Notes
to Financial Statements
NOTE
1: ORGANIZATION AND OPERATIONS
China
Foods Holdings Ltd. (the “Company”) was incorporated in Delaware on January 10, 2019. On January 23, 2019, the Company
entered into an Agreement and Plan of Merger (the “Agreement”) with Trafalgar Resources, Inc., a Utah corporation
(“Trafalgar”). Pursuant to the Agreement, the Company merged with Trafalgar (the “Merger”) with the Company
as the surviving entity. Prior to the Merger, Trafalgar had not commenced operations that had resulted in significant revenue
and Trafalgar’s efforts had been devoted primarily to activities related to raising capital and attempting to acquire an
operating entity.
Prior
to the Merger, Trafalgar’s majority stockholder who owned 5,000,000 shares (approximately 95.2%) of the 5,251,309 outstanding
shares of Trafalgar’s common stock, par value $0.0001, signed a written consent approving the Merger and the related transactions.
Such approval and consent were sufficient under Utah law and Trafalgar’s Bylaws to approve the Merger. The boards of directors
and shareholders of the Company and Trafalgar approved the Merger.
Pursuant
to the Merger, each share of Trafalgar’s common stock was converted into one share of the Company’s common stock.
After the Merger, HY (HK) Financial Investments Co., Ltd. owns 5,000,000 shares of common stock of the Company.
The
Merger was effective on March 13, 2019.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Accounting Basis
The
accompanying audited financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and are presented in US dollars. The Company has adopted a
September 30 fiscal year end.
Accounting
Estimates
The
preparation of financial statements in conformity with U.S. GAAP 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 materially
from these estimates. Changes in estimates are recorded in results of operations in the period that the event or circumstances
giving rise to such changes occur.
Cash
and cash equivalents
The
Company considers all highly liquid investments with the original maturities of three months or less at the time of purchase to
be cash equivalents.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of bank balance, accounts payable, amount due to a director and amount due to the
holding company. The carrying amount of these financial instruments approximates fair value due to length of maturity or interest
rates that approximate prevailing market rates.
Income
Taxes
The
Company accounts for deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between
book and tax basis of recorded assets and liabilities. A valuation allowance is required if it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The determination of whether or not a valuation allowance is needed
is based upon an evaluation of both positive and negative evidence. The ultimate amount of deferred tax assets realized could
be different from those recorded, as influenced by potential changes in enacted tax laws and the availability of future taxable
income.
Related
party transaction
A
related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate
families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under
common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company.
A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related
parties. The Company conducts business with its related parties in the ordinary course of business.
Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of
competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply
that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions
unless such representations can be substantiated.
Net
loss per common share
Loss
per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number
of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available
to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average
number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There
are no such common stock equivalents outstanding as of September 30, 2019, 2018 and 2017.
Recent
Accounting Pronouncements
The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash flow.
NOTE
3: GOING CONCERN
The
financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses resulting
in an accumulated deficit of $595,501 and net stockholders’ deficit of $107,441 as of September 30, 2019, and has negative
cash flows from operations. Further losses are anticipated in the development of its business raising substantial doubt about
the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company
generating profitable operations in the future and, or, to obtain the necessary financing to meet its obligations and repay its
liabilities arising from normal business operations when they come due. Management intends to seek new capital from a related
party to provide needed funds for the next twelve months. These financials do not include any adjustments relating to the amounts
and classifications of liabilities that might result from this uncertainty.
NOTE
4: RELATED PARTY TRANSACTIONS
During
the year ended September 30, 2019, the consulting fee of $12,000 paid to one of the directors, Ms. Yunsi Liu.
During
the year ended September 30, 2018, all the twelve notes owed to its president, as disclosed below, has been waived. An aggregated
principal and interest of $350,547 were waived, while the president draw the cash $13,392.
Note
1 is for $10,000 and bears interest of 4.5% per year and $10,450 in interest and principal was due on February 27, 2010. Note
2 is for $10,000 and bears interest of 4.5% per year and $10,450 in interest and principal was due on February 28, 2011. Note
3 is for $20,000 and bears interest of 4.5% per year and $20,900 in interest and principal was due on January 15, 2014. Note 1,
2 and 3 are in default resulting in a 18% default rate of interest accruing.
Note
4 is for $10,000 and bears interest of 4.5% per year. Interest of $450 was due on May 7, 2011, 2012, 2013, and 2014. Interest
and principal of $10,450 was due on May 7, 2015. Note 4 is in default resulting in a 14% default rate of interest accruing.
Note
5 is for $20,000 and bears interest of 4.75% per year. Interest of $950 was due on February 1, 2012, 2013, and 2014. Interest
and principal of $20,950 was due on February 1, 2015. Note 5 is in default resulting in a 12% default rate of interest accruing.
Note
6 is for $20,000 and bears interest of 8.0% per year. Interest of $1,600 was due on February 1, 2013. Interest and principal of
$21,600 was due on February 1, 2014. Note 6 is in default resulting in a 12% default rate of interest accruing.
Note
7 is for $20,000 and bears interest of 8.0% per year. Interest of $1,600 was due on March 1, 2014. Interest and principal of $21,600
was due on March 1, 2015. Note 7 is in default resulting in a 12% default rate of interest accruing.
Note
8 is for $20,000 and bears interest of 8.0% per year. Interest of $1,600 was due on February 3, 2015. Interest and principal of
$21,600 was due on February 3, 2016. Note 8 is in default resulting in a 12% default rate of interest accruing.
Note
9 is for $30,000 and bears interest of 8.0% per year. Interest of $2,400 was due on December 12, 2016. Interest and principal
of $32,400 was due on December 12, 2016. Note 9 is in default resulting in a 12% default rate of interest accruing.
Note
10 is for $30,000 and bears interest of 8.0% per year. Interest of $2,400 was due on January 5, 2017. Interest and principal of
$32,400 was due on January 5, 2018. Note 10 is in default resulting in a 12% default rate of interest accruing.
Note
11 is for $30,000 and bears interest of 8.0%. Interest of $2,400 was due on December 27, 2017. Interest and principal of $32,400
is due on December 27, 2018.
Note
12 is for $20,000 and bears interest of 8.0%. Interest of $1,600 is due on March 8, 2019. Interest and principal of $21,600 is
due on March 9, 2020.
NOTE
5 : INCOME TAXES
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment. Income tax periods 2017, 2018 and 2019 are open for examination by taxing authorities.
The
income tax expense for the years ended September 30, 2019 and 2018 differs from the amount computed using the federal statutory
rates as follows:
|
|
Year Ended
September 30, 2019
|
|
|
Year Ended
September 30, 2018
|
|
Income tax expense (benefit) at Federal tax rate of 21%
|
|
$
|
(18,791
|
)
|
|
$
|
(13,179
|
)
|
State income tax
|
|
|
-
|
|
|
|
100
|
|
Effect of rate changes on deferred tax assets and valuation allowance
|
|
|
-
|
|
|
|
8,786
|
|
Non-deductible expenses
|
|
|
18,791
|
|
|
|
4,274
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
-
|
|
|
|
119
|
|
|
|
|
-
|
|
|
|
100
|
|
On
December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law including a one-time mandatory transition
tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective on January 1, 2018, among
others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition
tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax
assets and liabilities. The Company does not have any foreign earnings and therefore, we do not anticipate the impact of a transition
tax. We have remeasured our U.S. deferred tax assets at a statutory income tax rate of 21%. Since the Tax Act was passed late
in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider
the accounting of any transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance
and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period
in accordance with SAB 118.
At
September 30, 2019 the Company had a net operating loss carry forward. These losses will start to expire in the year 2019 through
2038. No tax benefit has been reported in the financial statements because the Company believes that it is more likely than not
that the carryforwards will expire unused. The utilization of future losses may be limited under various provisions of the Internal
Revenue Code pertaining to continuity of business operations limits and substantial changes in ownership. Accordingly, the potential
tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount. The Company has no tax positions
at September 30, 2019 and 2018 for which the ultimate deductibility is highly certain but for which there is uncertainty about
the timing of such deductibility.
NOTE
6: AMOUNT DUE TO A DIRECTOR / THE HOLDING COMPANY
|
|
At September 30
|
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
Amount due to a director
|
|
|
|
|
|
|
|
|
Mr. Kong Xiao Jun
|
|
|
87,473
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
Amount due to the holding company
|
|
|
|
|
|
|
|
|
HY (HK) Financial Investments Co., Ltd.
|
|
|
30,000
|
|
|
|
-
|
|
NOTE
7: SHARE CAPITAL
The
Company issued 1,000 shares of the Company’s common stock, par value $0.0001 per share on January 15, 2019.
On
January 23, 2019, Trafalgar entered into an Agreement with the Company, pursuant to which Trafalgar merged into the Company. Trafalgar’s
majority stockholder who owned 5,000,000 shares (approximately 95.2%) of Trafalgar’s 5,251,309 outstanding shares of common
stock, , as of the close of business on January 23, 2019, signed a written consent approving the Merger and the related transactions.
The
Merger was effective on March 13, 2019. At the effective time of the Merger, each share
of Trafalgar’s common stock was converted into one share of the Company’s
common stock.
NOTE
8: SUBSEQUENT EVENTS
On
December 11, 2019, the board of directors of the Company approved a change to its end of fiscal year from September 30 to December
31. The change in fiscal year will become effective for the Company’s 2020 fiscal year, which will begin January 1, 2020
and end December 31, 2020. The Company plans to file a transition report on Form 10-KT for the three-month period from October
1, 2019 through December 31, 2019 within the time period prescribed by the Securities and Exchange Commission.