32,836 that was prepaid by the Company to its supplier, were recorded as unearned revenue and prepaid purchase, rather than sales revenue and cost of goods sold, as of March 31, 2018.
For the three months ended March 31, 2018, our gross profit was $0, or a decrease of $849 from the gross profit of $849 during the same period of 2017. As explained above, despite of the receipt of customer deposit and our prepayment for the products that the customer ordered during the three months ended March 31, 2018, no sales and cost of goods sold was recorded until April 6, 2018, resulting in a $0 gross profit.
Operating Expenses
For the three months ended March 31, 2018, we incurred operating expenses of $1,530, which represents a decrease in the amount of $257 as compared to $1,787 during the same period of 2017. Operating expenses are consisting primarily of various professional fees and depreciation expense.
Provision for (Benefit of) Income Taxes
Benefit of Income Taxes for the three months ended March 31, 2018 was $1,298, or an increase of $1,298 compared to the $0 provision for income taxes for the three months ended March 31, 2017. The $1,298 benefit is the result of a reversal of accrued estimated corporate income tax liabilities originally previously recorded on June 30, 2015. No current tax liability was provided for the three months periods ended March 31, 2018 and 2017.
Net Loss
Our net loss for the three-month period ended March 31, 2018 was $232, a decrease of $706 compared to a net loss of $938 during the same period of 2017. The decrease in net loss in the three-month ended March 31, 2018 was largely attributed to the $1,298 income tax benefit, offset by the decrease in gross profit for $849.
Nine
-Month Period Ended March 31, 2018 compared to the
Nine
-Month Period Ended March 31, 2017
Revenue,
Cost of Goods Sold and Gross Profit
For the nine months ended March 31, 2018 we generated $60,474 in revenues and $50,843 in cost of goods sold, as compared to revenue of $93,681 and cost of goods sold of $85,382 during the same period of 2017. The changes represent decreases in revenue and cost of goods sold in the amounts of $33,207 and $34,540, respectively. The change in sales was largely attributed to a February 2018 sales order of $33,790 that we did not recognize as revenue until the time of delivery on April 6, 2018. Similarly, the decrease in cost of goods sold was generally attributable to the deferred merchandize cost of $32,836 that was not applied to the cost of goods sold until April 2018.
For the nine months ended March 31, 2018, our gross profit was $9,631, or an increase of $1,333 from the gross profit of $8,298 during the same period of 2017.
Operating Expenses
For the nine months ended March 31, 2018 we incurred operating expenses of $4,822, or a decrease of $57,087 compared to the operating expenses of $61,910 during the same period of 2017. Operating expenses are consisting primarily of professional fees, advertising and promotion, and depreciation expense. During the nine-month period ended March 31, 2018 we incurred $0 advertising and promotion fee, compared to advertising and promotion fee of $43,099 during the same period of 2017.
Provision for (Benefit of) Income Taxes
Benefit of Income Taxes for the nine months ended March 31, 2018 was $1,298, or an increase of $1,298 compared to the $0 provision for income taxes for the nine months ended March 31, 2017. The $1,298 benefit is the result of a reversal of accrued estimated corporate income tax liabilities originally previously recorded on June 30, 2015. No current tax liability was provided for the nine months periods ended March 31, 2018 and 2017.
Net Income (Loss)
Our net income for the nine-month period ended March 31, 2018 was $6,107, or an increase of $59,718 from the net loss of $53,611 during the same period of 2017. The increase in net income over the nine months ended March 31, 2017 is primarily due to the marketing promotion expense paid in November 2016 in the amount of $43,099, which resulted in a net loss for the nine-month period in 2017. We incurred no marketing promotion fee in the nine months ended March 31, 2018.
Liquidity and Capital Resources
At March 31, 2018, we had $507 in cash in bank, as well as a bank overdraft of $14. The $507 cash balance at March 31, 2018 decreased by $2,248 from $2,756 at June 30, 2017. While we received a $2,500 loan from our former director, our operating and investing activities used a total of $4,748 and $0 of cash, respectively, during the nine months ended March 31, 2018.
Our total current assets as of March 31, 2018 were $33,343, including a $32,836 prepaid purchase, as compared to $2,756 at June 30, 2017. We had $34,562 in total current liability as of March 31, 2018, including a $33,790 of unearned revenue, as compared to $14,028 at June 30, 2018.
Our working capital as of March 31, 2018 was $1,219. For the period from inception (March 31, 2015) to March 31, 2018, we had an accumulated net loss of $44,287. Our net worth was $6,644 as of March 31, 2018. This raises substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.
Our independent registered public accountant has issued a going concern opinion. This means that there is substantial doubt that we can continue as an ongoing business for the next twelve months unless we obtain additional capital to pay our expenses. We have generated an aggregate $343,306 in revenues but we do not anticipate any significant additional revenue until and unless we begin to execute on our new plan of operations involving blockchain technology related products and services. There is no assurance we will ever reach that stage.
Our ability to continue as a going concern is dependent upon our ability to successfully execute our new business plan and generate profitable operations in the future, and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operation as and when they become due. Management intends to finance operating costs for the foreseeable future with loans from related parties and the issuance of equity and/or debt. There is no commitment from any person for any such capital and there can be no assurances that capital will be available to us on favorable terms, or at all. One of our new principal shareholders has informally agreed to lend us some of the funds needed for some of our operating expenses, but he has no legal obligation to do so and may discontinue making any such loans at any time. Our failure to achieve the necessary levels of profitability or obtain the additional significant funding required to meet our expenses and other financial obligations, including our obligations under the ADC Agreement, would be detrimental to us and result in the inability to execute our plan of operations, being unable to meet our financial obligations under the ADC Agreement or even having to cease operations completely.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.