REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of All Soft Gels, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of All Soft Gels, Inc. (the Company) as of December 31, 2017 and 2016, and the related statements of income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2017, 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 December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
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 3 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
M&K CPAS, PLLC
We have served as the Company’s auditor since 2016.
Houston, TX
July 13, 2018
Notes to the Financial Statements
December 31, 2017 and 2016
Note 1 - Organization and Basis of Operations
All Soft Gels Inc. (the “Company”) was incorporated in the State of Nevada on November 18, 2013 to market a soft gel Kre-Alkalyn capsule.
On November 27, 2017, Gene Nelson, the Company’s founder, largest stockholder, and sole executive officer and director, sold all of his shares of common stock of the Company to Amer Samad, resulting in a change of control of the Company; however, such shares remain in Mr. Nelson’s name pursuant to the stock transfer records of the Company, and are expected to be transferred in name to Mr. Samad in July 2018. As part of that transaction, Mr. Nelson resigned from all of his officer and director positions, and Mr. Samad was appointed as the Chief Executive Officer, President, Treasurer and Secretary of the Company, and was appointed to the Board of Directors of the Company.
The Company has not commenced its major operations of having its one product, a soft-gel capsule named All Soft Gels Kre-Alkalyn Liquid Gels, manufactured by an unaffiliated outside provider. However, the Company has distributed the product through limited sales on the Amazon.com website. As a result of the change of control transaction referred to above, the Company has suspended operations and is not currently marketing or seeking to manufacture All Soft Gels Kre-Alkalyn Liquid Gels, although the Company may recommence such operations in the future. As a result, the Company can be considered a shell company.
Note 2 - Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in accordance with United States generally accepted accounting principles and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation. All such adjustments are of a normal recurring nature.
The Company has adopted a fiscal year end of December 31st.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the 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. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and equivalents include investments with initial maturities of three months or less. The Company maintains its cash balances at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. As of December 31, 2017 and December 31, 2016, the Company had no cash equivalents.
Accounts Receivable
Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions. During the periods ended December 31, 2017 and December 31, 2016, the Company wrote off accounts receivable totaling $0 and $0, respectively. There were no allowances for doubtful accounts recorded for the period ended December 31, 2017 or the year ended December 31, 2016.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the establishment of deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent deferred tax assets may not be recoverable after consideration of the future reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income.
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash and accrued expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had no items that required fair value measurement on a recurring basis.
Revenue recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.
There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the year ended December 31, 2017 and December 31, 2016.
Basic and Diluted Loss Per Share
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, there were no outstanding potential common stock equivalents and therefore basic and diluted earnings per share result in the same figure.
Stock-based compensation
The Company adopted FASB guidance on stock based compensation upon inception at November 18, 2013. Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company did not issue any stock or options for services or compensation for the fiscal years ended December 31, 2017 and 2016.
Our employee stock-based compensation awards are accounted for under the fair value method of accounting, as such, we record the related expense based on the more reliable measurement of the services provided, or the fair market value of the stock issued multiplied by the number of shares awarded.
We account for our employee stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock option expense at the date of grant. We do not backdate, re-price, or grant stock-based awards retroactively. As of the date of this report, we have not issued any stock options.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled for the transfer of promised goods or services to customers. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU will replace most of the existing revenue recognition requirements in U.S. GAAP when it becomes effective. Further, the FASB has issued clarifying guidance with ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing,” and ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” ASU No. 2016-08 provides guidance for evaluating when another party, along with the entity, is involved in providing a good or service to a customer. ASU No. 2016-10 clarifies assessing whether promises to transfer goods or services are distinct, and whether an entity’s promise to grant a license provides a customer with a right to use or right to access the entity’s intellectual property. ASU No. 2016-20 provides corrections or improvements to issues that affect narrow aspects of the guidance. The Company adopted the standards in the first quarter of fiscal year 2018.
There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
Note 3 – Going Concern
As shown in the accompanying financial statements, the Company has incurred recurring net losses from operations resulting in an accumulated deficit of $182,779, cash of $13, and a working capital deficit of $172,541 as of December 31, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new ventures to increase revenues, but is not currently pursuing its liquid gel business. In addition, the Company is currently seeking additional sources of capital to fund short term operations. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful, therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 – Inventory
Inventory consists of soft-gel capsules produced by an independent third- party vendor. At December 31, 2017 and December 31, 2016, inventory consisted of finished goods inventory of $2,260 and $3,420, respectively.
Inventory is valued at the lower of cost or market, and is determined by the first-in, first-out method.
Note 5 – Convertible Notes Payable
In November 2016, the Company issued a convertible note payable to a third party investor for cash proceeds in the amount of $35,000 (the “November 2016 Convertible Note”. The November 2016 Convertible Note was originally due 90 days from the date of the note, but was further extended to December 1, 2017. At the discretion of the investor, this note is also convertible into common stock of the Company 90 days after issuance at a rate of $0.002 per share, or a total of 17,500,000 shares. Since the conversion price of the November 2017 Convertible Note was above the stock price of $0.001 established in recent transactions, there was no beneficial conversion feature or discount associated with this note. The Company calculated interest at the rate of 8% per year on this note, and charged the amount of $3,087 to operations during the year ended December 31, 2017. As of December 31, 2017, the note was in default and bore interest at 18% per annum. See “Note 12 – Subsequent Events” below regarding forgiveness of this indebtedness.
In January 2017,
the Company issued a convertible note payable in the amount of $34,600 (the “January 2017 Convertible Note”). This note was originally due 90 days from the date of the note, but was further extended to
December 1, 2017.
At the discretion of the investor, this note is also convertible into common stock of the Company 90 days after issuance at a rate of $0.002 per share, or a total of 17,300,000 shares. Since the conversion price of the January 2017 Convertible Note was above the stock price of $0.001 established in recent transactions, there was no beneficial conversion feature associated with this note. The January 2017 Convertible Note was not funded until January 13, 2017, and therefore was recorded on the
books on January 13, 2017. The Company calculated interest at the rate of 8% per year on this note, and charged the amount of $2,954 to operations during the year ended December 31, 2017. As of December 31, 2017, the note was in default and bore interest at 18% per annum. See “Note 12 – Subsequent Events” below regarding forgiveness of this indebtedness.
Note 6 – Related Party Transactions
During the year ended December 31, 2017, the Company’s former CEO, Gene Nelson, was paid the net amount of $30,000 as partial payment of accrued salary. At December 31, 2017, Mr. Nelson is owed the amount of $62,666 for accrued salary. See “Note 12 – Subsequent Events” below regarding forgiveness of this accrued salary.
During the year ended December 31, 2017, the Company’s former CEO, Gene Nelson, advanced the company $23,400, net to fund operations. These amounts bear interest at the rate of 3% per annum, and are due on demand. See “Note 12 – Subsequent Events” below regarding forgiveness of this advance.
During May 2016, the Company’s CEO Gene Nelson returned 4,000,000 shares of common stock, valued at $4,000, to the Company. During the year ended December 31, 2016, the Company sold the 4,000,000 treasury shares receiving proceeds of $3,905 and a subscription receivable of $95 to third party investors.
Note 7 – Stockholders’ Equity
The Company is authorized to issue 50,000,000 shares of $0.001 par value common stock. The Company has 10,000,000 common shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively.
There were no issuances of shares during the year ended December 31, 2017.
During May 2016, the Company’s CEO Gene Nelson returned 4,000,000 shares of common stock, valued at $4,000, to the Company. During the year ended December 31, 2016, the Company sold the 4,000,000 treasury shares receiving proceeds of $3,905 and a subscription receivable of $95 to third party investors.
During the year ended December 31, 2016, the Company recorded imputed interest in the amount of $238 on the November 2016 Convertible Note. Imputed interest was charged to additional paid in capital during the period.
Note 8 – Revenue
The Company has recorded revenue of $7,022 during the year ended December 31, 2017. These sales were to unaffiliated third parties for bottles of Creatinine Gels. The Company has sold approximately 407 units during the year ended December 31, 2017. During the year ended December 31, 2017, the Company had one customer that accounted for 96% of sales.
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.
There was no impact on the Company’s financial statements as of December 31, 2017 and 2016 as a result of adopting Topic 606 for the year ended December 31, 2018.
Note 9 – Income Taxes
The Company accounts for income taxes under FASB ASC 740-10, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.
As of December 31, 2017 and 2016, the Company had incurred a net operating loss and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets.
The tax effects of the temporary differences that give rise to the Company’s estimated deferred tax assets and liabilities are as follows:
|
|
December 31,
2017
|
|
|
|
|
Federal and state statutory rate
|
|
|
21
|
%
|
|
|
34
|
%
|
Net operating loss carry forwards
|
|
$
|
38,377
|
|
|
$
|
30,855
|
|
Valuation allowance for deferred tax assets
|
|
$
|
(38,377
|
)
|
|
$
|
(30,855
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2017 and 2016, the Company had net operating loss carry forwards of approximately $182,746 and $90,750 available to offset future taxable income. The net operating loss carry forwards, if not utilized, will begin to expire in 2037.
Based on the available objective evidence, including the Company’s history of losses, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company has provided for a full valuation allowance against its net deferred tax assets at December 31, 2017 and 2016. The Company had no uncertain tax positions as of December 31, 2017.
Note 10 – Contingencies and Litigation
Legal Proceedings
The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on its financial position, results of operations or liquidity. As of December 31, 2017, the Company is not involved in any litigation or disputes.
Note 11 – Subsequent Events
We evaluated subsequent events after the balance sheet date through the date the financial statements were issued. Except as set forth below, the Company did not identify any additional material events or transactions occurring during this subsequent event reporting period that required further recognition or disclosure in these financial statements.
The Company entered into a Loan and Compensation Forgiveness Agreement, dated as of May 10, 2018, with Gene Nelson, pursuant to which, among other things, an aggregate of approximately $86,000 of principal indebtedness and accrued salary held by Mr. Nelson were forgiven and terminated.
The Company entered into a Loan Forgiveness Agreement, dated as of May 10, 2018, with Richard Clausing, pursuant to which, among other things, $35,000 of principal indebtedness held by Mr. Clausing was forgiven and the November 2016 Convertible Note was terminated.
The Company entered into a Loan Forgiveness Agreement, dated as of May 10, 2018, with Richard Ronan, pursuant to which, among other things, $34,600 of principal indebtedness held by Mr. Ronan was forgiven and the January 2017 Convertible Note was terminated.