NOTES
TO UNAUDITED FINANCIAL STATEMENTS
September
30, 2018
Cash
and Cash Equivalents
As
of September 30, 2018 and 2017, we did not maintain any cash or bank balances.
Financial
Instruments
The
estimated fair values for financial instruments were determined at discrete points in time based on relevant market information.
These estimates involved uncertainties and could not be determined with precision. The carrying amounts of accounts payable, accrued
liabilities and loans payable approximate fair value because of the short-term maturities of these instruments. The fair value
of our shareholder loan payable approximates to its carrying value due to its short-term maturity.
Fair
Value Measurements:
ASC
Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair
value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition
of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted
prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines
the hierarchy as follows:
Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types
of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities
listed on the New York Stock Exchange.
Level
2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of
the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities
or contracts, or priced with models using highly observable inputs.
Level
3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included
in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models
and forecasts used to determine the fair value of financial transmission rights.
Our
financial instruments consist of a single loan payable from one of our shareholders. The carrying values the loan payable - shareholder
approximates its fair value due to its short maturity.
Related
Party Transactions:
A
related party is generally defined as (i) any person that holds 10% or more of our membership interests including such person’s
immediate families, (ii) our management, (iii) someone that directly or indirectly controls, is controlled by or is under common
control with Aquarius, or (iv) anyone who can significantly influence the financial and operating decisions of Aquarius. A transaction
is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Fixed
Assets:
As
of September 30, 2018 and 2017, we did not maintain any fixed assets.
Impairment
of Long-Lived and Intangible Assets:
We
had no long-lived or intangible assets as of September 30, 2018 or 2017.
FUQUAN
FINANCIAL COMPANY
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
September
30, 2018
Deferred
Costs and Other:
Offering
costs with respect to issue of debt or equity by us are initially deferred and ultimately offset against the proceeds from these
debt or equity transactions if successful or expensed if the proposed debt or equity transaction is unsuccessful.
Income
Taxes:
The
provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of
assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured
using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected
to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely
than not to be realized.
Uncertain
Tax Positions:
We
evaluate tax positions in a two-step process. Wee first determines whether it is more likely than not that a tax position will
be sustained upon examination, based on the technical merits of the position. If a tax position meets the more-likely-than-not
recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax
position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
We classify gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of
cash within one year as long-term liabilities in the financial statements.
Derivative
Liability
The Company accounts for derivative instruments
in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities,
including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all
derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair
value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships
designated are based on the exposures hedged. At September 30, 2018 and September 30, 2017, the Company did not have any derivative
instruments that were designated as hedges.
Beneficial
Conversion Feature
For conventional convertible
debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”)
and related debt discount.
When the Company records a BCF, the relative fair value of the BCF is recorded as
a debt discount against the face amount of the respective debt instrument. The discount is amortized to interest expense over
the life of the debt.
Revenue
Recognition:
Revenue
is recognized when obligations under the terms of a contract with a customer are satisfied, generally this occurs with the transfer
of control of our product. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring
goods. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
During
the three and six months ended September 30, 2018 and 2017, we did not recognize any revenue.
Advertising
Costs:
No
advertising costs were incurred during the three months and six month ended September 30, 2018 and 2017.
Stock
Based Compensation:
The
cost of equity instruments issued to non-employees in return for goods and services is measured by the fair value of the goods
or services received or the measurement date fair value of the equity instruments issued, whichever is the more readily determinable.
Measurement date for non-employees is the earlier of performance commitment date or the completion of services. The cost of employee
services received in exchange for equity instruments is based on the grant date fair value of the equity instruments issued.
Net
Loss per Share Calculation:
Basic
net loss per common share (“EPS”) is computed by dividing loss available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted
average shares outstanding, assuming all dilutive potential common shares were issued. Dilutive loss per share excludes all potential
common shares if their effect is anti-dilutive.
FUQUAN
FINANCIAL COMPANY
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
September
30, 2018
As
of September 30, 2017, we stated that throughout the three and six-month periods ended of September 30, 2017 and 2016,
200,000 stock options with an exercise price of $0.001 and that did not expire were issued and fully vested. That authorization
has been rescinded and as of September 30, 2018, no stock options were issued.
Subsequent
Events:
We
have evaluated all transactions from October 1, 2018 through January 29, 2019 for subsequent event disclosure consideration.
Recently
Accounting Pronouncements:
We
have reviewed all the recently issued, but not yet effective, accounting pronouncements and do not believe any of these pronouncements
will have a material impact on our financial statements.
NOTE
4. SHAREHOLDER LOANS PAYABLE
During
the three and six months ended September 30, 2018 and 2017, we received $0 and $8,775, respectively, by way of loan from
our principal shareholder, a former officer and director of ours, to fund our working capital requirements such as the compensation
to the former officer and director, accounting, auditing, SEC filings, tax preparation, share transfer agent fees and certain
legal fees.
The
loan is interest free, unsecured and due on demand.
The
balance due to our principal shareholder on this loan as of September 30, 2018 and 2017 was $324,033 and $306,052,
respectively.
NOTE
5. CONVERTIBLE NOTES PAYABLE – RELATED PARTY
In
or around April 2018 the Company entered into a Convertible Loan Agreement with its majority shareholder, Houyu Huang (the “Loan
Agreement”). Under the terms of the Loan Agreement, Mr. Huang agreed to provide financing to the Company up to a maximum
of $500,000. The Company will issue to Mr. Huang an advance request each time it requires funding under the Loan Agreement. All
amounts so advanced will be covered under a Convertible Promissory Note (the “Note”). All amounts under the Note accrue
interest at the rate of 10% per annum; are due and payable in 24-months; and, can be converted at the option of Mr. Huang into
shares of our common stock at a 20% discount to the market price of our shares. The Note is convertible at any time following
90-days after the issue date.
During
the six months ended September 30, 2018, the Company issued a convertible note of $199,372.
The
Company valued the conversion feature at the issue date at $284,569 using the Binomial valuation model. $199,372 of the value
assigned to the derivative liability was recognized as a debt discount on the convertible debenture and is being amortized over
the life of the convertible note. The balance of $85,197 of the value assigned to the derivative liability was expensed on the
issue date of the convertible note.
During
the six months ended September 30, 2018, the Company recorded interest expense of $4,383 and recognized amortization of debt discount,
included in interest expense, of $23,174.
As
of September 30, 2018, the outstanding principal balance of the note was $199,372, the note had accrued interest of $4,383 and
an unamortized debt discount of $176,198.
NOTE
6. DERIVATIVE LIABILITIES
The
Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging,
and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance
resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
Fair
Value Assumptions Used in Accounting for Derivative Liabilities.
ASC
815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change
in the fair market value as other income or expense item.
The
Company determined that its derivative liabilities must be classified in Level 3 of the three-level hierarchy for measuring fair
value and uses a Binomial model to calculate the fair value of these liabilities. The Binomial model requires six basic data inputs:
(1) the exercise, conversion or strike price, (2) the expected life (in years), (3) the risk-free interest rate, (4) the current
stock price, (5) the expected volatility for the Company’s common stock, and (6) the expected dividend yield. Changes to
these inputs could result in a significantly higher or lower fair value measurement.
As
of September 30, 2018, the estimated fair values of the liabilities measured on a recurring basis are as follows:
|
|
|
Six months ended
|
|
|
|
|
September
30, 2018
|
|
Expected term
|
|
|
1.53 - 1.75 years
|
|
Volatility
|
|
|
137% - 166%
|
|
Risk free rate
|
|
|
2.57% - 2.81%
|
|
Dividend
|
|
|
-
|
|
The
following table summarizes the changes in the derivative liabilities during the six months ended September 30, 2018:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
Balance – March 31, 2018
|
|
$
|
-
|
|
Addition of new derivatives recognized as debt discounts
|
|
|
199,372
|
|
Addition of new derivatives recognized as day-one loss
|
|
|
85,197
|
|
Change in derivative liabilities recognized as loss on derivative
|
|
|
(119,958
|
)
|
Balance - September 30, 2018
|
|
$
|
164,611
|
|
The
following table summarizes the gain on derivative liability included in our statement of operation for during the six months ended
September 30, 2018:
|
|
Six months ended
|
|
|
|
September 30, 2018
|
|
Day-one loss due to derivative liabilities on convertible note payable
|
|
$
|
85,197
|
|
Change in derivative liabilities recognized as gain on derivative
|
|
|
(119,958
|
)
|
Gain on change in fair value of derivative liabilities
|
|
$
|
(34,761
|
)
|
FUQUAN
FINANCIAL COMPANY
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
September
30, 2018
NOTE
7. INCOME TAXES
We
did not provide any current or deferred US federal income tax provision or benefit for any of the periods presented in these financial
statements because we have experienced losses since Inception. When it is more likely than not, that a tax asset cannot be realized
through future income, we must record an allowance against any future potential future tax benefit. We have provided a full valuation
allowance against the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined
that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward
periods.
The
Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the three
months ended September 30, 2018 and 2017 as defined under ASC 740, “Accounting for Income Taxes.” We did not recognize
any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance
of the accumulated deficit on the balance sheet.
The
provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before
provision for income taxes.
N
OTE
8. COMMITMENTS & CONTINGENCIES
Legal
Proceedings
We
were not subject to any legal proceedings for the three months ended September 30, 2018 and 2017 and, to the best of our knowledge,
no legal proceedings are pending or threatened.
NOTE
8. SHAREHOLDERS’ DEFICIT
Preferred
Stock
As
of September 30, 2017, we stated that we were authorized to issue 50,000,000 shares of preferred common stock with a par value
of $0.001. That authorization has been rescinded and as of September 30, 2018, no shares of preferred stock were authorized to
be issued.
No
shares of preferred stock were issued and outstanding during the three months ended June 20, 2018 and 2017.
Common
Stock
On
or around April 20, 2018, the Company issued 2,778,000,000 shares of its common stock to Houyu Huang as compensation for services
rendered as president and director of the Company. The issuance was exempt under Section 4(a)(2) of the Securities Act.
On
or around April 23, 2018 the Company increased its number of authorized shares of common stock to 3,000,000,000 shares, $0.001
par value.
As
of September 30, 2018 and September 30, 2017, 2,900,164,114 and 122,164,144 shares of common stock were issued and outstanding,
respectively.
Warrants
No
warrants were issued or outstanding during the three months ended September 30, 2018 and 2017.
Stock
Options
The
Company has an incentive stock option plan, which provides for the granting by the Board of Directors of stock options to directors
and officers for the purchase of authorized but unissued common shares.
As
of December 31, 2017, we stated that throughout the three and six-month periods ended of September 30, 2017 and 2016, 200,000
stock options with an exercise price of $0.001 and that did not expire were issued and fully vested. That authorization has been
rescinded and as of September 30, 2018, no stock options were issued.
NOTE
9. SUBSEQUENT EVENTS
Through
January 29, 2019 the Company has borrowed an additional $59,986 under the April 2018 Convertible Loan Agreement. The entire amount
was paid to Fuquan Investment Management (USA) Company (“
FIM USA
”), which is owned by our CFO, Hua Huang. The
amounts were paid directly to FIM USA as payment for management services provided by FIM USA to the Company. These services were
provided under the MSA, discussed below.
On
around September 26, 2018 the Company filed with the State of Nevada to effect a reverse stock split. The reverse stock split
has not yet been implemented and effected. When implemented and effected, one (1) share of common stock will be issued for every
four (4) shares of common stock issued and outstanding. The number of authorized shares of common stock will be reduced by the
same 1:4 ratio, resulting in 750,000,000 shares of common stock being authorized.
On
January 29, 2019, the Company and Houyu Huang entered into a Forbearance Agreement (the “
Forbearance Agreement
”).
The Company was potentially in breach of the Loan Agreement and the Note as of September 30, 2018 as the Company was not in compliance
with its SEC filing obligations. The Forbearance Agreement served to waive all such breaches and gave the Company until March
31, 2019 to be current in its SEC filing obligations.