Notes to the Consolidated Financial Statements
March 31, 2016
NOTE 1 -
ORGANIZATION AND DESCRIPTION OF BUSINESS
SweeGen, Inc.,
formerly Aceway Corp.
(the "Company"), is a Nevada corporation incorporated on April 1, 2013. On December 23, 2014, the Company entered into a share exchange agreement (the Exchange Agreement) with Phytosub, Inc. (Phytosub), and the shareholder of Phytosub (the Phytosub Shareholder), pursuant to which the Phytosub Shareholder transferred all of the issued and outstanding capital stock of Phytosub to the Company in exchange for 25,000,000 shares of common stock of the Company. As a result, Phytosub, a Nevada corporation formed on December 5, 2014, became a wholly owned subsidiary of the Company and the Phytosub Shareholder acquired a controlling interest in the Company (the Share Exchange). The Phytosub Shareholder, Steven Chen, is now our President, Chief Executive Officer, Chief Financial Officer, Treasurer and sole Director (the Sole Officer & Director). For accounting purposes, the Share Exchange was treated as an acquisition of Aceway Corp. and a recapitalization of PhytoSub. PhytoSub is the accounting acquirer and the results of its operations carryover. Accordingly, the operations of Aceway Corp. are not carried over and have been adjusted to $0.
On December 23, 2014, the Company entered into a purchase agreement (the Purchase Agreement) with Armando Espinoza, a former officer and director of the Company, pursuant to which the Company sold and transferred all assets of the Company existing prior to the consummation of the Share Exchange to Mr. Espinoza. In consideration for the transfer of such assets, Mr. Espinoza (i) surrendered for cancellation 25,000,000 shares of the Companys common stock owned by him; and (ii) assumed any and all liabilities of the Company existing prior to the consummation of the Share Exchange and agreed to assume any and all liabilities of the Company later asserted against the Company that related to the Companys operations prior to the consummation of the Share Exchange. Due to the cancellation of Mr. Espinozas 25,000,000 shares and the issuance of 25,000,000 shares to Phytosub pursuant to the Exchange Agreement, the Companys issued and outstanding shares of common stock remained 35,000,020 after giving effect to the transactions described above.
On December 23, 2014, twenty-nine (29) Aceway Corp. shareholders delivered certificates and signed stock powers agreeing to cancel 9,663,786 shares of their common stock at any time that the company wanted to cancel such shares. In February 2016, the Company cancelled the 9,663,786 shares. The Companys issued and outstanding shares of common stock became 25,336,234 after giving effect to the cancellation.
The Company intends to leverage the experience of its new corporate and scientific management team, which has extensive experience in managing and developing large and small private and public companies; pathway engineering; microbial platform development; and developing and manufacturing food ingredients, biological products, dietary supplements and botanical extracts. The Company intends to create value for its shareholders by seeking, developing and acquiring, completely or a substantial interest in, companies or assets that would benefit from or that can be developed using the knowledge and expertise of the Companys management team. The Company will utilize various vehicles, as each situation dictates, to reach its goals, including but not limited to merger, acquisition, a substantial shareholder interest, financial investment or a combination of these methods. To date, the Company's activities have been limited to its formation and the raising of equity capital.
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The capital account of the Company has been retroactively restated to reflect the equivalent number of common shares based on the exchange ratio of the merger transaction in the basic and diluted weighted-average shares, effective December 23, 2014.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of SweeGen, Inc. and its wholly owned subsidiary, Phytosub. All significant inter-company balances and transactions have been eliminated.
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Basis of Accounting
The accompanying unaudited interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the United States Securities and Exchange Commission (the SEC) for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, stockholders equity or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.
The results of the consolidated operations for the nine months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2016. The accompanying unaudited statements should be read in conjunction with the more detailed consolidated financial statements, and the related footnotes thereto, included in the Companys Annual Report on Form 10-K filed with the SEC on September 28, 2015.
Use of Estimate
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to investment tax credits, bad debts, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Start-Up Costs
In accordance with Accounting Standards Codification (ASC) 720, "Start-up Costs", the Company expenses all costs incurred in connection with the start-up and organization of the Company.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had no cash or cash equivalents as of March 31, 2016 and June 30, 2015, respectively.
Net Loss Per Share of Common Stock
The Company has adopted ASC Topic 260,
"Earnings per Share," which requires presentation of basic earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying consolidated financial statements, basic earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
The following table sets forth the computation of basic earnings per share:
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Nine Months
Ended
March 31,
2016
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Nine Months
Ended
March 31,
2015
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Net loss
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$
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(1,101,448)
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$
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(23,493)
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Weighted average common shares issued and
Outstanding, Basic and Diluted
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25,336,234
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25,336,234
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Net loss per share, Basic and Diluted
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$
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(0.04)
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$
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-
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The Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.
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Deferred Income Taxes and Valuation Allowance
The Company accounts for income taxes under ASC 740 "Income Taxes" (ASC 740). Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. 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 income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized as of March 31, 2016 and June 30, 2015, respectively.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents and related party payables it will likely incur in the near future. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company's management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
Financial Instruments
The Company follows ASC 820, "Fair Value Measurements and Disclosures" (ASC 820), which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The fair value of amounts due to shareholder approximate their carrying amounts because of their immediate or short-term maturity.
Related Parties
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. During the three and nine months ended March 31, 2016, a company owned by the Companys Sole Officer & Director, loaned the Company $66,896 and $105,648, respectively, to pay for professional fees and other general and administrative expenses. As of March 31, 2016 and June 30, 2015, the Company owed $169,653 and $64,005, respectively, to a company owned by the Companys Sole Officer & Director for loans provided to pay for professional fees and other general and administrative expenses. Also as of March 31, 2016, the Company owed $1,000,000 to a company owned by the Companys Sole Officer & Director for product research and development services provided from January 1, 2016 through March 31, 2016.
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Commitments and Contingencies
The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no commitments or contingencies as of March 31, 2016 and June 30, 2015, respectively.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of the Companys consolidated financial statements. The Company's management believes that any recent pronouncements do not or will not have a material effect on the Company's consolidated financial statements.
Reclassification
The Company has made certain reclassifications to conform prior periods data to the current presentation. These reclassifications had no effect on reported assets, liabilities or results of operations. Due to the February 2016 cancellation of 9,663,786 shares, we reduced common stock and negative additional paid in capital by 9,664 on the accompanying June 30, 2015 consolidated financial statements.
NOTE 3 - GOING CONCERN
The Company's unaudited consolidated financial statements are prepared using U.S. GAAP principles applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. The Company has not established an ongoing source of revenues sufficient to cover its operating cost, and requires additional capital to commence its operating plan. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about its ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan to obtain such resources for the Company include: sales of equity instruments; traditional financing, such as loans; and obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. The obtainment of financing, the successful development of the Companys contemplated plan of operations, or its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
NOTE 4 - EQUITY
Authorized Stock
The Companys Articles of Incorporation authorize 75,000,000 shares of common stock with a par value of $0.001 per share. Each share of common stock entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the Company is sought.
Common Shares
No shares were issued during the nine months ended March 31, 2016. On December 23, 2014, twenty-nine (29) Aceway Corp. shareholders signed stock powers agreeing to cancel 9,663,786 shares of their common stock at any time that the company wanted to cancel such shares. In February 2016, the Company cancelled the 9,663,786 shares. The Company effectively had 25,336,234 common shares issued and outstanding as of March 31, 2016 and June 30, 2015, respectively.
Preferred shares
No preferred shares have been authorized or issued.
Stock Options and Warrants
The Company has no outstanding stock options, warrants or other rights to acquire securities.
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NOTE 5 - PROVISION FOR INCOME TAXES
The Company is subject to taxation in the United States and certain state jurisdictions. The Company has not taken any uncertain tax positions, however, has open tax years subject to audit by the Internal Revenue Services for the years beginning in 2013.
Due to the change in ownership provisions of the income tax laws of the United States of America, net operating loss carry forwards for federal income tax reporting purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carry forwards may be limited as to use in future years.
The provision for income taxes differs from the amounts that would be provided by applying the statutory federal income tax rate of 34% to the net loss before provision for income taxes due primarily to changes in the valuation allowance to fully reserve net deferred tax assets. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company recorded a valuation allowance. The Company has not recorded a provision for income taxes for the three or nine-month periods ended March 31, 2016 since the Company has had net operating losses since inception (December 5, 2014).
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Three Months
Ended
March 31, 2016
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Nine Months
Ended
March 31, 2016
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Net operating loss before non-deductible items
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1,066,896
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1,101,448
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Tax rate
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34%
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34%
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Deferred tax assets
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$
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362,745
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$
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374,492
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Less: Valuation allowance
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(362,745)
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(374,492)
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Income tax expense per books
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$
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-
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$
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-
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Due to uncertainties surrounding the Company's ability to generate future taxable income to realize deferred income tax assets arising as a result of net operating losses carried forward, the Company has not recorded any deferred income tax asset as of March 31, 2016 and June 30, 2015, respectively. The Company has an operating loss of $1,169,653 since the reverse acquisition. The net operating loss carryforwards will begin to expire in varying amounts from year 2033, subject to its eligibility as determined by respective tax regulating authorities.
Net deferred tax assets consist of the following components:
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Inception
(December 5, 2014)
to March 31, 2016
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Net operating loss before non-deductible items
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1,169,653
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Tax rate
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34%
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Total deferred tax assets
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$
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397,682
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Less: Valuation allowance
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(397,682)
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Net deferred tax asset
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$
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-
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NOTE 6 RELATED PARTY TRANSACTIONS
On May 24, 2013, the Company issued 25,000,000 shares of common stock to Mr. Espinoza, its former officer and director, at $.001 per share for total proceeds of $25,000. Such shares were subsequently cancelled in connection with the Purchase Agreement between the Company and Armando Espinoza, a former officer and director of the Company, pursuant to which the Company sold and transferred all assets of the Company existing prior to the consummation of the Share Exchange. In consideration for transfer of such assets the Buyer (i) surrendered for cancellation all securities of the Company owned by the Buyer, which securities included 25,000,000 shares of common stock of the Company; and (ii) assumed any and all liabilities of the Company existing prior to the consummation of the Share Exchange and agreed to assume any and all liabilities of the Company later asserted against the Company that related to the Companys operations prior to the consummation of the Share Exchange.
Mr. Espinoza had previously advanced funds to meet the Company's cash flow requirements. There is no written or expressed policy for continuation of future advances. The amounts advanced were considered payable upon demand and were non-interest bearing. As of March 31, 2016 and June 30, 2015, the balance due to Mr. Espinoza was $0.
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The Company does not own or lease property or lease office space. The office space used by the Company was arranged by the founder of the Company to use at no charge.
During the three and nine months ended March 31, 2016, a company owned by the Companys Sole Officer & Director loaned the Company incremental amounts totaling $66,896 and $105,648 respectively, to pay for professional fees and other general and administrative expenses. All amounts loaned to the Company are non-interest bearing and are due on demand. As of March 31, 2016 and June 30, 2015, the balance due to a company owned by the Companys Sole Officer & Director is $169,653 and $64,005, respectively.
During the three months ended March 31, 2016, a company owned by the Companys Sole Officer & Director (the R&D Company) provided product research and development services to the Company valued at $1,000,000. As of March 31, 2016, the balance due to the R&D Company is $1,000,000. The R&D Company provides research and development and process development services to various companies utilizing proprietary technology. The R&D Company is developing a proprietary product for the Company.
The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
NOTE 7 COMMITMENTS AND CONTINGENCIES
The Company has no commitments or contingencies as of March 31, 2016.
NOTE 8 -SUBSEQUENT EVENTS
On April 17, 2016, the Company issued warrants to purchase shares of its common stock, $0.001 par value per share, to Ingredion Incorporated (the Investor) in connection with the parties discussions of potential business initiatives and developments. Each of the two warrants issued provides the Investor with the right to acquire 0.33% of the Companys total outstanding common stock on the exercise date, for a total of 0.66% of the total outstanding common stock on the exercise date, for $0.001 per share. As a commitment to the parties ongoing discussions, the Investor paid to the Company on April 17, 2016 the aggregate exercise price of $2 million. Pursuant to the terms of the warrants, the Investor may exercise the warrants in whole or in part at any time prior to the expiration date of December 31, 2016, which is subject to extension until March 31, 2017 upon mutual agreement of the parties. The parties have agreed that if they have not finalized any business relationship agreements by the expiration date, and the warrants have not been exercised, the Company will refund $1 million of the consideration paid by the Investor upon the Investors request and cancellation of one of the warrants.
On April 21, 2016, the Company paid $170,641 to a company owned by the Companys Sole Officer & Director to repay the $169,653 that was owed as of March 31, 2016 and $988 that was incrementally loaned to the Company between April 1 and April 21, 2016.
On April 27, 2016, the Company paid $500,000 to a company owned by the Companys Sole Officer & Director for product research and development services provided from January 1, 2016 through March 31, 2016.
On May 5, 2016, the Company paid $500,000 to a company owned by the Companys Sole Officer & Director for product research and development services provided from January 1, 2016 through March 31, 2016.
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