NOTES
TO THE DECEMBER 31, 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Organization and Operations
Kinetic
Group Inc., a Nevada corporation, (the “Company”) was formed under the laws of the State of Nevada on June 6, 2014. Kinetic
Group Inc. is a full service integrated digital marketing agency. The company offers a full range of web services, including web marketing
services, social and viral marketing campaigns, search engine optimization consulting, custom web design, website usability consulting
and web analytics implementation. The Company generate revenue from sales of its marketing services made directly to small and medium
business customers.
On
March 23, 2018, the Company formed a wholly owned subsidiary, Kinetic Development Inc., an Ontario, Canada Corporation (“KDI”).
The subsidiary was incorporated to facilitate payroll transactions for the employees.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation
The
Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
Principle
of consolidation
The
accompanying consolidated financial statements include all of the accounts of the Company as of December 31, 2019 and 2018. KDI is included
as of December 31, 2019 and 2018 and for the period from March 23, 2018 (date of formation) through December 31, 2018. All intercompany
balances and transactions have been eliminated.
Development
Stage company
Kinetic
Group Inc. is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification. Although the
Company has recognized nominal amounts of revenue, it is still devoting substantially all of its efforts on establishing the business.
All losses accumulated since Inception (June 4, 2014) have been considered as part of the Company’s development stage activities.
In
June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements,
Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.
The
amendments in this Update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification,
thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.
In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in
the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity,
(3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in
which the entity is no longer a development stage entity that in prior years it had been in the development stage.
For
public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim
periods therein. Kinetic Group has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic
915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the company to remove the inception to
date information and all references to development stage.
Use
of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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(s) of the financial statements and the reported amounts of revenues and expenses during the reporting
period(s).Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity
and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of
the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions
affecting the financial statements were:
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(i)
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Assumption
as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations,
realization of assets, and liquidation of liabilities in the normal course of business.
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(ii)
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Allowance
for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical
loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s
ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable
in relation to the financial statements taken as a whole.
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(iii)
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Valuation
allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting
from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future
taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards
are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses,
(b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public
or private offering, among other factors;
|
These
significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these
estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management
bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial
statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions
used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and
reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.
Actual
results could differ from those estimates.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure
the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles
generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements.
To
increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair
value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair
value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described
below:
|
Level
1
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Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
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Level
2
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Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the
reporting date.
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Level
3
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Pricing
inputs that are generally observable inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar
techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than
one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of
the instrument.
The
carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued
expenses, approximate their fair value because of the short maturity of those instruments.
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.
Cash
Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.
Property
and Equipment
Property
and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged
to operations as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives, which range from
five (5) years for computer equipment to seven (7) years for office furniture. Upon sale or retirement of office equipment, the related
cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.
Related
Parties
The
Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure
of related party transactions. Pursuant to Section 850-10-20 the related parties include: a. affiliates of the Company; b. entities for
which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option
Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit
of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners
of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from
fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies
of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other
to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the
preparation of financial statements is not required in those statements.
The
disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions
to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts
of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing
the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet
presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments
and Contingencies
The
Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions
may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved
when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or
unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted
claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the
nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Management does not believe, based upon information available at this time that these matters will have a material adverse effect on
the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not
materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Revenue
Recognition
The
Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes
revenue when it is realized or realizable and earned.
The
Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed
or determinable, and (iv) collectability is reasonably assured.
The
Company derives its revenues from sales contracts with its customer with revenues being generated upon rendering of services. Persuasive
evidence of an arrangement is demonstrated via invoice; service is considered provided when the service is delivered to the customers;
and the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or
volume incentive.
A
right of return exists for customers’ retainers that were received prior to commencement of services. If a customer cancels a service
contract subsequent to the commencement date, the customer is entitled to a refund, except for services already provided.
Income
Tax Provision
The
Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements
or tax returns.
Under
this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that
includes the enactment date.
The
Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13 addresses
the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.
Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The
tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater
than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition,
classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The
estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying
balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred
tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
Management
makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates
of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions.
In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction
varies from estimates, additional allowances or reversals of reserves may be necessary.
Uncertain
Tax Positions
The
Company did not take any uncertain tax positions and had no unrecognized tax liabilities or benefits in accordance with the provisions
of Section 740-10-25 at December 31, 2019 and 2018.
Earnings
per Share
Earnings
Per Share is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either
earnings or loss per share. Earnings per share (“EPS”) is computed pursuant to section 260-10-45 of the FASB Accounting Standards
Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to
common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period.
Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether
or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing
operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the
computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur
from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
Pursuant
to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise
price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents)
issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of
paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied.
Equivalents
of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions
(see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall
be excluded from diluted EPS. Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning
of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall
be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4
through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed
purchased) shall be included in the denominator of the diluted EPS computation.
There
were no potentially debt or equity instruments issued and outstanding at any time during the periods ended December 31, 2019 and 2018.
Cash
Flows Reporting
The
Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts
and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category,
and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting
Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from
operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected
future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts
and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at
the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item
in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing
and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting
Standards Codification.
Subsequent
Events
The
Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events.
The Company will evaluate subsequent events through the date when the financial statements were issued.
Recently
Issued Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, will have a material effect on
the accompanying financial statements.
Note
3 – Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity
of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the accompanying financial statements, the Company had accumulated a deficit at December 31, 2019, which raises substantial
doubt about the Company’s ability to continue as a going concern.
The
Company is attempting to generate sufficient revenue; however, the Company’s cash position may not be sufficient to support the
Company’s daily operations. Management intends to raise additional funds by way of a private or public offering. While the Company
believes in the viability of its strategy to continue operations and generate sufficient revenue and in its ability to raise additional
funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s
ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a
public or private offering.
The
financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Note
4 – Property and Equipment
Property
and equipment at December 31, 2019 and September 30, 2019 consisted of the following:
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Estimated
Useful Lives
(Years)
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December
31,
2019
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September
30,
2019
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|
|
|
|
|
|
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Computer equipment
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5
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$
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5,832
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$
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5,832
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Less accumulated depreciation
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(5,832
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)
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(5,832
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)
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Computer equipment, net
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|
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-
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|
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|
-
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Software
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|
|
1
|
|
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|
2,495
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|
|
|
2,495
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|
|
Less accumulated amortization
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|
|
|
|
|
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(2,495
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)
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|
|
(2,495
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)
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|
Software, net
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|
|
|
|
|
|
-
|
|
|
|
-
|
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|
Total property and equipment, net
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|
|
|
|
|
$
|
-
|
|
|
$
|
-
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|
Depreciation
expense
Depreciation
expense for the three-month period ended December 31, 2019 and for the year ended September 30, 2019 was $0 and $1,609, respectively.
Note
5 – Asset Acquisition
On
November 26, 2019, the Company entered into a warrant assignment and conveyance agreement (the “Warrant Agreement”) with
2672237 Ontario Limited, an Ontario corporation (“Ontario”), pursuant to which the Company agreed to issue one-third of its
outstanding shares of common stock to Ontario in exchange for 100% of Ontario’s right, title and interest in, to and under a warrant
agreement dated November 26, 2019 between Ontario and Fairway LLC, a limited liability company organized and existing under the laws
of the State of Nevada (“Fairway”) that is becoming a wholly-owned subsidiary of the Company by virtue of the transactions
contemplated thereby.
On
November 26, 2019, the Company also indirectly acquired 100% of the outstanding shares of Solstice Marketing Concepts LLC, a Delaware
limited liability company (“Solstice”) by way of contribution of Fairway by Corette LLC, Fairway’s owner (“Corette”),
in exchange for Fairway’s 2,349,800 shares of common stock of the Company. Fairway owns 100% of Solstice.
Solstice
is the second largest retailer of sunglasses in the United States, carrying a wide range of contemporary and luxury brands with 72 physical
stores and an online presence.
On
December 4, 2019 the Company issued 24,000,000 shares of common stock to Corette as compensation for its contribution of Solstice to
the Company.
On
March 24, 2020 the Company and Corette entered into a Rescission Agreement (the “Rescission Agreement”) whereby both parties
agreed to rescind all transactions and contributions by each of the parties related to acquisition of Ontario, Fairway and Solstice.
In
accordance with the terms of the Rescission Agreement all transactions, contributions and share issuances are each void ab initio
and of no force or effect. The parties agreed to restore their respective holdings, positions and relative interests prior to the
acquisition transactions, restitutio in integrum.
Note
6 – Note Payable
On
November 20, 2019 the Company entered into a $125,000 12% convertible redeemable note due November 20, 2020 (the “Note”).
Any amount of principal or interest on the Note, which is not paid when due shall be an event of default and bear interest at the rate
of eighteen (18%) per annum from the due date thereof until the same is paid unless the (“Default Interest”) unless the Holder
has the option to receive such payment in shares of common stock of the Company by converting such principal amount and accrued, but
unpaid, interest into shares of common stock of the Company in accordance with the terms of the Note (provided that no other event of
default is outstanding or in effect).
The
holder of the Note is entitled, at its option, at any time, to convert all or any amount of the principal face amount of the Note then
outstanding and/or any accrued, but unpaid, interest into shares of the Company’s common stock at a price (“Conversion Price”)
for each share of common stock equal to 70% of the lowest closing price of the common stock as reported on the National Quotations Bureau
OTC Market exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future
(“Exchange”), for the fifteen prior trading days including the day upon which a notice of conversion is received by the Company.
In
the case of an Event of Default (as defined in the Note), the Note shall become immediately due and payable and interest shall accrue
at the rate of Default Interest.
As
of December 31, 2019 the Company did not receive the Note proceeds and did not accrue any interest on the Note principal.
As
per Rescission Agreement dated March 24, 2020, Fairway, LLC, an affiliate of Corette assumed in full the Note. In connection with such
assumption, the holder of the Note released the Company from any and all obligations arising under the Note.
Note
7 – Related Party Transactions
Consulting
services from President, Chief Executive Officer, Treasurer, Chief Financial Officer and Chief Legal Officer
Consulting
services provided by the Company’s officers for the three months ended December 31, 2019 and for the year ended September 30, 2019
were as follows:
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|
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For the
Three Months Ended
December 31,
2019
|
|
|
For the
Year Ended
September 30,
2019
|
|
|
|
|
|
|
|
|
|
|
President, Chief Executive Officer
|
|
$
|
-
|
|
|
$
|
5,600
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|
|
Chief Legal Officer
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|
|
|
|
|
|
-
|
|
|
Chief Financial Officer, Secretary and Treasurer
|
|
|
-
|
|
|
|
5,600
|
|
|
|
|
$
|
-
|
|
|
$
|
11,200
|
*
|
*
- During the year ended September 30, 2019, $4,200 of these related parties consulting services was recognized in cost of revenues and
$7,000 in officers’ compensation within operating expenses.
Debt
Settlement
As
of March 31, 2018 the Company owed to the Company’s officers, Mr. Yaroslav Startsev and Mr. Nikolai Kuzmin, $31,000 (the “Debt”)
for management consulting fees incurred by the Company in accordance with the effective Management Consulting Agreements between the
Company and its officers. The Company’s officers agreed to donate the Debt to the Company’s contributed capital in full satisfaction
of the Debt, effective March 31, 2018.
As
of September 28, 2018 the Company owed to the Company’s former President, Mr. Timothy Barker, $26,451.61 (the “Debt”)
for management consulting fees incurred by the Company in accordance with the effective Management Consulting Agreements between the
Company and its President. The Company’s former President agreed to donate the Debt to the Company’s contributed capital
in full satisfaction of the Debt, effective September 28, 2018.
As
of September 6, 2019 the Company owed to the Company’s officers, Mr. Yaroslav Startsev and Mr. Nikolai Kuzmin, $53,023 (the “Debt”)
for cash advances of $35,798 and management consulting fees of $17,225 incurred by the Company in accordance with the effective Management
Consulting Agreements between the Company and its officers. The Company’s officers agreed to donate the Debt to the Company’s
contributed capital in full satisfaction of the Debt, effective September 6, 2019.
As
of December 31, 2019 the Company owed to the Company’s officers, Mr. Nathan Rosenberg and Mr. Mark Radom, $19,822 (the “Debt”)
for cash advances of $2,403 and professional consulting fees of $17,419 incurred by the Company in accordance with the effective Service
Agreement between the Company and its Chief Legal Officer. The Company’s officers agreed to donate the Debt to the Company’s
contributed capital in full satisfaction of the Debt, effective December 31, 2019.
These
Debt settlements improved the Company’s financial position and increased its working capital. The Company’s current and former
officers released and forever discharged the Company, its successors and assigns from all manner of actions, suits, debts due, accounts,
bonds, contracts, claims and demands whatsoever which against the Company they ever had or now have in connection to the Debt.
Accounts
Payable – Related Parties
As
of December 31, 2019 and September 30, 2019 the Company owed its directors, officers and former directors and officers $14,153 and $0
respectively. These amounts represent unpaid consulting fees as of the end of the reporting period.
Note
8 – Stockholders’ Equity (Deficit)
Shares
authorized
Upon
formation the total number of shares of all classes of stock which the Company is authorized to issue is seventy-five million (75,000,000)
shares of common stock, par value $0.001 per share.
Unregistered
shares of common stock
In
August 2015, the Company sold 2,750,000 shares of its common stock at par to its directors for $2,750 in cash.
On
March 27, 2018 the Board of Directors of the Company approved the Stock Cancellation Agreements with Yaroslav Startsev (1,500,000 shares)
and Nikolai Kuzmin (1,250,000 shares) canceling their shares with the Company in exchange for the Company agreeing to accept new subscription
agreements. The Company retained the subscription funds paid by Yaroslav Startsev and Nikolai Kuzmin for the cancelled shares of Common
Stock as contributed capital to the Company.
As
of March 28, 2018, the Company received subscription agreements and subscription funds representing an aggregate of 1,300,000 shares
of Common Stock from Yaroslav Startsev for $1,300 and 1,050,000 shares of Common stock from Nikolai Kuzmin for $1,050 which certificates
shall bear an appropriate restricted legend under the Securities Act of 1933, as amended.
As
of March 28, 2018 the Company also received a subscription agreement and subscription funds from Timothy Barker, former President of
the Company, representing 400,000 shares of Common Stock for $400 which shall bear an appropriate restricted legend under the Securities
Act of 1933 as amended.
The
above transactions were undertaken to allow share ownership for all the officer and directors of the Company while no resulting in any
dilution to the public shareholders or the Company. The above transactions were exempt under Section 4(a)2 of the Securities Act of 1933
as amended.
The
following table represents a summary of the restricted stock cancellation and issuance during the year ended September 30, 2018:
|
|
|
|
Name
and Title of
|
|
Balance
September
|
|
|
Number
of Shares
|
|
|
Balance
September
|
|
|
Title
of Class
|
|
|
Beneficial
Owner
|
|
30,
2017
|
|
|
Canceled
|
|
|
Issued
|
|
|
30,
2018
|
|
|
|
Common
|
|
|
T.Barker,
former President
|
|
|
-
|
|
|
|
|
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
Common
|
|
|
Y.Startsev,
President, C.E.O.
|
|
|
1,500,000
|
|
|
|
(1,500,000
|
)
|
|
|
1,300,000
|
|
|
|
1,300,000
|
|
|
|
Common
|
|
|
N.Kuzmin,
C.F.O.
|
|
|
1,250,000
|
|
|
|
(1,250,000
|
)
|
|
|
1,050,000
|
|
|
|
1,050,000
|
|
|
|
Total
Number of Shares:
|
|
|
2,750,000
|
|
|
|
(2,750,000
|
)
|
|
|
2,750,000
|
|
|
|
2,750,000
|
|
In
September 2018 the Company issued 100,000 restricted shares of common stock at a price of $0.02 per share for consulting services related
to business development provided by a third party.
On
December 4, 2019 the Company issued 24,000,000 restricted shares of common stock to Corette LLC as compensation for its contribution
of Solstice to the Company. These shares were cancelled as per Rescission Agreement between the Company and Corette.
Registered
shares of common stock
During
the year ended September 30, 2017, the Company’s Registration Statement on the Form S-1 filed with the Securities and Exchange
Commission was declared effective. In April 2017, the Company completed the sale of 2,030,000 shares of common stock at $0.0175 per share
for total proceeds of $35,525 pursuant to this Registration Statement.
Regulation
D Offering
On
April 9, 2018 the Company filed with the Securities and Exchange Commission a notice of an exempt offering of the Company’s securities
on the Form D (the “Offering”). The Company is offering 10,000,000 Shares under the Offering at a price of $0.02 per Share
for an aggregate Offering price of US $200,000. The Securities are being offered by the Company through its officers and directors on
a “best efforts” basis, pursuant to a non-public offering exemption from the registration requirements imposed by the Securities
Act of 1933, under Regulation D, Rule 506, as amended (“1933 Act”). The Securities are not being registered and may not be
sold unless they are registered under applicable Federal and State securities laws or an exemption from such laws is available.
This
Offering was closed on August 21, 2018. The Company sold 180,000 shares of common stock for total proceeds of $3,600 pursuant to this
Offering.
Note
9 – Subsequent Events
In
accordance with ASC 855-10 we have analyzed our operations subsequent to December 31, 2019 to September 28, 2021, date of these financial
statement were issued, and have determined that we do not have any material subsequent events to disclose in these financial statements
other than the events discussed below.
On
March 24, 2020 (the “Effective Date”) the Company and Corette entered into a Rescission Agreement (the “Rescission
Agreement”) whereby both parties agreed to rescind all transactions and contributions by each of the parties related to acquisition
of Ontario, Fairway and Solstice (the “Acquisition”).
In
accordance with the terms of the Rescission Agreement all transactions, contributions and share issuances are each void ab initio
and of no force or effect. The parties agreed to restore their respective holdings, positions and relative interests prior to the
acquisition transactions, restitutio in integrum.
Prior
to the Effective Date, Aitan Zacharin was appointed to the Company’s Board of Directors followed by the resignation of Nathan Rosenberg
as a member of the Board of Directors and from all officerial positions of Kinetic Group Inc. Aitan Zacharin was appointed as President,
Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer of the Company.
Sale
of Subsidiary
On
June 14, 2020, the Company disposed of 100% of the outstanding equity of its wholly-owned inactive subsidiary, Kinetic Development Inc.,
an Ontario corporation in consideration for $1.00 to a former director of the Company.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking
Statements and Associated Risks.
The
following discussion should be read in conjunction with the financial statements and the notes to those statements included elsewhere
in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains certain statements that are forward-looking within
the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements contained in the MD&A are forward-looking
statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current
expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could
differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed
in other sections of this Quarterly Report on Form 10-Q.
Our
Business
Kinetic
Group Inc., a Nevada corporation, was formed under the laws of the State of Nevada on June 6, 2014. Kinetic Group is a full service integrated
digital marketing agency. The company offers a range of web services, including web marketing services, social media services, search
engine management, custom web design and development, including social media and content management solutions. We build digital strategies
that help our clients to have fruitful dialogues with their audiences, whether targeted or non-targeted. We provide consulting on a wide
variety of issues, from selection of domain name registrars and hosting providers, to the most cost-efficient and effective marketing
strategies.
On
March 23, 2018, the Company formed a wholly owned subsidiary, Kinetic Development Inc., an Ontario, Canada Corporation (“KDI”).
The subsidiary was incorporated to facilitate payroll transactions for the employees. The accompanying consolidated financial statements
include all of the accounts of the Company as of September 30, 2018 and 2017. KDI is included as of June 30, 2019 and 2018 and for the
period from March 23, 2018 (date of formation) through September 30, 2018. All intercompany balances and transactions have been eliminated.
Kinetic
Group Inc. is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification. Although the
Company has recognized nominal amounts of revenue, it is still devoting substantially all of its efforts on establishing the business.
All losses accumulated since Inception (June 6, 2014) have been considered as part of the Company’s development stage activities.
In
June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements,
Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.
The
amendments in this Update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification,
thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.
In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in
the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity,
(3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in
which the entity is no longer a development stage entity that in prior years it had been in the development stage.
For
public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim
periods therein. Kinetic Group has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic
915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the company to remove the inception to
date information and all references to development stage.
Our
Digital Marketing Services
We
offer a wide variety of integrated digital marketing services to our clients. Our services include web design and development, organic
search engine optimization (Organic SEO), pay-per-click (PPC) management, content creation and marketing, e-mail marketing and social
media marketing.
Web
Design and Development.
We
offer custom website design services, whether it is front-end design, or a full end-to-end web development project. Our management, as
well as our freelance website design team, is composed of experienced web design and creation professionals and graphic designers who
create customized websites tailored to the needs and goals of our customers. We engage, when necessary, additional designers and developers
for each individual project as an addition to our management team.
Organic
Search Engine Optimization (Organic SEO).
Search
results for websites that use organic SEO will grow, expand, and adapt over time in response to readers’ desires. Although black
hat SEO methods, such as hidden text, cloaking, and blog comment spam, may boost a website’s search engine page rank in the short
term, these methods could also get the site banned from the search engines altogether.
Organic
SEO can be achieved by:
|
|
●
|
optimizing
the web page with relevant content,
|
|
|
●
|
spreading
links pointing to the web site’s content, and
|
|
|
●
|
incorporating
metatags and other types of tag attributes.
|
Organic
SEO methods mainly rely on the relevancy of the content they offer. Some of the benefits of organic SEO include:
|
|
●
|
generating
more clicks as the organically optimized sites offer relevant content related to the keywords
searched for,
|
|
|
●
|
building
greater trust among the site’s users, and
|
|
|
●
|
being
cost-effective when compared to paid listings.
|
Pay-Per-Click
(PPC) management.
Pay-per-click
(PPC), also known as cost-per-click (CPC), is an internet advertising model used to direct traffic to websites, in which an advertiser
pays a publisher (typically a website owner or a network of websites) whenever the ad is clicked on. Search engines, such as Google and
Bing, allow businesses and individuals to buy listings in their search results. These listings appear above the non-paid organic search
results. The search engine is then paid every time a user clicks on the sponsored listing.
Pay-per-click
advertising can generate traffic right away. It is a simple strategy: spend enough on PPC advertisement and get top placement when people
execute relevant searches. Potential customers will see the business first when executing a relevant search as it will appear at the
top of the search results page. However, PPC advertising can run up costs extremely quickly. It is easy to get caught up in a bidding
war over a particular keyword and end up spending far more than your potential return. ‘Ego-based’ bidding, where a business
or a marketing agency decides they must be at the top of the results may cause the client to spend too much money. Another concern with
PPC is that there is constant bid inflation, which raises the per-click cost for highly-searched phrases.
If
a client has a short-term campaign for a new product, service, or special issue, pay-per-click can be a great way to generate buzz quickly.
We can start a pay-per-click campaign within 24-48 hours, and the client can generally change the text of the advertisement at any time,
allowing the client to adjust the advertisement’s message easily. If the client needs to bring potential customer attention to
a new product or service for a finite amount of time, PPC is one effective way to achieve this goal.
Social
Media and Blogs
We
help our clients build their customer base by helping them cultivate a strong online presence. Corporate blogs allow brands to engage
with existing and potential customers, to improve their search engine rankings and to create a community of posters through the comments
section. Currently, our directors provide blog design services. In addition, when a short-term project requires a specific set of skills,
we engage freelance designers through online talent recruitment tools, such as www.upwork.com and LinkedIn. We also use freelance researchers,
bloggers, and writers to research relevant news and information about our clients, industries and businesses. Our freelance writers create
blog posts, tweets, and news comments that are posted on relevant social media and news websites. We customize the design, content and
message to appeal to the target audience for our clients’ brand. Our social media services include:
-
Social Media Strategy
-
Social Media Campaigns
-
Blogging
-
Visual Social Media Posts/Campaigns
-
Strategic Monitoring
-
Reporting and Analysis
Currently,
we have limited workforce and financial resources and are not able to take on labor-intensive projects. As a result, we cannot guarantee
that we will be successful in our efforts to attract new customers and expand our operations. Failure to achieve a sustainable sales
level will cause us to go out of business.
Results
of operations for the three-month periods ended December 31, 2019 and 2018.
Revenue
Our
gross revenue from consulting services related to website development, SEO consulting and online marketing services for the three-month
periods ended December 31, 2019 and 2018 was $0 and $5,475 respectively. Our cost of revenues for the three-month period ended December
31, 2019 and 2018 was $0 and $1,950 respectively.
Costs
and Expenses
The
major components of our expenses for the three-month periods ended December 31, 2019 and 2018 are outlined in the table below:
|
|
|
For
the Three Months Ended
December
31, 2019
|
|
|
For
the Three Months Ended
December
31, 2018
|
|
|
Increase
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
- officers
|
|
$
|
-
|
|
|
$
|
1,050
|
|
|
$
|
(1,050
|
)
|
|
Professional
fees
|
|
|
31,572
|
|
|
|
7,350
|
|
|
|
24,222
|
|
|
General
and administrative
|
|
|
3,584
|
|
|
|
5,202
|
|
|
|
(1,618
|
)
|
|
|
|
$
|
35,156
|
|
|
$
|
13,602
|
|
|
$
|
21,554
|
|
The
increase in our operating costs for the three months ended December 31, 2019, compared to the same period in our fiscal 2018, was mainly
due to an increase in officers’ compensation.
Debt
Settlement
As
of March 31, 2018 the Company owed to the Company’s officers, Mr. Yaroslav Startsev and Mr. Nikolai Kuzmin, Thirty One Thousand
Dollars ($31,000) (the “Debt”) for management consulting fees incurred by the Company in accordance with the effective Management
Consulting Agreements between the Company and its officers. The Company’s officers agreed to donate the Debt to the Company’s
contributed capital in full satisfaction of the Debt, effective March 31, 2018.
As
of September 28, 2018 the Company owed to the Company’s former President, Mr. Timothy Barker, Twenty Six Thousand Four Hundred
Fifty One Dollar and 61 Cents ($26,451.61) (the “Debt”) for management consulting fees incurred by the Company in accordance
with the effective Management Consulting Agreements between the Company and its President. The Company’s former President agreed
to donate the Debt to the Company’s contributed capital in full satisfaction of the Debt, effective September 28, 2018.
These
Debt settlements improved the Company’s financial position and increased its working capital. The Company’s current and former
officers released and forever discharged the Company, its successors and assigns from all manner of actions, suits, debts due, accounts,
bonds, contracts, claims and demands whatsoever which against the Company they ever had or now have in connection to the Debt.
Accounts
Payable – Related Parties
As
of December 31, 2019 and September 30, 2019 the Company owed its directors and officers $14,153 and $0 respectively. These amounts represent
unpaid consulting fees and cash advances as of the end of the reporting period.
Liquidity
and Capital Resources
|
|
|
As of
|
|
|
As of
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
44
|
|
|
$
|
19
|
|
|
Total current liabilities
|
|
|
20,381
|
|
|
|
5,022
|
|
|
Working capital (deficiency)
|
|
$
|
(20,337
|
)
|
|
$
|
(5,003
|
)
|
Liquidity
Our
internal liquidity is provided by our operations. During the three-month periods ended December 31, 2019 and 2018 the Company reported
net loss from operations of $35,156 and $10,077, respectively.
To
date we have financed our operations by cash generated from sales of our services and shares of our common stock. We were able to sustain
our operations by increasing the number of our clients.
In
August 2015, we sold 2,750,000 shares of common stock at $0.001 per share to our directors for total proceeds of $2,750. During the six
months ended March 31, 2018 the Company’s Board of Directors has appointed new President of the Company. The Company has cancelled
the restricted shares of common stock issued to the company’s two directors in 2015 as per Share Cancellation Agreements and issued
new 2,750,000 restricted shares of common stock to allow share ownership for all the officer and directors of the Company while no resulting
in any dilution to the public shareholders or the Company. The Company has received $2,750 from the officer and directors of the Company
for the restricted stock issued in March of 2018 and recorded $2,750 received from the Company’s directors in 2015 as contributed
capital.
The
above transactions were exempt under Section 4(a)2 of the Securities Act of 1933 as amended.
During
the year ended September 30, 2017, the Company’s Registration Statement on the Form S-1 filed with the Securities and Exchange
Commission was declared effective. In April 2017, the Company completed the sale of 2,030,000 shares of common stock at $0.0175 per share
for total proceeds of $35,525 pursuant to this Registration Statement.
On
April 9, 2018 the Company filed with the Securities and Exchange Commission a notice of an exempt offering of the Company’s securities
on the Form D (the “Offering”). The Company is offering 10,000,000 Shares under the Offering at a price of $0.02 per Share
for an aggregate Offering price of US $200,000. The Securities are being offered by the Company through its officers and directors on
a “best efforts” basis, pursuant to a non-public offering exemption from the registration requirements imposed by the Securities
Act of 1933, under Regulation D, Rule 506, as amended (“1933 Act”). The Securities are not being registered and may not be
sold unless they are registered under applicable Federal and State securities laws or an exemption from such laws is available.
This
Offering was closed on August 21, 2018. The Company sold 180,000 shares of common stock for total proceeds of $3,600 pursuant to this
Offering.
If
we are not successful in expanding our client base, maintaining profitability and positive cash flows, additional capital may be required
to maintain ongoing operations. We have explored, and are continuing to explore, options to provide additional financing to fund future
operations, as well as other possible courses of action. Such actions include, but are not limited to, securing lines of credit, sales
of debt or equity securities (which may result in dilution to existing shareholders), loans and cash advances from our directors or other
third parties, and other similar actions.
There
can be no assurance that we will be able to obtain additional funding (if needed), on acceptable terms or at all, through a sale of our
common stock, loans from financial institutions, our directors, or other third parties, or any of the actions discussed above. If we
cannot sustain profitable operations, and additional capital is unavailable, lack of liquidity could have a material adverse effect on
our business viability, financial position, results of operations and cash flows.
Cash
Flows
The
table below, for the period indicated, provides selected cash flow information:
|
|
|
For
the Three Months
Ended
December
31, 2019
|
|
|
For
the Three Months
Ended
December
31, 2018
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
$
|
(2,378
|
)
|
|
$
|
(5,467
|
)
|
|
Cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
Cash provided by financing activities
|
|
|
2,403
|
|
|
|
-
|
|
|
Net change in cash
|
|
$
|
25
|
|
|
$
|
(5,467
|
)
|
We
have generated revenues of $0 and $5,475 during the three-month periods ended December 31, 2019 and 2018, respectively.
Recent
Accounting Pronouncements
See
Note 2 to the Unaudited Financial Statements.
Off
Balance Sheet Arrangements
As
of December 31, 2019 we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.