ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
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.
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 “NHEL”) 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 has positioned itself to be a fully integrated nutraceutical biotechnology company
offering products and related services through healthcare practitioners and direct-to-consumers. The company now owns a research
& development laboratory in Malaysia, franchisee management services company and an Australia manufacturing facility producing
practitioner only naturopathic and homeopathic medicines.
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. and effectuated a 30:1 forward stock split of its common stock
and increased its authorized share capital to 500,000,000 (Five Hundred Million). 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. The new trading symbol for our common stock is “NHEL”.
On January 31,
2018, the company acquired the total outstanding share of NHF International Limited at USD$1. Upon the completion of the acquisition,
its subsidiaries, both Natural Tech R&D Sdn Bhd and NHF Management & Business Sdn Bhd become wholly subsidiaries of the
Group. As this transaction is business combination under common control, as deliberated and determined by Directors of the Company,
difference between purchase considerations and net tangible assets acquired is recorded in merger reserves which amounted to $517,300.
Natural Tech R&D Sdn Bhd, a BioNexus Status Company in Malaysia, specializes in research and development, cultivation, extraction
and commercialization of nutraceuticals based on medicinal fungi and NHF Management & Business Sdn Bhd, providing franchisee
management services and consultation, such as point-of-sales system, resources, branding and marketing.
The corporate
structure is depicted below:
Basis of Presentation
These accompanying financial statements
have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
Basis of Consolidation
The condensed consolidated financial statements
include the accounts of Natural Health Farm Holdings Inc. and all controlled subsidiaries. All intercompany transactions and balances
have been eliminated.
The condensed consolidated financial statements
as of September 30, 2018 and for the year ended September 30, 2018, in the opinion of management, all adjustments (consisting of
normal recurring adjustments and reclassifications) necessary to present fairly the Company's condensed consolidated financial
position, results of operations, statements of comprehensive income, and statements of stockholders' equity and cash flows for
all periods presented.
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 recorded a total comprehensive loss of $971,558 for the year ended September 30, 2018 and
has an accumulated deficit of $1,067,080 as of September 30, 2018.
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.
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 $439,846 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.
Equipment Costs
Equipment costs
include direct costs incurred for purchase of fixed assets and payments made to independent suppliers. The Company accounts for
equipment costs in accordance with the FASB guidance for the costs of equipment to be sold, leased, or otherwise marketed (“ASC
Subtopic 985-20”). As for the equipment costs, they 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 and Concentrations
We generate revenue from licensing and
other software services from our web-based software to distributors and retailers of nutritional supplements in the healthcare
industry. We 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. We consider 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.
Through our subsidiary, Natural Tech R&D
Sdn. Bhd., we generate revenue from the sales of health supplement and other health food products, as well as in providing laboratory
analytical testing services. As for NHF Management & Business Sdn Bhd, we generate revenue in providing franchisee management
and consultation services to client.
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 – PLANT AND EQUIPMENT
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 and
consolidated
through merger
of subsidiaries
|
|
|
Amortization
|
|
|
Balance at
September 30, 2018
|
|
Plant and equipment
|
|
$
|
-
|
|
|
$
|
195,452
|
|
|
$
|
(35,973
|
)
|
|
$
|
159,479
|
|
Plant and equipment costs are being amortized
on a straight-line basis over their estimated life of three years.
The future amortization expense of equipment
costs as of September 30, 2018 are to be recorded in accordance with their estimated useful lives.
NOTE 4 – OTHER INVESTMENTS
Other investments amounting to $93,580
as at September 30, 2018, represents unquoted investments carried at amortized costs.
NOTE 5 – ACCOUNT PAYABLES AND
ACCRUED EXPENSES
Account payables as at September 30, 2018
and September 30, 2017 totaled $71,678 and $0, respectively while the accrued expenses as of September 30, 2018 and September 30,
2017 totaled $36,720 and $0, respectively.
NOTE 6 – PAYABLE TO AFFILIATES
The Company has received an advance of $11,210 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
|
|
|
|
|
|
|
|
|
Other payables – related parties
|
|
$
|
299,309
|
|
|
$
|
80,137
|
|
Deferred revenue - related parties
|
|
|
57,341
|
|
|
|
-
|
|
Total
|
|
$
|
356,650
|
|
|
$
|
80,137
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
The Company received an advance of $11,210
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 former 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).
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
|
|
|
$
|
-
|
|
NOTE 8 – NOTE PAYABLE (CONTINUED)
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.
NOTE 10: STOCKHOLDERS’ DEFICIT
(CONTINUED)
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 – RELATED PARTIES
Parties, which can be a corporation or
individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and operating decisions. Companies are also considered
to be related if they are subject to common control or common significant influence.
NOTE 12 – INCOME TAX
For
the year ended September 30, 2018 and 2017 the local (United States) and foreign components loss before income taxes were comprised
of the following:
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
Local tax jurisdiction
|
|
$
|
(1,127,212
|
)
|
|
$
|
(89,359
|
)
|
|
|
|
|
|
|
|
|
|
Foreign tax jurisdiction:
|
|
|
|
|
|
|
|
|
Malaysia
|
|
$
|
180,264
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Loss Before Provision for Income Tax
|
|
$
|
(946,948
|
)
|
|
$
|
(89,359
|
)
|
Reconciliation of tax expense and the accounting
profit multiplied by U.S’s domestic tax rate for 2018 and 2017:
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
Loss Before Provision for Income Tax
|
|
$
|
(946,948
|
)
|
|
$
|
(89,359
|
)
|
|
|
|
|
|
|
|
|
|
Tax at statutory tax rate of 21% (2017: 35%)
|
|
|
(198,859
|
)
|
|
|
(31,276
|
)
|
Effect of tax rates in foreign jurisdictions
|
|
$
|
12,970
|
|
|
$
|
-
|
|
Temporary difference not recognized
|
|
|
238,351
|
|
|
|
31,276
|
|
Expenses not deductible for tax purposes
|
|
|
1,785
|
|
|
|
|
|
Tax incentives (#)
|
|
|
(52,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Tax
|
|
$
|
1,666
|
|
|
$
|
-
|
|
NOTE 12 – INCOME TAX (CONTINUED)
The Company is a U.S. entity and is subject
to the United States federal income tax however no provision for income taxes in the United States has been made as the Company
had no United States taxable income for the year ended September 30, 2019.
The tax expense of $1,666 (2017: $ Nil) is arising from Malaysian
entities carry a corporate tax rate of 18%.
The provision for income
tax consists of the following:
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
Tax expense
|
|
|
|
|
|
|
|
|
- Local
|
|
$
|
-
|
|
|
$
|
-
|
|
- Foreign
(#)
|
|
|
1,666
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Tax
|
|
$
|
1,666
|
|
|
$
|
-
|
|
(#) Lower effective tax rate is notably from Malaysian entities was due to Natural Tech R&D Sdn.
Bhd. was granted BioNexus Status by the Malaysian Biotechnology Corporation Sdn. Bhd. and Malaysia’s Ministry of Finance.
With this tax incentives, the entire statutory business income is exempted from tax for a period of 10 consecutive years of assessment
with effect from 25th May 2010.
NOTE 13 – RESTATEMENT
On January 31, 2018, the company acquired the total outstanding share of NHF International Limited, an
investment holding company, at USD$1 Upon the completion of the acquisition, its subsidiaries, both Natural Tech R&D Sdn Bhd
and NHF Management & Business Sdn Bhd, in turn, became wholly-owned subsidiaries of the Company. As this transaction is business
combination under common control, as deliberated and determined by Directors of the Company, difference between purchase considerations
and net tangible assets acquired is recorded in merger reserves which amounted to $529,329. Natural Tech R&D Sdn Bhd, a BioNexus
Status Company in Malaysia, specializes in research and development, cultivation, extraction and commercialization of nutraceuticals
based on medicinal fungi and NHF Management & Business Sdn Bhd, providing franchisee management services and consultation,
such as point-of-sales system, resources, branding and marketing.
The following balances and amounts in
the initial financial statements announced on 28 December 2018 were inadvertently reported on the condensed consolidated balance
sheets and condensed consolidated statements of operations. The effects of correction of errors are disclosed as below:
Condensed Consolidated Balance Sheets
|
|
As previously reported
|
|
|
Adjustments arising from
merger of subsidiaries
|
|
|
As restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Current assets
|
|
|
28,002
|
|
|
|
750,693
|
|
|
|
778,695
|
|
Non-current assets
|
|
|
30,781
|
|
|
|
222,278
|
|
|
|
253,059
|
|
Total assets
|
|
|
58,783
|
|
|
|
972,971
|
|
|
|
1,031,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
285,123
|
|
|
|
279,829
|
|
|
|
564,952
|
|
Non-current liabilities
|
|
|
-
|
|
|
|
8,159
|
|
|
|
8,159
|
|
Total liabilities
|
|
|
285,123
|
|
|
|
287,988
|
|
|
|
573,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital
|
|
|
161,555
|
|
|
|
-
|
|
|
|
161,555
|
|
Reserves
|
|
|
(387,895
|
)
|
|
|
684,983
|
|
|
|
297,088
|
|
Total equity
|
|
|
(226,340
|
)
|
|
|
684,983
|
|
|
|
458,643
|
|
Condensed Consolidated Statement
of Operations For the Year Ended September 30, 2018
|
|
As previously reported
|
|
|
Adjustments arising from
merger of subsidiaries
|
|
|
As restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues – related parties
|
|
|
21,659
|
|
|
|
630,708
|
|
|
|
652,367
|
|
Revenues – third parties
|
|
|
32,106
|
|
|
|
85,496
|
|
|
|
117,602
|
|
Total revenues
|
|
|
53,765
|
|
|
|
716,204
|
|
|
|
769,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
(14,669
|
)
|
|
|
(348,178
|
)
|
|
|
(362,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
39,096
|
|
|
|
368,026
|
|
|
|
407,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
(1,165,282
|
)
|
|
|
(189,180
|
)
|
|
|
(1,354,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(1,126,186
|
)
|
|
|
178,846
|
|
|
|
(947,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
-
|
|
|
|
1,418
|
|
|
|
1,418
|
|
Finance costs
|
|
|
(1,026
|
)
|
|
|
-
|
|
|
|
(1,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Tax
|
|
|
(1,127,212
|
)
|
|
|
180,264
|
|
|
|
(946,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
|
|
-
|
|
|
|
(1,666
|
)
|
|
|
(1,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(1,127,212
|
)
|
|
|
178,598
|
|
|
|
(948,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences
|
|
|
-
|
|
|
|
(22,944
|
)
|
|
|
(22,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive expense for the year
|
|
|
(1,127,212
|
)
|
|
|
155,654
|
|
|
|
(971,558
|
)
|
The above restatements do not have any
significant impact to the basic and dilutive net loss per share as compared to initial announcement on 28 December 2018.
NOTE 14 – SUBSEQUENT EVENTS
On December 3, 2018, the Company agreed
to purchase 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. On December
28, 2018, the parties mutually agreed to extend the closing date of the purchase transaction on January 1, 2019. The Company issued
304,500 shares of its common stock on December 3, 2018 in good faith for consummating the purchase. These newly acquired entities
were consolidated since 1 January 2019.
Management has evaluated subsequent events
through September 30, 2018, the date the financial statements were available to be issued, noting no items that would impact the
accounting for events or transactions in the current period or require additional disclosure.