Notes to the Consolidated Financial Statements
For the Years Ended June 30, 2017 and 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. The transaction closed on December 23, 2014. 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”). 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. The transaction closed on December 23, 2014. In consideration for the transfer of such assets, Mr. Espinoza (i) surrendered for cancellation 25,000,000 shares of the Company’s 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 Company’s operations prior to the consummation of the Share Exchange. Due to the cancellation of Mr. Espinoza’s 25,000,000 shares and the issuance of 25,000,000 shares to Phytosub pursuant to the Exchange Agreement, the Company’s issued and outstanding shares of common stock was 35,000,020 after giving effect to the transactions described above.
On December 23, 2014, twenty-nine (29) Aceway Corp. stockholders 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 Company’s issued and outstanding shares of common stock became 25,336,234 after giving effect to the cancellation.
The Company is a development stage business-to-business company that intends to leverage its extensive experience and resources in managing and developing large and small private and public companies; pathway engineering; microbial platform development; and developing and supplying ingredients and biological products in the field of sweeteners to be used in its customers’ finished products. The Company intends to seek, develop and acquire, 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 Company’s management resources.
On November 28, 2016, the Company entered into a 5-year distribution agreement (the “Distribution Agreement”) with Ingredion Incorporated (“Ingredion”) pursuant to which Ingredion will serve as the Company’s global distributor for the Products. Pursuant to the terms of the Distribution Agreement, Ingredion will serve as the exclusive distributor of the Products other than to the Company’s intended in-house accounts (the “House Accounts”) and other than within the People’s Republic of China (the “PRC”). Ingredion will serve as a non-exclusive distributor of the Products in the PRC. The parties intend to initiate distribution pursuant to the terms of the Distribution Agreement within the United States and expand as the parties collaborate on respective regulatory approvals for the Products in other markets.
The Company’s most significant recent business development is the commercialization of high purity stevia sweetener products known as Rebaudioside M and Rebaudioside D (the “Products”). At the end of January 2017, a customer of the Company began using the Rebaudioside M Product in a bottled beverage trial. In February, 2017, U.S. FDA issued GRAS (Generally Recognized as Safe) No Objection Letter for the Company’s Rebaudioside M Product. In July 2017, the Company’s Rebaudioside D Product was confirmed GRAS. In August 2017, the Company’s Rebaudioside M Product received Non-GMO Project Verification.
As of the date of this filing the Company has received purchase orders totaling one million five hundred one thousand three hundred and sixty-four dollars ($1,501,364) for which the Company has since partially shipped to customers. The Company anticipates continuing to receive increasing amounts of purchase orders as the Products obtain additional regulatory approvals and independent verifications in the Company’s various markets.
F-6
SWEEGEN, INC.
Notes to the Consolidated Financial Statements
For the Years Ended June 30, 2017 and 2016
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Correction of Prior Accounting
As discussed in Note 7, on November 30, 2016, the $2,000,000 earnest money deposit liability from the Company’s transaction with Ingredion Inc. was eliminated and a deferred revenue liability was established in the amount of $1,999,833, to be recorded as revenue over the 5-year term of the Distribution Agreement. The remaining $167 was recorded as Common Stock for the par value of the 167,219 shares of common stock that Ingredion purchased. On November 30, 2016, management did not consider all significant terms of the agreements and negotiations with Ingredion in determining the accounting for the $2,000,000 earnest money deposit. Upon reevaluating all information available in the fourth quarter of 2017, we corrected this accounting treatment by reclassifying the Deferred Revenue Liability of $1,865,050 as of March 31, 2017 and reversing previously recognized Revenue amounts of $36,161 recorded in the second quarter of 2017 and $98,622 recorded in the third quarter of 2017 to Additional Paid In Capital in the amount of $1,999,833. Subsequent to June 30, 2017, in September 2017 the Company further clarified the transaction with Ingredion, Inc. in order to memorialize the mutual intent of the parties that the $2,000,000 be treated as Ingredion Inc.’s investment in the equity of the Company.
Use of Estimates
The preparation of the consolidated 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 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.
Net Loss Per Share of Common Stock
U.S. GAAP 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 are 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:
|
Twelve months ended
June 30, 2017
|
|
Twelve months ended
June 30, 2016
|
|
|
|
|
Net loss
|
$
|
(440,787)
|
|
$
|
(1,744,451)
|
|
|
|
|
|
|
Weighted average common shares issued and
outstanding, basic and diluted
|
|
25,434,275
|
|
|
25,336,234
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
$
|
(0.02)
|
|
$
|
(0.07)
|
Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted loss per share includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents, totaling 0 and 167,219 at June 30, 2017 and 2016, respectively, were not included in the computation of diluted earnings per share on the consolidated statement of operations because the Company reported a net loss in both years and to do so would be anti-dilutive. The Company had no potentially dilutive securities, such as options or warrants, issued and outstanding as of June 30, 2017.
F-7
SWEEGEN, INC.
Notes to the Consolidated Financial Statements
For the Years Ended June 30, 2017 and 2016
Share-based Expenses
Share-based payment transactions include incurring liabilities or issuing or offering to issue shares, options or other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the consolidated financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for share-based compensation based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
There were no share-based expenses for the period from Business Commencement to June 30, 2017.
Deferred Income Taxes and Valuation Allowance
Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated 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 net deferred tax assets or liabilities were recognized as of June 30, 2017 and 2016.
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. The Company places its cash with financial institutions of high credit worthiness. At times, its cash 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.
Fair Value of Financial Instruments
Assets and liabilities are measured at fair value on a recurring basis. U.S. GAAP establishes a common definition for fair value to be applied that requires the use of fair value measurements, which establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
|
Level 1:
|
Observable inputs such as quoted market prices in active markets for identical assets or liabilities
|
|
|
|
|
Level 2:
|
Observable market-based inputs or unobservable inputs that are corroborated by market data
|
|
|
|
|
Level 3:
|
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued liabilities approximate their estimated fair market value based on the short-term maturity of this instrument.
The Company did not have any financial instruments at June 30, 2017.
F-8
SWEEGEN, INC.
Notes to the Consolidated Financial Statements
For the Years Ended June 30, 2017 and 2016
The fair value of financial instruments at June 30, 2016 was as follows:
|
Fair Value Measurements Using:
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
Derivative liability
|
$
|
-
|
|
$
|
-
|
|
$
|
1,505
|
The derivative liability is the result of the warrants that were issued on April 17, 2016 and exercised on November 28, 2016. The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) on April 17, 2016, June 30, 2016 and June 30, 2017:
|
Conversion feature
derivative liability
|
Balance April 17, 2016
|
$
|
1,505
|
Change in fair value
|
|
-
|
Balance June 30, 2016
|
|
1,505
|
Change in fair value
|
|
(1,505)
|
Balance June 30, 2017
|
$
|
-
|
Related Parties
The Company maintains procedures for the identification of related parties and disclosure of related party transactions. During the period from Business Commencement to April 21, 2016, a company owned by the Majority Shareholder, loaned the Company $170,641 to pay for professional fees and other general and administrative expenses which the Company repaid on April 21, 2016. During fiscal year 2017, a company owned by the Majority Shareholder loaned the Company $186,514. As of June 30, 2017, and 2016, the Company owed $186,514 and $0, respectively, to a company owned by the Majority Shareholder for loans provided to pay for professional fees and other general and administrative expenses. During the years ended June 30, 2017 and 2016, the Company paid $500,000 and $1,000,000, respectively, to a company owned by the Majority Shareholder for product research and development services. As of June 30, 2017, and 2016, the Company owed $0 and $500,000, respectively, to a company owned by the Company’s Majority Shareholder for product research and development services provided from April 1, 2016 through June 30, 2016. The $500,000 owed as of June 30, 2016 was paid on July 7, 2016.
Commitments and 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 June 30, 2017 and 2016. See Note 7 – Earnest Money Deposit.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” The revenue recognition standard affects all entities that have contracts with customers, except for certain items. The new revenue recognition standard eliminates the transaction-and industry-specific revenue recognition guidance under current U.S. GAAP and replaces it with a principle-based approach for determining revenue recognition. Public entities are required to adopt the revenue recognition standard for reporting periods beginning after December 15, 2016, and interim and annual reporting periods thereafter. Early adoption is not permitted for public entities. The Company has reviewed the applicable ASU and due to the absence of revenues, believes that there will be no material effect on the consolidated financial statements for fiscal year 2017.
F-9
SWEEGEN, INC.
Notes to the Consolidated Financial Statements
For the Years Ended June 30, 2017 and 2016
In June 2014, the FASB issued ASU No. 2014-12, “Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under ASC 718. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost would be recognized over the required service period if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after December 2015 and interim periods within those annual periods. Early adoption is permitted. Management has reviewed the ASU and believes that the Company currently accounts for these awards in a manner consistent with the new guidance. Therefore, there is no anticipation of any effect to the consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” Under U.S. GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30 of this ASU, “Presentation of Financial Statements—Liquidation Basis of Accounting.” Even when an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this ASU should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in this ASU are effective for the annual period ending after December 15, 2016 and for annual periods and interim periods thereafter. Management believes that the Company has met conditions which would subject the Company’s consolidated financial statements to additional disclosure as explained in Note 3 – Going Concern.
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated financial statements.
Subsequent Events
The Company evaluated all subsequent events and transactions through the date of this filing.
NOTE 3 -GOING CONCERN
The Company’s consolidated financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. The Company had an accumulated deficit of $2,253,443 for the period from Business Commencement to June 30, 2017 and has a working capital deficit of $254,948 as of June 30, 2017. The Company has not established an ongoing source of revenues sufficient to cover its operating cost and requires additional capital to proceed with 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: product sales; sales of equity instruments; traditional financing, such as loans; and obtaining capital from management and significant stockholders sufficient to meet its operating expenses. For example, the Company began to ship products to customers for purchase orders recently received, and the Company has completed a private placement sale of its common stock, generating proceeds of $1,648,318 (see Note 8 – Subsequent Events). However, management cannot provide any assurance that the Company will be successful in accomplishing all 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 Company’s 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 Company’s 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.
F-10
SWEEGEN, INC.
Notes to the Consolidated Financial Statements
For the Years Ended June 30, 2017 and 2016
NOTE 4 -EQUITY
Authorized Stock
The Company’s 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
The Company issued 167,219 shares during the year ended June 30, 2017. No shares were issued during the year ended June 30, 2016. On December 23, 2014, twenty-nine (29) Aceway Corp. stockholders 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 June 30, 2016 and 2015, respectively. The Company currently has no warrants outstanding but did have two warrants outstanding as of June 30, 2016 that each provided the holder with the right to acquire 0.33% of the Company’s total outstanding common stock on the exercise date, or a total of 0.66% of the total outstanding common stock on the exercise date, for $0.001 per share. The warrants were exercised on November 28, 2016 resulting in the Company issuing the holder 167,219 shares of common stock.
The only other shares issued during the period from Business Commencement to June 30, 2017 were issued on December 23, 2014, in connection with the Exchange Agreement, whereby the Company issued 25,000,000 shares of common stock. Due to the cancellation of the 25,000,000 shares pursuant to the Purchase Agreement, the issuance of 25,000,000 shares pursuant to the Exchange Agreement, the cancellation of the 9,663,786 shares mentioned above, and the issuance of the 167,219 shares in November 2016, the Company’s issued and outstanding common shares are 25,503,453 as of June 30, 2017.
See Note 1 – Organization and Description of Business.
Stock Options and Warrants
On April 17, 2016, the Company issued two warrants that each provided the Investor the right to acquire 0.33% of the Company’s total outstanding common stock on the exercise date, for a total of 0.66% of the total outstanding common stock on the exercise date. The exercise price of the warrants was $0.001 per share. The Investor exercised the warrants on November 28, 2016. The Company doesn’t have any stock options or warrants outstanding as of June 30, 2017 and does not have any other outstanding rights to acquire securities.
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, but 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 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.
F-11
SWEEGEN, INC.
Notes to the Consolidated Financial Statements
For the Years Ended June 30, 2017 and 2016
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 years ended June 30, 2017 and 2016 since the Company has had net operating losses since Business Commencement.
|
Year Ended
June 30, 2017
|
|
Year Ended
June 30, 2016
|
|
|
|
|
Net operating loss before non-deductible items
|
$
|
442,292
|
|
$
|
1,744,451
|
Tax rate
|
|
34%
|
|
|
34%
|
Deferred tax assets
|
|
150,379
|
|
|
593,113
|
Less: Valuation allowance
|
|
(150,379)
|
|
|
(593,113)
|
Income tax expense per books
|
$
|
-
|
|
$
|
-
|
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 June 30, 2017 and 2016. The Company has an operating loss of $2,254,948 since Business Commencement. 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 as of:
|
June 30, 2017
|
|
June 30, 2016
|
|
|
|
|
Net operating loss carryover
|
$
|
766,171
|
|
$
|
616,303
|
Valuation allowance
|
|
(766,171)
|
|
|
(616,303)
|
Net deferred tax asset
|
$
|
-
|
|
$
|
-
|
NOTE 6 – RELATED PARTY TRANSACTIONS
The Company does not own any real property. The Majority Shareholder provides to the Company on a rent-free basis 200 square feet of furnished office space in Rancho Santa Margarita, California, which is its principal executive office, and provides to the Company at no cost all the utilities, equipment, inventory management, warehouse, IT, shipping and logistics supports and services necessary for the Company to conduct its business (the “Facility and Supports”). The Company expects to enter into a facility sharing agreement with the Majority Shareholder in the future to begin paying market rates for the Facility and Supports.
During the period from Business Commencement to April 21, 2016, a company owned by the Majority Shareholder, loaned the Company $170,641 to pay for professional fees and other general and administrative expenses. We repaid the $170,641 on April 21, 2016. During the years ended June 30, 2017 and 2016, a company owned by the Majority Shareholder loaned the Company incremental amounts totaling $186,514 and $102,436, respectively, to pay for professional fees and other general and administrative expenses. All amounts loaned to the Company were non-interest bearing and due on demand. At June 30, 2017 and 2016, the Company owed $186,514 and $0, respectively, to a company owned by the Majority Shareholder for the loans provided to pay for professional fees and other general and administrative expenses.
During the year ended June 30, 2016, a company owned by the Majority Shareholder (the “R&D Company”) provided product research and development services to the Company valued at $1,500,000. During the years ended June 30, 2017 and 2016, we paid $500,000 and $1,000,000, respectively, to the R&D Company. At June 30, 2017 and 2016, the Company owed $0 and $500,000, respectively to the R&D Company. The R&D Company provides research and development, and process development, services to various companies utilizing proprietary technology. The R&D Company developed a proprietary product for the Company.
On April 21, 2017, the Majority Shareholder transferred 850,115 shares of common stock to Amyris, Inc. in satisfaction of a ten-million-dollar ($10,000,000) debt that one of the Majority Shareholder’s wholly owned companies owed to Amyris. As such, Steven Chen is currently the beneficial owner of 24,149,885 shares of the Company’s common stock.
F-12
SWEEGEN, INC.
Notes to the Consolidated Financial Statements
For the Years Ended June 30, 2017 and 2016
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 – EARNEST MONEY DEPOSIT
On April 17, 2016, we received $2,000,000 from an investor for the issuance of warrants to purchase shares of our common stock, $0.001 par value per share in connection with the parties’ discussions of potential business initiatives and developments. The Company issued two warrants that each provided the Investor the right to acquire 0.33% of the Company’s total outstanding common stock on the exercise date, for a total of 0.66% of the total outstanding common stock on the exercise date. The exercise price of the warrants was $0.001 per share. Pursuant to the terms of the warrants, the Investor could exercise the warrants in whole or in part at any time prior to the expiration date of December 31, 2016, which was subject to extension until March 31, 2017 upon mutual agreement of the parties. The parties agreed that if they had not finalized any business relationship agreements by the expiration date, and the warrants had not been exercised, the Company would refund $1,000,000 of the consideration paid by the Investor upon the Investor’s request and cancellation of one of the warrants. The Company recorded a $2,000,000 liability as of June 30, 2016 for this earnest money deposit.
On November 30, 2016, Ingredion exercised the two warrants to purchase a total of 0.66% of the Company’s total outstanding $.001 par value common stock common stock, which equals 167,219 shares. As such, on November 30, 2016, the $2,000,000 earnest money deposit liability was eliminated and a deferred revenue liability was established in the amount of $1,999,833, to be recorded as revenue over the 5-year term of the Distribution Agreement. The remaining one hundred sixty-seven dollars ($167.00) was used as consideration for the exercise of the warrants and recorded to common stock for the par value of the 167,219 shares of common stock that Ingredion purchased. As discussed in Note 2 to the Consolidated Financial Statements, in the fourth quarter 2017 we corrected the accounting treatment to record the $2,000,000 as a sale of equity. As such, the Deferred Revenue Liability of $1,865,050 as of Mar 31, 2017 and Revenue amounts of $36,161 recorded in the second quarter 2017 and $98,622 recorded in the third quarter 2017 were reclassified to Additional Paid In Capital in the total amount of $1,999,833. No amounts have been expended or earned under the terms of the Distribution Agreement through June 30, 2017.
NOTE 8 – SUBSEQUENT EVENTS
The Company’s most significant recent business development is the commercialization of high purity stevia sweetener products known as Rebaudioside M and Rebaudioside D (the “Products”). At the end of January 2017, a customer of the Company began using the Rebaudioside M Product in a bottled beverage trial. In February, 2017, U.S. FDA issued GRAS (Generally Recognized as Safe) No Objection Letter for the Company’s Rebaudioside M Product. In July 2017, the Company’s Rebaudioside D Product was confirmed GRAS. In August 2017, the Company’s Rebaudioside M Product received Non-GMO Project Verification.
As of the date of this filing the Company has received purchase orders totaling one million five hundred one thousand three hundred and sixty-four dollars ($1,501,364) for which the Company has since partially shipped to customers. The Company anticipates continuing to receive increasing amounts of purchase orders as the Products obtain additional regulatory approvals and independent verifications in the Company’s various markets.
After the end of fiscal year 2017 until the date of this filing, a company owned by the Majority Shareholder, loaned the Company $44,826 to pay for professional fees and other general and administrative expenses. This loan, combined with the fiscal year 2017 loan balance of $186,514 increased our loan balance to $231,340. During August 2017, we repaid $173,919, reducing our balance to $57,421.
On August, 2017, the Company hired Chris Swieton to serve as the Company’s Controller. Mr. Swieton has over 25 years of accounting and finance experience, working for various public and private companies in manufacturing, engineering and hi-tech. Mr. Swieton formerly served as Senior Manager, Operations Finance of St. Jude Medical.
On August 11, 2017, the Company completed a private placement sale of 140,127 shares of its common stock, $0.001 par value per share, generating proceeds of $1,648,318.
F-13
SWEEGEN, INC.
Notes to the Consolidated Financial Statements
For the Years Ended June 30, 2017 and 2016
On August 16, 2017, the Company entered into a term sheet (the “Term Sheet”) with Phyto Tech Corp. d/b/a Blue California (“Blue California”), a corporation majority owned by the Company’s Majority Shareholder. Pursuant to the Term Sheet, the parties agreed to certain transfers and licenses to consolidate substantially all Rebaudioside A, Rebaudioside M, and potentially Rebaudioside D related tangible and intangible assets and manufacturing resources in the Company. The Company and Blue California intend to enter into one or more additional agreements to more fully set forth the terms and conditions of the transactions (the “Closing Documents”), which will supersede the Term Sheet, but intend that the Term Sheet be binding. The Closing Documents shall contain such terms and conditions as the parties may mutually agree, including standard representations, warranties and covenants. All pricing in the Closing Documents shall be based upon a valuation performed by an independent third-party valuation firm mutually selected by the parties, and the valuation firm shall determine the outcome of any pricing disputes not resolved by the 65th day following the date of the Term Sheet. In addition, the Company agrees to include in the Closing Documents a grant to its affiliate manufacturer in Asia of a non-exclusive, non-transferable and non-sublicensable sub-license to use all the existing know-how, patent registrations, patent applications and other proprietary technologies for the purpose of manufacturing of the Stevia Products in the territory of such manufacturer’s domicile of entity organization only for sale to the Company or the Company’s designated customers.
On August 16, 2017, the Company and another company owned by the Majority Shareholder (previously defined as the R&D Company) entered into a First Amendment to Inter-Company Patent License Agreement dated November 28, 2016 (the “Amendment”). The Amendment expands the field of use from flavoring for foods and beverages to use as flavors or sweeteners in food and beverages. The Amendment also altered the royalty structure, eliminating the annual $2,000,000 minimum royalty requirement and adding an annual $15,000,000 maximum royalty limitation. The royalty calculation also changed from a tiered system of royalty percentages that decline annually to a flat 5% royalty on net sales. Royalty payments were also revised from semi-annual payments due within 60 days of the end of each royalty period to annual payments based upon the Company’s fiscal year due within 90 days of the end of each royalty period.
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