ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
We have audited the accompanying balance
sheets of Natural Health Farm Holdings Inc. (the ‘Company’) as of September 30, 2018 and the related statements of
income, stockholders’ equity, and cash flows for the year ended of September 30, 2018 and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 2018 and the results of its operations and its cash flows for
the year ended September 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, for
the year ended September 30, 2018 the Company incurred a net loss and working capital deficit. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are
also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The accompanying notes are an integral part of these financial
statements.
The accompanying notes are an integral part of these financial
statements.
The accompanying notes are an integral part of these financial
statements.
The accompanying notes are an integral part of these financial
statements.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
NOTE 1 – NATURE OF OPERATIONS, LIQUIDITY AND
GOING CONCERN
Natural Health Farm Holdings Inc. (the “Company”,
“We”, “Its”, and “NHFH”) was incorporated under the laws of the State of Nevada on July 10,
2014 (Inception date). The Company has developed web-based business and launched itself into the healthcare industry. The Company
has plans to provide through its subsidiaries, retail nutritional supplements, organic foods, personal care, and other health care
products. The Company currently provides nutritional consulting services by offering a web based naturopathic learning management
system that allows distributors, chiropractors and consumers to educate users products with the health-related aspects of various
illnesses, and how the Company’s learning systems could be used to improve their general wellbeing.
On November 30, 2016, the Company filed a certificate
of amendment to its articles of incorporation with the Nevada Secretary of State to change its name from Amber Group Inc. to Natural
Health Farm Holdings Inc. The Company effectuated a 30:1 forward stock split of its common stock and increased its authorized share
capital to 500,000,000 (Five Hundred Million) shares. This amendment was unanimously approved by the Company’s board
of directors on November 29, 2016 and with the stockholders holding a majority of the Company’s voting power.
On March 16, 2017, Financial Industry Regulatory Authority
(FINRA) approved the corporate name change to Natural Health Farm Holdings Inc., approved the increase in the Company’s authorized
shares of common stock to 500,000,000 shares, and approved 30:1 forward stock split effective March 17, 2017, and provided us a
trading symbol for our common stock as “NHEL”.
Liquidity and Going Concern
The Company’s financial statements are prepared
using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated small
revenues and has sustained cumulative operating losses since July 10, 2014 (Inception Date) to date and allow it to continue as
a going concern. The continuation of the Company as a going concern is dependent upon the continued financial support from its
shareholders and affiliates, the ability of the Company to obtain necessary financing to continue operations, and the attainment
of profitable operations. The Company has recorded a net loss of $1,127,212 for the year ended September 30, 2018, provided net
cash flows in operating activities of $4,438, has a working capital deficit of $257,121, and has an accumulated deficit of $1,245,678
as of September 30, 2018. The Company has had difficulty in obtaining working capital lines of credit from financial institutions
and trade credit from vendors. These factors, among others, raise a substantial doubt regarding the Company’s ability to
continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying
financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company is continuing to focus its efforts on increased
marketing campaigns, and distribution programs to strengthen the demand for its products. Management anticipates that the Company’s
capital resources will improve if its products gain wider market recognition and acceptance resulting in increased product sales.
If the Company is not successful with its marketing efforts to increase sales and weak demand continues, the Company will experience
a shortfall in cash and it will be necessary to further reduce its operating expenses in a manner or obtain funds through equity
or debt financing in sufficient amounts to avoid the need to curtail its operations. Given the liquidity and credit constraints
in the markets, the business may suffer, should the credit markets not improve in the near future. The direct impact of these conditions
is not fully known. However, there can be no assurance that the Company would be able to secure additional funds if needed and
that if such funds were available on commercially reasonable terms or in the necessary amounts, and whether the terms or conditions
would be acceptable to the Company. In such case, the reduction in operating expenses might need to be substantial in order for
the Company to generate positive cash flow to sustain the operations of the Company. However, due to the uncertainty in the Company’s
ability to raise capital, increase sales and generate significant positive cash flows from operations, management believes that
there is substantial doubt in the Company’s ability to continue as a going concern within one year after the date the financial
statements were issued.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies
of the Company is presented to assist in the understanding of the Company’s financial statements. The financial statements
and notes are the representation of the Company’s management who is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in
all material respects and have been consistently applied in preparing the accompanying financial statements.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts
payable, accrued liabilities and payable to related parties. The Company bases its estimates and assumptions on current facts,
historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that
are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely
from the Company’s estimates. To the extent there are material differences between the estimates and the actual results,
future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with
maturity of three months or less at the time of issuance to be cash equivalents. The Company had a cash balance of $9,202 and $0
at September 30, 2018 and 2017, respectively.
Accounts Receivable
Accounts receivable represent income earned from the
sale of products for which the Company has not yet received payment. Accounts receivable are recorded at the invoiced amount and
adjusted for amounts management expects to collect from balances outstanding at period-end. The Company estimates the allowance
for doubtful accounts based on an analysis of specific accounts and an assessment of the customer’s ability to pay, among
other factors. At September 30, 2018 and 2017, no allowance for doubtful accounts was recorded.
Computer Software Costs
Computer software costs include direct costs incurred
for purchase of developed software products and payments made to independent software developers. The Company accounts for computer
software costs in accordance with the Financial Accounting Standards Board (the “FASB”) guidance for the costs of computer
software to be sold, leased, or otherwise marketed Accounting Standards Codification (the “ASC”) ASC Subtopic 985-20.
Computer software costs are capitalized once the technological feasibility of a product is established and such costs are determined
to be recoverable. Technological feasibility of a product encompasses technical design documentation and integration documentation,
or the completed and tested product design and working model. Computer software costs are capitalized once technological feasibility
of a product is established and such costs are determined to be recoverable against future revenues. Technological feasibility
is evaluated on a project-by-project basis. Amounts related to computer software development that are not capitalized are charged
immediately to the appropriate expense account. Amounts that are considered ‘research and development’ that are not
capitalized are immediately charged to engineering, research, and development expense. Capitalized costs for those products that
are cancelled or abandoned are charged to product development expense in the period of cancellation.
Commencing upon product release, capitalized computer
software costs are amortized on the straight-line method over a thirty-six months period. The Company evaluates the future recoverability
of capitalized computer software costs on an annual basis.
Revenue Recognition
The Company generates revenue from licensing and other
software services from its web-based software to distributors and retailers of nutritional supplements in the healthcare industry.
The Company recognize licensing fees and other software services as revenue over the period of the contract at the time that the
computer software is delivered and accepted by the customer, the selling price is fixed, and collection is reasonably assured,
provided no significant obligations remain. The Company considers authoritative guidance on multiple deliverables in determining
whether each deliverable represents a separate unit of accounting.
Deferred revenues represent billings or cash received
in excess of revenue recognizable on service agreements that are not accounted for as revenues.
Concentration of Risk
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of cash. The Company places its cash with high quality banking institutions.
The Company does not have the cash balances in excess of Federal Deposit Insurance Corporation limit at September 30, 2018 and
2017, respectively.
Income Taxes
The Company accounts for income taxes using the asset
and liability method in accordance with ASC 740, “
Income Taxes”
. The asset and liability method provide that
deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the
financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to
reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10, “
Accounting
for Uncertain Income Tax Positions
.” When tax returns are filed, it is highly certain that some positions taken would
be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position
taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit
of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management
believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or
litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely
of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions
taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the
accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon
examination.
Earnings (Loss) Per Common Share
The Company computes net earnings (loss) per share in
accordance with ASC 260, “
Earnings per Share”
. ASC 260 requires presentation of both basic and diluted net earnings
per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available
to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible
note and preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used
in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes
all dilutive potential shares if their effect is anti-dilutive. At September 30, 2018 and 2017, respectively, there were options
granted to certain employees and independent consultants that when vested convert into 300,000 shares of common stock. At September
30, 2018 and 2017, there were no convertible notes, warrants available for conversion that if exercised, may dilute future earnings
per share.
Fair value of Financial Instruments and Fair Value
Measurements
ASC 820, “
Fair Value Measurements and Disclosures”,
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs
used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest
level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be
used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there
are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there
are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or
liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally
from, or corroborated by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input
must be observable for substantially the full term of the asset or liability.
Level 3
Level 3 applies to assets or liabilities for which there
are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or
liabilities.
The Company’s financial instruments consist principally
of cash, accounts receivable, accounts payable, accrued expenses and payable to an affiliate. Pursuant to ASC 820, “
Fair
Value Measurements and Disclosures”
and ASC 825, “
Financial Instruments”
, the fair value of our cash
equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical
assets. The Company believes that the recorded values of all the other financial instruments approximate their current fair values
because of their nature and respective maturity dates or durations.
The following table presents assets and liabilities that
were measured and recognized at fair value as of September 30, 2018 on a recurring basis:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The following table presents assets and liabilities
that were measured and recognized at fair value as of September 30, 2017 on a recurring basis:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Recent Accounting Pronouncements
In August 2016, the FASB issued ASU 2016-15, “
Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
” (“ASU 2016-15”). ASU
2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of
cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years
beginning after December 15, 2019. The new standard will require adoption on a retrospective basis unless it is impracticable to
apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company
has not adapted this ASU codification and it does not anticipate that the adoption of this guidance will have any material effect
on its financial statements.
In June 2016, the FASB issued Accounting Standards Update
(“ASU”) 2016-13, “
Financial Instruments - Credit Losses
(Topic 326).” The new standard amends guidance
on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. This ASU is effective
for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements.
In 2015, the FASB issued ASU No. 2015-17, “
Income
Taxes”
(Topic 740):
Balance Sheet Classification of Deferred Taxes
, which requires all deferred tax assets and
liabilities to be classified as noncurrent in a classified balance sheet. Current US GAAP requires an entity to separate deferred
tax assets and liabilities into current and noncurrent amounts in a classified balance sheet. For public entities, ASU 2015-17
is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those
annual periods. For all other entities, ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2017,
and interim periods within annual periods beginning after December 15, 2018, and may be applied either prospectively or retrospectively,
with early application permitted for financial statements that have not been previously issued. The Company has not yet determined
the effect of the adoption of this standard on the Company’s financial position and results of operations.
NOTE 3 – COMPUTER SOFTWARE COSTS
The Company purchased web-based naturopathic learning
management system computer software, developed by a third party, to educate users with the health-related products for various
illnesses, and how the Company’s learning systems could be used to improve their general wellbeing. The amount capitalized
include direct costs incurred in developing the software purchased from the third party.
The following table presents details of our computer
software costs as of September 30, 2018 and 2017:
|
|
Balance at
September 30, 2017
|
|
|
Additions
|
|
|
Amortization
|
|
|
Balance at
September 30, 2018
|
|
Computer Software Costs, net
|
|
$
|
-
|
|
|
$
|
45,450
|
|
|
$
|
(14,669
|
)
|
|
$
|
30,781
|
|
Computer software costs are being amortized on a straight-line
basis over their estimated life of three years.
Amortization expense for computer software costs was
$14,669 and $0 for the years ended September 30, 2018 and 2017, respectively.
The estimated future amortization expense of computer
software costs as of September 30, 2018 is as follows:
Year ending September 30,
|
|
Amount
|
|
2019
|
|
$
|
13,950
|
|
2020
|
|
|
13,950
|
|
2021
|
|
|
2,881
|
|
Total
|
|
$
|
30,781
|
|
NOTE 4 – ACCOUNTS PAYABLE
Accounts payable at September 30, 2018 totaled $17,226
consisting of $12,603 in consulting fees, $2,025 in legal fees, $2,390 in stock transfer agent fees, and $208 of filing fees. Accounts
payable at September 30, 2017 totaled $0.
NOTE 5 – ACCRUED EXPENSES
Accrued expenses at September 30, 2018 consisted of accounting
and audit fees of $17,500, consulting fees of $4,000 and accrued interest of $1,026 on note payable to GHS Investments (see NOTE
8). Accrued expenses were $0 at September 30, 2017.
NOTE 6 – PAYABLE TO AFFILIATES
The Company has received an advance of $500 from a director for its working
capital needs as of September 30, 2018 (see NOTE 7).
The Company has received advances from an affiliate for
its working capital needs from an entity in which its Chief Executive Officer is also a director in such entity (NOTE 7). The advance
received is non-interest bearing, unsecured and payable on demand.
|
|
Balance at
September 30, 2018
|
|
|
Balance at
September
30, 2017
|
|
|
|
|
|
|
|
|
Payable to affiliate
|
|
$
|
98,837
|
|
|
$
|
80,137
|
|
Total
|
|
$
|
98,837
|
|
|
$
|
80,137
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
The Company received an advance of $500 and $0 from a
director for its working capital needs as of September 30, 2018 and 2017, respectively. Funds advanced to the Company by the director
are non-interest bearing, unsecured and due on demand (NOTE 6).
The Company has received advances for its working capital
needs from an affiliate in which the Company’s Chief Executive Officer holds the position of director in such entity (see
NOTE 6).
On November 20, 2017, the Company sold ten (10) naturopathic
learning management system and modules for $29,000 to an entity solely owned by a director of the Company. The Company received
the payment in full of $29,000 on December 21, 2017. The Company recorded $8,303 as revenues earned for the year ended September
30, 2018, and $20,697 as deferred revenues at September 30, 2018. The Company recognizes the revenues earned ratably over a period
of thirty-six months period.
On December 11, 2017, the Company sold twenty (20) naturopathic
learning management systems and modules for $50,000 to an entity in which the Company Chief Executive Officer holds the position
of director in such entity. The Company received the payment of $50,000 on December 28, 2017. The Company recorded $13,356 as revenues
earned for the year ended September 30, 2018 and $36,644 as deferred revenues at September 30, 2018. The Company recognizes the
revenues earned ratably over a period of thirty-six months period.
On May 30, 2018, the Company granted stock options to
three officers/directors to purchase 250,000 shares of common stock at exercise price of $1.50 per share for immediate vesting.
The fair value of the options granted to officers/directors using the Black-Scholes option pricing model was $271,061. The Company
recorded compensation expense of $271,061 for the year ended September 30, 2018. The key valuation assumptions used consist, in
part, of the price of the Company’s common stock of $1.70 at the issuance date; a risk-free interest rate of 2.79% and the
expected volatility of the Company’s common stock of 106% (estimated based on the common stock of comparable public entities).
The Company received advances from an affiliate for its
working capital needs. Such advances totaled $80,137 as of September 30, 2017.
On July 2, 2018, the Company issued 150,000 shares of
its common stock to two officers valued at their fair value of $300,000. The Company recorded such issuance as compensation expense
(see NOTE 10).
NOTE 8 – NOTE PAYABLE
Note payable consist of:
|
|
Balance at
September 30, 2018
|
|
|
Balance at
September 30, 2017
|
|
|
|
|
|
|
|
|
Note payable - GHS Investments, Inc.
|
|
$
|
40,000
|
|
|
$
|
-
|
|
Total
|
|
|
40,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
40,000
|
|
|
$
|
-
|
|
On June 5, 2018, the Company entered into an Equity Financing
Agreement and Registration Rights Agreement with GHS Investments Inc. (“GHS”) pursuant to which GHS agreed to purchase
up to $20,000,000 in shares of Company common stock. The obligations of GHS to purchase the shares of Company common stock are
subject to the conditions set forth in the Equity Financing Agreement, including, without limitation, the condition that a registration
statement on Form S-1 registering the shares of Company common stock to be sold to GHS be filed with the Securities and Exchange
Commission and become effective. The Registration Rights Agreement provides that the Company shall use commercially reasonable
efforts to file the registration statement within 30 days after the date of the Registration Rights Agreement and have the registration
statement become effective within 90 days after it is filed. In connection with the Equity Financing Agreement, the Company executed
a promissory note in the principal amount of $40,000 (the “Note”) as payment of the commitment fee for the Equity Financing
Agreement. The Note bears interest at the rate of 8% and must be repaid on or before March 5, 2019. The Company has recorded the
commitment fee as an expense in the accompanying statements of operations for the year ended September 30, 2018. The Company has
accrued the interest expense of $1,026 on the principal balance of $40,000 for the period from June 5, 2018 to September 30, 2018.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Litigation Costs and Contingencies
From time to time, the Company may become involved in
various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties,
and an adverse result in these or other matters may arise from time to time that may harm business. Other than as set forth below,
management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a
material adverse effect on our business, financial condition, or operating results.
In the normal course of business, the Company incurs
costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses
these costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated,
the Company recognizes an expense for the estimated loss.
NOTE 10: STOCKHOLDERS’ DEFICIT
The Company’s capitalization at September 30, 2018
was 500,000,000 authorized common shares with a par value of $0.001 per share.
Common Stock
On November 30, 2016, the Company increased the authorized
share capital from 75,000,000 shares of common stock to 500,000,000 shares of common stock. In addition, the Company effectuated
a 30:1 forward stock split of the common stock on such date.
On February 1, 2018, the Company entered into consulting
agreements with two contractors for providing business advisory and consulting services. The Company issued 1,000,000 shares of
common stock valued at $20,000 as the fair market value of the stock.
On March 1, 2018, the Company entered into a Share Exchange
Agreement (the “Agreement”) with its shareholders whereby, the shareholders agreed to exchange, sell, convey, transfer
and assign to the Company their shareholdings, free and clear of all liens, pledges, encumbrances, changes, restrictions or known
claims of any kind, nature or description plus pay to the Company an aggregate purchase price of $50 (the “Purchase Price”),
and the Company agreed to accept from its shareholders the old shares plus the Purchase Price in exchange for the transfer of old
shares the new shares. As of September 30, 2018, the Company received cash proceeds of $39,404 from its shareholders to exchange
the old shares for new shares and recorded it as contributed capital in the accompanying financial statements.
On May 16, 2018, the Company issued 50,000 shares of
its common stock for a cash consideration of $50 pursuant to an agreement dated February 15, 2018. In addition, on the same date,
the Company issued 105,000 shares of common stock for a cash consideration of $210 pursuant to an agreement dated March 1, 2018.
The common shares issued were valued at the fair value on the date of execution of the agreement to issue such shares.
On May 16, 2018, the Company issued 10,050,000 shares
of common stock for a cash consideration of $10,050 pursuant to an agreement dated March 1, 2018. The common shares were valued
at $10,050 being their fair value on the date of execution of the agreement.
On June 21, 2018, the Company issued 50,000 shares of
common stock to a consultant pursuant to an agreement, for providing consulting and business advisory services to the Company.
The common shares were valued at $85,000 being their fair value on the date of execution of the agreement to issue such shares.
On July 2, 2018, the Company issued 150,000 shares of
common stock to its officers/director at their fair value of $300,000 on the date of issuance. The Company recorded such issuance
as compensation expense (see NOTE 7).
As a result of all common stock issuances, the Company
had 161,155,000 shares and 150,150,000 shares of common stock issued and outstanding at September 30, 2018 and September 30, 2017,
respectively.
Stock Option Plan
On May 30, 2018, the Board of Directors authorized and
approved the 2018 Non-Qualified Stock Option Plan (the “2018 Plan) and reserved 10,000,000 shares of the Company’s
common stock intended to be issued to selected officers, directors, consultants and key employees provided that bona fide services
shall be rendered by such consultants or advisors and such services must not be in connection with the offer or sale of securities
in a capital-raising transaction and do not promote or maintain a market for the Company’s securities. The Company filed
a Registration Statement with the SEC on May 31, 2018 disclosing formation of 2018 Plan.
On May 30, 2018, the Board granted stock options under
the 2018 Plan to two directors, an officer and an employee, and three independent consultants to purchase up to 450,000 shares
of common stock with a five-year term. The stock options vested immediately upon the issuance date. The exercise price of the stock
options to purchase common stock was at $1.50 per share, and the quoted market price of the Company stock on the grant date was
$1.70. The option to purchase common stock expires on May 30, 2023. The fair value of options granted was $526,295, calculated
using Black-Scholes option pricing model using the assumptions of risk free discount rate of 2.79%, volatility of 106%, 2.5 year-term
for employees and directors and 5 year-term for non-employees, and dividend yield of 0%. The Company has recorded stock compensation
expense of $526,295 for the year ended September 30, 2018.
NOTE 11: INCOME TAX
Income tax expense for the years ended September 30,
2018 and 2017 is summarized as follows.
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
$
|
(63,193
|
)
|
|
$
|
(30,382
|
)
|
State
|
|
|
-
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
63,193
|
|
|
|
30,382
|
|
Income tax expense (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
The following is a reconciliation of the provision for
income taxes at the U.S. federal income tax rates of 21% and 34% and the state income tax rates net of federal tax benefit of 0%,
for the years ended September 30, 2018 and 2017, respectively, to the income taxes reflected in the Statements of Operations:
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Book Income (loss)
|
|
|
21
|
%
|
|
|
34
|
%
|
State taxes
|
|
|
-
|
%
|
|
|
-
|
%
|
Total
|
|
|
21
|
%
|
|
|
34
|
%
|
Valuation allowance
|
|
|
-21
|
%
|
|
|
-34
|
%
|
Tax expense at actual rate
|
|
|
—
|
|
|
|
—
|
|
The tax effects of temporary differences that gave rise
to significant portions of deferred tax assets and liabilities at September 30, 2018 and 2017, respectively, are as follows:
|
|
Balance at
September 30, 2018
|
|
|
Balance at
September 30, 2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
81,958
|
|
|
$
|
40,278
|
|
Total gross deferred tax assets
|
|
|
81,958
|
|
|
|
40,278
|
|
Less - valuation allowance
|
|
|
(81,958
|
)
|
|
|
(40,278
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred income taxes are provided for the tax effects
of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the
bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences
of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.
On December 22, 2017, the Tax Cuts and Jobs Act (the
Tax Act) was enacted, significantly altering U.S. corporate income tax law. The SEC issued Staff Accounting Bulletin 118, which
allows companies to record reasonable estimates of enactment impacts where all of the underlying analysis and calculations are
not yet complete. The provisional estimates must be finalized within a one-year measurement period. The Company reduced its net
domestic deferred tax asset balance by $9,557 due to the reduction in corporate tax rate from 34% to 21%. These adjustments are
fully offset by a change in the Company’s U.S. valuation allowance.
At September 30, 2018, the Company had accumulated deficit
of approximately $1,246,000 for U.S. federal income tax purposes available to offset future taxable income expiring on various
dates through 2035. The Company has recorded a 100% valuation allowance on the deferred tax assets due to the uncertainty of its
realization. The net change in the valuation allowance during the years ended September 30, 2018 and 2017 was an increase of $63,193
and $30,382, respectively.
In the normal course of business, the Company’s
income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest
assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize
the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative
probability threshold in accordance with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate
resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial
position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company
has not recorded a liability for unrecognized tax benefits. As of September 30, 2018, tax years 2018 and 2017 remain open for examination
by the IRS and California. The Company has received no notice of audit from the Internal Revenue Service for any of the open tax
years.
NOTE 12 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through December
28, 2018, the date which these financial statements were issued noting the following items that would impact the accounting for
events or transactions in the current period or require additional disclosures.
On December 3, 2018, the Company announced the purchase
of 51% of the issued and outstanding capital stock of Prema Life Pty Ltd and 60% of the issued and outstanding capital stock of
GGLG Properties PTY Ltd, collectively in exchange for 304,500 shares of the Company’s common stock valued at $1,218,000 based
on the fair value of the common stock on the closing date.