UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
(Amendment No. 1)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 10, 2019
NATURAL HEALTH FARM HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Nevada | 000-1621697 | 98-1032170 | ||
(State or other jurisdiction of incorporation or organization) |
Commission file number |
(IRS Employer Identification No.) |
20 North Orange Ave., Suite 1100
Orlando, Florida, 32801
(Address of principal executive offices)
(407) 476-8976
(Registrant’s telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
On December 7, 2018, Natural Health Farm Holdings Inc. (the "Company") filed a Current Report on Form 8-K (the "Original Form 8-K") reporting, among other things, that on December 3, 2018, the Company completed its acquisition of GGLG Properties Pty Ltd. ("GGLG") and Prema Life Pty Ltd (“Prema Life”). This Amendment No. 1 to the Original Form 8-K ("Amendment No. 1") amends the Original Form 8-K to provide the historical interim financial statements of GGLG and Prema Life as of December 31, 2018 and for the three months ended December 31, 2018 and 2017, and the unaudited pro forma condensed financial information for the Company, GGLG and Prema Life for the year ended September 30, 2018 and for the three months ended December 31, 2018 and the audited financial statements for GGLG and Prema Life for the years ended September 30, 2018 and 2017, respectively.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
Exhibit 99.1 filed herewith contains the audited financial statements of GGLG and Prema Life for the years ended September 30, 2018 and 2017in satisfaction of the Item 9.01(a) requirements.
Exhibit 99.2 filed herewith contains the unaudited interim financial statements of GGLG and Prema Life as of December 31, 2018 and for the three months ended December 31, 2018 and 2017 in satisfaction of the Item 9.01(a) requirements.
(b) Pro Forma Financial Information
Exhibit 99.3 filed herewith contains the unaudited pro forma condensed combined financial information of the Company and GGLG and Prema Life for the year ended September 30, 2018 and as of and for the three months ended December 31, 2018, in satisfaction of the Item 9.01(b) requirements.
(c) Exhibits
P-1 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Natural Health Farm Holdings Inc. | |||
Dated: May 10, 2019 | By: | /s/ Tee Chuen Meng | |
Tee Chuen Meng, Chief Executive Officer |
EXHIBIT 99.1
INDEX TO FINANCIAL STATEMENTS
Independent Auditors’ Report | F-2 |
Balance Sheets as of September 30, 2018 and 2017 | F-3 |
Statements of Operations for the Years Ended September 30, 2018 and 2017 | F-4 |
Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended September 30, 2018 and 2017 | F-5 |
Statements of Cash Flows for the Years Ended September 30, 2018 and 2017 | F-6 |
Notes to Financial Statements | F-7 - F-15 |
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TOTAL ASIA ASSOCIATES PLT (LLP0016837-LCA & AF002128) A Firm registered with US PCAOB and Malaysian MIA
C-3-1, Megan Avenue 1, 189 Off Jalan Tun Razak, 50400 Kuala Lumpur. Tel: (603) 2733 9989 |
To the Shareholders and Board of Directors of GGLG PROPERTIES PTY LTD
11 Aldinga Street,
Brendale, 4500,
Queensland, Australia.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of GGLG Properties Pty Ltd (the ‘Company’) as of September 30, 2017 and September 30, 2018 and the related statements of income, stockholders’ equity, and cash flows for the year ended of September 30, 2017 and September 30, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2017 and September 30, 2018 and the results of its operations and its cash flows for the year ended September 30, 2017 and September 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, for the year ended September 30, 2018 the Company incurred a net loss, working capital deficit and accumulated deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have served as the Company’s auditor since 2018.
/s/ Total Asia Associates PLT | |
TOTAL ASIA ASSOCIATES PLT | |
Kuala Lumpur, Malaysia | |
May 10, 2019 |
F-2 |
GGLG PROPERTIES PTY LTD
BALANCE SHEETS
September 30, 2018 | September 30, 2017 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 5,420 | $ | 19,616 | ||||
Accounts receivable, net | 8,285 | 21,187 | ||||||
Other current assets | 2,215 | 2,403 | ||||||
Total Current Assets | 15,920 | 43,206 | ||||||
Property, plant and equipment, net | 594,662 | 664,128 | ||||||
Total Assets | $ | 610,582 | $ | 707,334 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accrued expenses | $ | 298,044 | $ | 323,690 | ||||
Total Current Liabilities | 298,044 | 323,690 | ||||||
Total Liabilities | 298,044 | 323,690 | ||||||
Commitments and contingencies (Note 6) | ||||||||
Stockholders' Equity | ||||||||
Common stock, $1.00 par value, 100 shares authorized; 1 share issued and outstanding at September 30, 2018 and 2017, respectively | 1 | 1 | ||||||
Additional paid-in capital | 791,031 | 791,031 | ||||||
Accumulated other comprehensive income (loss) | (27,718 | ) | 1 | |||||
Accumulated deficit | (450,776 | ) | (407,389 | ) | ||||
Total Stockholders' Equity | 312,538 | 383,644 | ||||||
Total Liabilities and Stockholders' Equity | $ | 610,582 | $ | 707,334 |
The accompanying notes are an integral part of these financial statements.
F-3 |
GGLG PROPERTIES PTY LTD
STATEMENTS OF OPERATIONS
For the Year Ended September 30, | ||||||||
2018 | 2017 | |||||||
Revenue, net | $ | 67,442 | $ | 60,207 | ||||
Cost of revenue | - | - | ||||||
Gross Profit | 67,442 | 60,207 | ||||||
Operating expenses | ||||||||
Selling, general and administrative | 57,248 | 40,123 | ||||||
Total Operating Expenses | 57,248 | 40,123 | ||||||
Operating Profit (Loss) | 10,194 | 20,084 | ||||||
Other Income (Expense) | ||||||||
Interest expense | (53,581 | ) | (20,003 | ) | ||||
Total Other Income (Expense) | (53,581 | ) | (20,003 | ) | ||||
Profit (Loss) From Operations Before Income Taxes | (43,387 | ) | 81 | |||||
Provision for Income Tax | - | - | ||||||
Net Profit (Loss) | $ | (43,387 | ) | $ | 81 |
The accompanying notes are an integral part of these financial statements.
F-4 |
GGLG PROPERTIES PTY LTD
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated Earnings | |||||||||||||||||||||
Number | Amount | Capital | Income (Loss) | (Deficit) | Total | |||||||||||||||||||
Balance - October 1, 2016 | 1 | $ | 1 | $ | 791,031 | - | $ | (407,470 | ) | $ | 383,562 | |||||||||||||
Foreign currency translation | - | - | - | 1 | - | 1 | ||||||||||||||||||
Net profit | - | - | - | - | 81 | 81 | ||||||||||||||||||
Balance - September 30, 2017 | 1 | 1 | 791,031 | 1 | (407,389 | ) | 383,644 | |||||||||||||||||
Foreign currency translation | - | - | - | (27,719 | ) | - | (27,719 | ) | ||||||||||||||||
Net loss | - | - | - | - | (43,387 | ) | (43,387 | ) | ||||||||||||||||
Balance - September 30, 2018 | 1 | $ | 1 | $ | 791,031 | $ | (27,718 | ) | $ | (450,776 | ) | $ | 312,538 |
The accompanying notes are an integral part of these financial statements.
F-5 |
GGLG PROPERTIES PTY LTD
STATEMENTS OF CASH FLOWS
For the Years Ended September 30 | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities | ||||||||
Net (loss) profit | $ | (43,387 | ) | $ | 81 | |||
Adjustments to reconcile net (loss) profit to net cash used in operating activities | ||||||||
Depreciation | 8,511 | 14,330 | ||||||
Write-down of property, plant and equipment | - | (396,537 | ) | |||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | 12,902 | (10,331 | ) | |||||
Other current assets | 188 | 114,193 | ||||||
Accrued expenses | (16,049 | ) | 14,516 | |||||
Net Cash Used in Operating Activities | (37,835 | ) | (263,748 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of property, plant and equipment | - | - | ||||||
Net Cash (Used in) provided by Investing Activities | - | - | ||||||
Foreign currency translation adjustment | 23,639 | 2,959 | ||||||
Net Decrease in Cash | (14,196 | ) | (260,789 | ) | ||||
Cash - Beginning of the Period | 19,616 | 280,405 | ||||||
Cash - End of the Period | $ | 5,420 | $ | 19,616 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid for Income Taxes | $ | - | $ | - | ||||
Cash paid for Interest | $ | - | $ | - |
The accompanying notes are an integral part of these financial statements.
F-6 |
GGLG PROPERTIES PTY LTD
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017
NOTE 1 – NATURE OF OPERATIONS, LIQUIDITY AND GOING CONCERN
GGLG Properties Pty Ltd. (the “Company”, “We”, “Its”, and “GGLG”) was incorporated under the laws of Queensland, Australia on March 7, 2016 (Inception date). The Company owns industrial property and factory at Brendale in Brisbane, Queensland, Australia. The Company leases this property to an affiliate named Prema Life Pty Ltd (trading as Natural Vitality Australia), and incurs costs in connection with owning and maintaining that property and recovers these costs through rental charges and rental recoveries pursuant to a long term lease.
Liquidity and Going Concern
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated small revenues and has sustained cumulative operating losses since March 7, 2016 (Inception Date). The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and affiliates, the ability of the Company to obtain necessary financing to continue operations, and the attainment of profitable operations. The Company has recorded a net loss of $43,387 for the year ended September 30, 2018, used net cash flows in operating activities of $37,835, has a working capital deficit of $282,124, and has an accumulated deficit of $450,776 as of September 30, 2018. These factors, among others, raise a substantial doubt regarding the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company is continuing to focus its efforts on increased marketing campaigns, and distribution programs to strengthen the demand for its properties. Management anticipates that the Company’s capital resources will improve if its properties gain wider market recognition and acceptance resulting in higher occupancy. If the Company is not successful with its marketing efforts to increase occupancy and weak demand continues, the Company will experience a shortfall in cash and it will be necessary to further reduce its operating expenses in a manner or obtain funds through equity or debt financing in sufficient amounts to avoid the need to curtail its operations. Given the liquidity and credit constraints in the markets, the business may suffer, should the credit markets not improve in the near future. The direct impact of these conditions is not fully known. However, there can be no assurance that the Company would be able to secure additional funds if needed and that if such funds were available on commercially reasonable terms or in the necessary amounts, and whether the terms or conditions would be acceptable to the Company. In such case, the reduction in operating expenses might need to be substantial in order for the Company to generate positive cash flow to sustain the operations of the Company. However, due to the uncertainty in the Company’s ability to raise capital, increase revenues and generate significant positive cash flows from operations, management believes that there is substantial doubt in the Company’s ability to continue as a going concern within one year after the date the financial statements were issued.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. The financial statements and notes are the representation of the Company’s management who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects and have been consistently applied in preparing the accompanying financial statements.
F-7 |
Use of Estimates
The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable and accrued liabilities. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The Company had a cash balance of $5,420 and $19,616 at September 30, 2018 and 2017, respectively. The Company did not have any cash equivalents at September 30, 2018 and 2017, respectively.
Accounts Receivable
Accounts receivable represent income earned from the rental of property for which the Company has not yet received payment. Accounts receivable are recorded at the invoiced amount and adjusted for amounts management expects to collect from balances outstanding at period-end. The Company estimates the allowance for doubtful accounts based on an analysis of specific accounts and an assessment of the customer’s ability to pay, among other factors. The Company recorded $0 of bad debts for each of the years ended September 30, 2018 and 2017, respectively. At September 30, 2018 and 2017, no allowance for doubtful accounts was recorded.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation. The Company provides for depreciation on a straight-line basis over the estimated useful lives of the assets which range from three to thirty years. Property improvements are amortized over the shorter of the lease term or the estimated useful life of the related assets when they are placed into service. The Company evaluates property, plant and equipment for impairment periodically to determine if changes in circumstances or the occurrence of events suggest the carrying value of the asset or asset group may not be recoverable. Maintenance and repairs are charged to operations as incurred. Expenditures which substantially increase the useful lives of the related assets are capitalized.
Long-lived Assets
In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset compared to the estimated future undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss equal to the excess of the carrying value over the assets fair market value is recognized when the carrying amount exceeds the undiscounted cash flows. The impairment loss is recorded as an expense and a direct write-down of the asset. No impairment loss was recorded during the years ended September 30, 2018 and 2017, respectively.
F-8 |
Impairment of Long-Lived Assets
The Company reviews long-lived assets to be held and used, other than goodwill, for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows directly associated with the asset are compared to the asset’s carrying amount. If the estimated future cash flows from the use of the asset are less than the carrying value, an impairment write-down would be recorded to reduce the asset to its estimated fair value.
No impairment of long-lived assets was recorded for the years ended September 30, 2018 and 2017, respectively.
Revenue Recognition
The Company generates revenue from renting its property to an affiliate. The Company recognize revenue when the property leased is accepted by the customer, the lease rental price is fixed, and collection is reasonably assured, provided no significant obligations remain. The Company considers authoritative guidance on multiple deliverables in determining whether each deliverable represents a separate unit of accounting. Revenue is recognized net of rebates and customer allowances, as appropriate.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company places its cash with high quality banking institutions. The Company does not have the cash balances in excess of Federal Deposit Insurance Corporation limit at September 30, 2018 and 2017, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
F-9 |
Fair value of Financial Instruments and Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
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. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
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 Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued expenses. Pursuant to ASC 820, “Fair Value Measurements and Disclosures” and ASC 825, “Financial Instruments”, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table presents assets and liabilities that were measured and recognized at fair value as of September 30, 2018 on a recurring basis:
Description | Level 1 | Level 2 | Level 3 | |||||||||
None | $ | - | $ | - | $ | - | ||||||
The following table presents assets and liabilities that were measured and recognized at fair value as of September 30, 2017 on a recurring basis:
Description | Level 1 | Level 2 | Level 3 | |||||||||
None | $ | - | $ | - | $ | - | ||||||
F-10 |
Foreign Currency Translation
The accompanying financial statements are presented in U.S. dollars (“USD”). The reporting currency of the Company is the USD. The functional currency of the Company's is the Australian dollar (AUD). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the spot exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into USD are included in determining comprehensive income (loss). The foreign currency translation adjustment included in other comprehensive income and loss for the years ended September 30, 2018 and 2017 amounted to a loss of $27,719 and $1, respectively.
Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the results of operations as incurred.
As of September 30, 2018 and 2017, the exchange rates used to translate amounts in Australian dollars into USD for the purposes of preparing the financial statements were as follows:
September 30, 2018 | September 30, 2017 | ||||
Exchange rate on balance sheet dates | |||||
USD : AUD$ exchange rate | 0.7221 | 0.7832 | |||
Average exchange rate for the period | |||||
USD : AUD exchange rate | 0.7606 | 0.7619 |
Recent Accounting Pronouncements
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently in the process of evaluating the impact of this guidance on our condensed financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020 and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements.
F-11 |
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes a majority of existing revenue recognition guidance under US GAAP and requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. Companies may need to apply more judgment and estimation techniques or methods while recognizing revenue, which could result in additional disclosures to the financial statements. In addition, in March 2016, April 2016, May 2016 and December 2016 the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”), ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”), respectively, to amend certain guidance in ASU 2014-09. Topic 606 allows for either a retrospective or cumulative effect transition method. ASU 2014-09 was originally effective for fiscal years beginning after December 15, 2016. In July 2015, the FASB approved a one-year deferral of ASU 2014-09 and all amendments to it, with a new effective date for fiscal years beginning after December 15, 2017 with early adoption permitted as of the original effective date.
The Company plans to adopt on January 1, 2019 ASU 2014-09, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard. The Company is developing a plan for implementing the new standard, which includes, but is not limited to, identifying contract populations and “in scope” customer contracts, identifying performance obligations in those customer contracts, and evaluating any impact of variable consideration. The Company is currently evaluating the transition methods and will likely apply the modified retrospective transition method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts that are not completed at the date of initial application. Under this method, the Company would not restate the prior financial statements presented, therefore the new standard requires the Company to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during the fiscal year ending December 31, 2019, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any.
The impact that the new revenue recognition standard will have on the Company’s financial statements and disclosures has not yet been fully assessed. However, the Company does not expect the provisions of the new standard to have a material effect on the timing or amount of revenue it recognizes. The Company’s assessment also includes determining the impact the new standard may have on the revenue reporting processes, including disclosures, ensuring internal controls will operate effectively with the new standard and performing gap analyses on collected data and determining the relative accounting positions where applicable.
NOTE 3 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Description | September 30, 2018 | September 30, 2017 | ||||||
Property | $ | 495,965 | $ | 537,913 | ||||
Property improvements | 87,432 | 94,827 | ||||||
Furniture and fixtures | 29,668 | 32,178 | ||||||
Equipment | 107,615 | 116,717 | ||||||
720,680 | 781,635 | |||||||
Less: Accumulated depreciation | (126,018 | ) | (117,507 | ) | ||||
Property, plant and equipment, net | $ | 594,662 | $ | 664,128 |
Depreciation expense for the years ended September 30, 2018 and 2017 was $8,511 and $14,330, respectively.
F-12 |
NOTE 4 – ACCRUED EXPENSES
Accrued expenses consists of the following:
Description | September 30, 2018 | September 30, 2017 | ||||||
Accrued interest | $ | 288,850 | $ | 313,280 | ||||
Accrued tax obligations | - | 410 | ||||||
Accrued general sales tax payable | 3,836 | 4,651 | ||||||
Accrued - other expenses | 5,358 | 5,349 | ||||||
Total Accrued Expenses | $ | 298,044 | $ | 323,690 |
NOTE 5 – RELATED PARTY TRANSACTIONS
The Company leases its property to an affiliate and recorded rent revenue for the years ended September 30, 2018 and 2017 as $67,442 and $60,207, respectively. The Company incurs costs in connection with owning and maintaining the property and recovers these costs through rental charges and rental recoveries, pursuant to a long-term lease. The lease runs from July 2010 to June 2025, with three (3) options for further terms of 5 years each.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Litigation Costs and Contingencies
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. Other than as set forth below, management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss.
NOTE 7: STOCKHOLDERS’ DEFICIT
The Company’s capitalization at September 30, 2018 was 100 authorized common shares with a par value of $1.00 per share.
Common Stock
The Company did not issue any common stock or recorded any common stock related transactions during the years ended September 31, 2018 and 2017, respectively. As a result, the common stock issued and outstanding was 1 as of September 2018 and 2017, respectively.
F-13 |
The Company recorded a loss of $27,719 due to the foreign currency fluctuations for the year ended September 30, 2018, and a gain of $1 due to the foreign currency fluctuations for the year ended September 30, 2017.
NOTE 8: INCOME TAX
There was no income tax expense for the years ended September 30, 2018 and 2017 due to the Company’s net taxable losses. At September 30, 2018, the Company has a net operating loss for Australian tax purposes and U.S. tax purposes that approximates $451,000 and is available to offset taxable income through 2035. Consequently, the Company may have a net operating loss carry forwards available for income tax purposes, which will continue to be available until they are recovered through earning taxable income. Deferred tax assets would arise from the recognition of anticipated utilization of these net operating losses to offset future taxable income.
Income tax expense for the years ended September 30, 2018 and 2017 is summarized as follows.
September 30, 2018 | September 30, 2017 | |||||||
Deferred: | ||||||||
Federal | $ | (9,111 | ) | $ | 28 | |||
State | - | - | ||||||
Change in valuation allowance | 9,111 | (28 | ) | |||||
Income tax expense (benefit) | $ | — | $ | — |
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rates of 21% and 34% and the state income tax rates net of federal tax benefit of 0%, for the years ended September 30, 2018 and 2017, respectively, to the income taxes reflected in the Statements of Operations:
September 30, 2018 | September 30, 2017 | |||||||
Book Income (loss) | 21 | % | 34 | % | ||||
State taxes | - | % | - | % | ||||
Total | 21 | % | 34 | % | ||||
Valuation allowance | -21 | % | -34 | % | ||||
Tax expense at actual rate | — | — |
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at September 30, 2018 and 2017, respectively, are as follows:
Balance at September 30, 2018 | Balance at September 30, 2017 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carry forward | $ | 9,094 | $ | (28 | ) | |||
Total gross deferred tax assets | 9,094 | (28 | ) | |||||
Less - valuation allowance | (9,094 | ) | 28 | |||||
Net deferred tax assets | $ | — | $ | — |
Deferred income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.
F-14 |
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted, significantly altering U.S. corporate income tax law. The SEC issued Staff Accounting Bulletin 118, which allows companies to record reasonable estimates of enactment impacts where all of the underlying analysis and calculations are not yet complete. The provisional estimates must be finalized within a one-year measurement period. The Company reduced its net domestic deferred tax asset balance by $5,630 due to the reduction in corporate tax rate from 34% to 21%. These adjustments are fully offset by a change in the Company’s U.S. valuation allowance.
At September 30, 2018, the Company had accumulated deficit of approximately $451,000 for U.S. federal income tax purposes available to offset future taxable income expiring on various dates through 2035. The Company has recorded a 100% valuation allowance on the deferred tax assets due to the uncertainty of its realization. The net change in the valuation allowance during the years ended September 30, 2018 and 2017 was an increase of $9,111 and a reduction of $28, respectively.
In the normal course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits.
NOTE 9 – SUBSEQUENT EVENTS
The Company evaluated subsequent events through May 10, 2019, the date of the filing of this report with the SEC to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of September 30, 2018, and events which occurred subsequent to September 30, 2018 but were not recognized in the financial statements. The Company has determined that there were no subsequent events which required recognition, adjustment to or disclosure in the financial statements, except for the following:
On December 3, 2018, the Company agreed to sell 60% of its issued and outstanding shares of common stock to Natural Heath Farm Holdings Inc. (“NHF”) in exchange of receiving 63,500 shares of common stock of NHF valued at $254,000 based upon the closing share price of NHF. The transaction closed on January 1, 2019.
F-15
EXHIBIT 99.2
GGLG PROPERTIES PTY LTD
INDEX TO FINANCIAL STATEMENTS
Condensed Balance Sheets as of December 31, 2018 (Unaudited) and September 30, 2018 | F-2 |
Condensed Statements of Operations for the Three Months Ended December 31, 2018 and 2017 (Unaudited) | F-3 |
Condensed Statements of Cash Flows for the Three Months Ended December 31, 2018 and 2017 (Unaudited) | F-4 |
Notes to Condensed Unaudited Financial Statements | F-5 - F-12 |
F-1 |
GGLG PROPERTIES PTY LTD
CONDENSED BALANCE SHEETS
September 30, 2018 | December 31, 2018 | |||||||
ASSETS | (UNAUDITED) | |||||||
Current Assets | ||||||||
Cash | $ | 5,420 | $ | 4,084 | ||||
Accounts receivable, net | 8,285 | 13,350 | ||||||
Other current assets | 2,215 | 2,164 | ||||||
Total Current Assets | 15,920 | 19,598 | ||||||
Property, plant and equipment, net | 594,662 | 590,076 | ||||||
Total Assets | $ | 610,582 | $ | 609,674 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accrued expenses | $ | 298,044 | $ | 296,520 | ||||
Total Current Liabilities | 298,044 | 296,520 | ||||||
Total Liabilities | 298,044 | 296,520 | ||||||
Commitments and contingencies (Note 6) | ||||||||
Stockholders' Equity | ||||||||
Common stock, $1.00 par value, 100 shares authorized; 1 share issued and outstanding at September 30, 2018 and 2017, respectively | 1 | 1 | ||||||
Additional paid-in capital | 791,031 | 791,031 | ||||||
Accumulated other comprehensive income (loss) | (27,718 | ) | (35,090 | ) | ||||
Accumulated deficit | (450,776 | ) | (442,788 | ) | ||||
Total Stockholders' Equity | 312,538 | 313,154 | ||||||
Total Liabilities and Stockholders' Equity | $ | 610,582 | $ | 609,674 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
F-2 |
GGLG PROPERTIES PTY LTD
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended December 31, | ||||||||
2018 | 2017 | |||||||
Revenue, net | $ | 14,647 | $ | 19,588 | ||||
Cost of revenue | - | - | ||||||
Gross Profit | 14,647 | 19,588 | ||||||
Operating expenses | ||||||||
Selling, general and administrative | 4,916 | 10,791 | ||||||
Total Operating Expenses | 4,916 | 10,791 | ||||||
Operating Profit (Loss) | 9,731 | 8,797 | ||||||
Other Income (Expense) | ||||||||
Interest expense | (1,743 | ) | (16,629 | ) | ||||
Total Other Income (Expense) | (1,743 | ) | (16,629 | ) | ||||
Profit (Loss) From Operations Before Income Taxes | 7,988 | (7,832 | ) | |||||
Provision for Income Tax | - | - | ||||||
Net Profit (Loss) | $ | 7,988 | $ | (7,832 | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
F-3 |
GGLG PROPERTIES PTY LTD
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended December 31, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities | ||||||||
Net (loss) profit | $ | 7,988 | $ | (7,832 | ) | |||
Adjustments to reconcile net (loss) profit to net cash used in operating activities | ||||||||
Depreciation | 2,128 | 3,583 | ||||||
Bad debts written off | - | - | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (5,065 | ) | 15,386 | |||||
Other current assets | 51 | 8 | ||||||
Accrued expenses | (1,524 | ) | (4,419 | ) | ||||
Net Cash Used in Operating Activities | 3,578 | 6,726 | ||||||
Cash Flows from Investing Activities | ||||||||
Purchase of property, plant and equipment | (1,948 | ) | - | |||||
Net Cash (Used in) provided by Investing Activities | (1,948 | ) | - | |||||
Cash Flows from Financing Activities | ||||||||
Cash proceeds from sale of common stock | - | - | ||||||
Net Cash Flows from Financing Activities | - | - | ||||||
Foreign currency translation adjustment | (2,966 | ) | 817 | |||||
Net (Decrease) Increase in Cash | (1,336 | ) | 7,543 | |||||
Cash - Beginning of the Period | 5,420 | 19,616 | ||||||
Cash - End of the Period | $ | 4,084 | $ | 27,159 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid for Income Taxes | $ | - | $ | - | ||||
Cash paid for Interest | $ | - | $ | - |
The accompanying notes are an integral part of these unaudited condensed financial statements.
F-4 |
GGLG PROPERTIES PTY LTD
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(UNAUDITED)
NOTE 1 – NATURE OF OPERATIONS, LIQUIDITY AND GOING CONCERN
GGLG Properties Pty Ltd. (the “Company”, “We”, “Its”, and “GGLG”) was incorporated under the laws of Queensland, Australia on March 7, 2016 (Inception date). The Company owns industrial property and factory at Brendale in Brisbane, Queensland, Australia. The Company leases this property to an affiliate named Prema Life Pty Ltd (trading as Natural Vitality Australia), and incurs costs in connection with owning and maintaining that property and recovers these costs through rental charges and rental recoveries pursuant to a long-term lease.
Liquidity and Going Concern
The Company’s condensed financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced significant liquidity shortages as shown in the accompanying condensed financial statements and has sustained cumulative operating losses since March 7, 2016 (Inception Date). The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and affiliates, the ability of the Company to obtain necessary financing to continue operations, and the attainment of profitable operations. The Company has recorded a net profit of $7,988 for the three months ended December 31, 2018, provided net cash flows in operating activities of $3,578, has a working capital deficit of $276,922, and has an accumulated deficit of $442,887 as of December 31, 2018. These factors, among others, raise a substantial doubt regarding the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying condensed financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company is continuing to focus its efforts on increased marketing campaigns, and distribution programs to strengthen the demand for its properties. Management anticipates that the Company’s capital resources will improve if its properties gain wider market recognition and acceptance resulting in higher occupancy. If the Company is not successful with its marketing efforts to increase occupancy and weak demand continues, the Company will experience a shortfall in cash and it will be necessary to further reduce its operating expenses in a manner or obtain funds through equity or debt financing in sufficient amounts to avoid the need to curtail its operations. Given the liquidity and credit constraints in the markets, the business may suffer, should the credit markets not improve in the near future. The direct impact of these conditions is not fully known. However, there can be no assurance that the Company would be able to secure additional funds if needed and that if such funds were available on commercially reasonable terms or in the necessary amounts, and whether the terms or conditions would be acceptable to the Company. In such case, the reduction in operating expenses might need to be substantial in order for the Company to generate positive cash flow to sustain the operations of the Company. However, due to the uncertainty in the Company’s ability to raise capital, increase revenues and generate significant positive cash flows from operations, management believes that there is substantial doubt in the Company’s ability to continue as a going concern within one year after the date the financial statements were issued.
F-5 |
Unaudited Interim Condensed Financial Information
The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the years ended September 30, 2018 and 2017, respectively.
The accompanying interim condensed financial statements as of December 31, 2018 and for the three months ended December 31, 2018 and 2017, and the related interim information contained within the notes to the condensed financial statements, are unaudited. The unaudited interim condensed financial statements have been prepared in accordance with GAAP and on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited interim condensed financial statements contain all adjustments which are necessary to state fairly the Company’s financial position as of December 31, 2018, and the results of its operations and cash flows for the three months ended December 31, 2018 and 2017. Such adjustments are of a normal and recurring nature. The results for the three months ended December 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year 2018, or for any future period.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s interim condensed financial statements. The financial statements and notes are the representation of the Company’s management who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects and have been consistently applied in preparing the accompanying condensed financial statements.
Use of Estimates
The preparation of condensed 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable and accrued liabilities. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The Company had a cash balance of $4,084 and $5,420 at December 31, 2018 and September 30, 2018, respectively. The Company did not have any cash equivalents at December 31, 2018 and September 30, 2018, respectively.
Accounts Receivable
Accounts receivable represent income earned from the rental of property for which the Company has not yet received payment. Accounts receivable are recorded at the invoiced amount and adjusted for amounts management expects to collect from balances outstanding at period-end. The Company estimates the allowance for doubtful accounts based on an analysis of specific accounts and an assessment of the customer’s ability to pay, among other factors. The Company recorded $0 of bad debts for each of the three months ended December 31, 2018 and 2017, respectively. At December 31, 2018 and September 30, 2018, no allowance for doubtful accounts was recorded.
F-6 |
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation. The Company provides for depreciation on a straight-line basis over the estimated useful lives of the assets which range from three to thirty years. Property improvements are amortized over the shorter of the lease term or the estimated useful life of the related assets when they are placed into service. The Company evaluates property, plant and equipment for impairment periodically to determine if changes in circumstances or the occurrence of events suggest the carrying value of the asset or asset group may not be recoverable. Maintenance and repairs are charged to operations as incurred. Expenditures which substantially increase the useful lives of the related assets are capitalized.
Long-lived Assets
In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset compared to the estimated future undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss equal to the excess of the carrying value over the assets fair market value is recognized when the carrying amount exceeds the undiscounted cash flows. The impairment loss is recorded as an expense and a direct write-down of the asset. No impairment loss was recorded for the three months ended December 31, 2018 and 2017, respectively.
Impairment of Long-Lived Assets
The Company reviews long-lived assets to be held and used, other than goodwill, for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows directly associated with the asset are compared to the asset’s carrying amount. If the estimated future cash flows from the use of the asset are less than the carrying value, an impairment write-down would be recorded to reduce the asset to its estimated fair value.
No impairment of long-lived assets was recorded for the three months ended December 31, 2018 and 2017, respectively.
Revenue Recognition
The Company generates revenue from renting its property to an affiliate. The Company recognizes revenue when the property leased is accepted by the customer, the lease rental price is fixed, and collection is reasonably assured, provided no significant obligations remain. The Company considers authoritative guidance on multiple deliverables in determining whether each deliverable represents a separate unit of accounting. Revenue is recognized net of rebates and customer allowances, as appropriate.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company places its cash with high quality banking institutions. The Company does not have the cash balances in excess of Federal Deposit Insurance Corporation limit at December 31, 2018 and September 30, 2018, respectively.
F-7 |
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Fair value of Financial Instruments and Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
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. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
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.
F-8 |
The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued expenses. Pursuant to ASC 820, “Fair Value Measurements and Disclosures” and ASC 825, “Financial Instruments”, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table presents assets and liabilities that were measured and recognized at fair value as of December 31, 2018 on a recurring basis:
Description | Level 1 | Level 2 | Level 3 | |||||||||
None | $ | - | $ | - | $ | - |
The following table presents assets and liabilities that were measured and recognized at fair value as of September 30, 2018 on a recurring basis:
Description | Level 1 | Level 2 | Level 3 | |||||||||
None | $ | - | $ | - | $ | - |
Foreign Currency Translation
The accompanying condensed financial statements are presented in U.S. dollars (“USD”). The reporting currency of the Company is the USD. The functional currency of the Company is the Australian dollar (AUD). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the spot exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into USD are included in determining comprehensive income (loss). The foreign currency translation adjustment included in other comprehensive income and loss for the three months ended December 31, 2018 and 2017 amounted to a gain of $6,630 and $817, respectively.
Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the results of operations as incurred.
As of December 31, 2018 and 2017, the exchange rates used to translate amounts in Australian dollars into USD for the purposes of preparing the financial statements were as follows:
December 31, 2018 |
December 31, 2017 |
||||
Exchange rate on balance sheet dates | |||||
USD : AUD$ exchange rate | 0.7054 | 0.7806 | |||
Average exchange rate for the period | |||||
USD : AUD exchange rate | 0.7170 | 0.7689 |
Recent Accounting Pronouncements
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently in the process of evaluating the impact of this guidance on our condensed financial statements.
F-9 |
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020 and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes a majority of existing revenue recognition guidance under US GAAP and requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. Companies may need to apply more judgment and estimation techniques or methods while recognizing revenue, which could result in additional disclosures to the financial statements. In addition, in March 2016, April 2016, May 2016 and December 2016 the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”), ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”), respectively, to amend certain guidance in ASU 2014-09. Topic 606 allows for either a retrospective or cumulative effect transition method. ASU 2014-09 was originally effective for fiscal years beginning after December 15, 2016. In July 2015, the FASB approved a one-year deferral of ASU 2014-09 and all amendments to it, with a new effective date for fiscal years beginning after December 15, 2017 with early adoption permitted as of the original effective date.
The Company plans to adopt on January 1, 2019 ASU 2014-09, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard. The Company is developing a plan for implementing the new standard, which includes, but is not limited to, identifying contract populations and “in scope” customer contracts, identifying performance obligations in those customer contracts, and evaluating any impact of variable consideration. The Company is currently evaluating the transition methods and will likely apply the modified retrospective transition method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts that are not completed at the date of initial application. Under this method, the Company would not restate the prior financial statements presented, therefore the new standard requires the Company to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during the fiscal year ending December 31, 2019, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any.
The impact that the new revenue recognition standard will have on the Company’s financial statements and disclosures has not yet been fully assessed. However, the Company does not expect the provisions of the new standard to have a material effect on the timing or amount of revenue it recognizes. The Company’s assessment also includes determining the impact the new standard may have on the revenue reporting processes, including disclosures, ensuring internal controls will operate effectively with the new standard and performing gap analyses on collected data and determining the relative accounting positions where applicable.
F-10 |
NOTE 3 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Description | December 31, 2018 | September 30, 2018 | ||||||
(UNAUDITED) | ||||||||
Property | $ | 484,473 | $ | 495,965 | ||||
Property improvements | 85,406 | 87,432 | ||||||
Furniture and fixtures | 28981 | 29,668 | ||||||
Equipment | 107,069 | 107,615 | ||||||
705,929 | 720,680 | |||||||
Less: Accumulated depreciation | (115,853 | ) | (126,018 | ) | ||||
Property, plant and equipment, net | $ | 590,076 | $ | 594,662 |
Depreciation expense for the years ended December 31, 2018 and 2017 was $2,128 and $3,583, respectively.
NOTE 4 – ACCRUED EXPENSES
Accrued expenses consist of the following:
Description | December 31, 2018 | September 30, 2018 | ||||||
(UNAUDITED) | ||||||||
Accrued interest | $ | 282,155 | $ | 288,850 | ||||
Accrued general sales tax payable | 4,720 | 3,836 | ||||||
Accrued - other expenses | 9,645 | 5,358 | ||||||
Total Accrued Expenses | $ | 296,520 | $ | 298,044 |
NOTE 5 – RELATED PARTY TRANSACTIONS
The Company leases its property to an affiliate and recorded rent revenue for the three months ended December 31, 2018 and 2017 as $14,647 and $19,588, respectively. The Company incurs costs in connection with owning and maintaining the property and recovers these costs through rental charges and rental recoveries, pursuant to a long-term lease. The month-to-month operating lease runs from July 2010 to June 2025, with three (3) options for further terms of 5 years each.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Litigation Costs and Contingencies
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. Other than as set forth below, management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss.
F-11 |
NOTE 7: STOCKHOLDERS’ DEFICIT
The Company’s capitalization at December 31, 2018 was 100 authorized common shares with a par value of $1.00 per share.
Common Stock
The Company did not issue any common stock or recorded any common stock related transactions during the three months ended December 31, 2018. As a result, the common stock issued and outstanding was 1 as of December 31, 2018 and September 30, 2018, respectively.
The Company recorded a loss of $7,372 and a loss of $1,398 due to the foreign currency fluctuations for the three months ended December 31, 2018 and 2017, respectively.
NOTE 9 – SUBSEQUENT EVENTS
The Company evaluated subsequent events through May 10, 2019, the date of the filing of this report with the SEC to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of December 31, 2018, and events which occurred subsequent to December 31, 2018 but were not recognized in the financial statements. The Company has determined that there were no subsequent events which required recognition, adjustment to or disclosure in the financial statements, except for the following:
On December 3, 2018, the Company agreed to sell 60% of its issued and outstanding shares of common stock to Natural Heath Farm Holdings Inc. (“NHF”) in exchange of receiving 63,500 shares of common stock of NHF valued at $254,000 based upon the closing share price of NHF. The transaction closed on January 1, 2019.
F-12
EXHIBIT 99.3
PREMA LIFE PTY LTD
INDEX TO FINANCIAL STATEMENTS
Condensed Balance Sheets as of December 31, 2018 (Unaudited) and September 30, 2018 | F-2 |
Condensed Statements of Operations for the Three Months Ended December 31, 2018 and 2017 (Unaudited) | F-3 |
Condensed Statements of Cash Flows for the Three Months Ended December 31, 2018 and 2017 (Unaudited) | F-4 |
Notes to Condensed Unaudited Financial Statements | F-5 - F-12 |
F-1 |
PREMA LIFE PTY LTD.
CONDENSED BALANCE SHEETS
December 31, 2018 | September 30, 2018 | |||||||
ASSETS | (UNAUDITED) | |||||||
Current Assets | ||||||||
Cash | $ | 16,972 | $ | 31,628 | ||||
Accounts receivable, net | 140,059 | 164,828 | ||||||
Inventories | 418,363 | 436,023 | ||||||
Other current assets | 20,162 | — | ||||||
Total Current Assets | 595,556 | 632,479 | ||||||
Property, plant and equipment, net | 96,791 | 101,235 | ||||||
Total Assets | $ | 692,347 | $ | 733,714 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 125,926 | $ | 95,642 | ||||
Accrued expenses | 529,409 | 511,673 | ||||||
Due to related party | 215,144 | 180,531 | ||||||
Total Current Liabilities | 870,479 | 787,846 | ||||||
Total Liabilities | 870,479 | 787,846 | ||||||
Commitments and contingencies (Note 7) | ||||||||
Stockholders' Deficit | ||||||||
Common stock, $0.7634 par value, 2,500 shares authorized; 1,025 shares issued and outstanding at December 31, 2018 and September 30, 2018, respectively | 783 | 783 | ||||||
Additional paid-in capital | 836,618 | 836,618 | ||||||
Accumulated other comprehensive income | 7,364 | 4,045 | ||||||
Accumulated deficit | (1,022,897 | ) | (895,578 | ) | ||||
Total Stockholders' Deficit | (178,132 | ) | (54,132 | ) | ||||
Total Liabilities and Stockholders' Deficit | $ | 692,347 | $ | 733,714 |
The accompanying notes are an integral part of these condensed unaudited financial statements.
F-2 |
PREMA LIFE PTY LTD.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended December 31, | ||||||||
2018 | 2017 | |||||||
Revenue, net | $ | 323,044 | $ | 793,936 | ||||
Cost of revenue | 223,836 | 405,706 | ||||||
Gross Profit | 99,208 | 388,230 | ||||||
Operating expenses | ||||||||
Selling, general and administrative | 226,527 | 240,840 | ||||||
Research and development | - | 3,838 | ||||||
Total Operating Expenses | 226,527 | 244,678 | ||||||
Operating Income (Loss) | (127,319 | ) | 143,552 | |||||
Other Income (Expense) | ||||||||
Forgiveness of debt | - | - | ||||||
Interest expense | - | - | ||||||
Total Other Income (Expense) | - | - | ||||||
Income (Loss) From Operations Before Income Taxes | (127,319 | ) | 143,552 | |||||
Provision for Income Tax | - | - | ||||||
Net (Loss) Profit | $ | (127,319 | ) | $ | 143,552 |
The accompanying notes are an integral part of these condensed unaudited financial statements.
F-3 |
PREMA LIFE PTY LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended December 31, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities | ||||||||
Net (loss) profit | $ | (127,319 | ) | 143,552 | ||||
Adjustments to reconcile net (loss) profit to net cash (used in) provided by operating activities | ||||||||
Depreciation | 5,410 | 7,082 | ||||||
Write-down of property, plant and equipment | ||||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | 20,950 | (50,031 | ) | |||||
Inventories | 7,556 | 114,262 | ||||||
Other current assets | (20,162 | ) | (7,923 | ) | ||||
Accounts payable | 32,500 | (159,589 | ) | |||||
Accrued expenses | 29,593 | (25,333 | ) | |||||
Net Cash (Used in) Provided by Operating Activities | (51,472 | ) | 22,020 | |||||
Cash Flows from Investing Activities | ||||||||
Purchase of property, plant and equipment | (3,312 | ) | (3,221 | ) | ||||
Net Cash Used in Investing Activities | (3,312 | ) | (3,221 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Cash proceeds from sale of common stock | - | - | ||||||
Cash received from related party | 38,797 | - | ||||||
Net Cash Flows from Financing Activities | 38,797 | - | ||||||
Foreign currency translation adjustment | 1,331 | 2,017 | ||||||
Net (Decrease) Increase in Cash | (14,656 | ) | 20,816 | |||||
Cash - Beginning of the Period | 31,628 | 81,503 | ||||||
Cash - End of the Period | $ | 16,972 | $ | 102,319 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid for Income Taxes | $ | - | $ | - | ||||
Cash paid for Interest | $ | - | $ | - |
The accompanying notes are an integral part of these condensed unaudited financial statements.
F-4 |
PREMA LIFE PTY LTD
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 30, 2018 AND 2017
(UNAUDITED)
NOTE 1 – NATURE OF OPERATIONS, LIQUIDITY AND GOING CONCERN
Prema Life Pty Ltd (the “Company”, “We”, “Its”, and “Prema Life”) was incorporated under the laws of Queensland, Australia on November 12, 2002 (Inception date) and trading as Natural Vitality Australia. The Company is a manufacturer and supplier of functional foods, vitamins and supplements, of practitioner only naturopathic and homeopathic medicines in Australia. The Company hosts regular educational webinars and seminars for practitioners to learn about the natural products. The Company operates from a Hazard Analysis and Critical Control Point (“HACCP”) certified manufacturing facility and has the capacity to produce a wide range of powder and liquid products to requirements.
Liquidity and Going Concern
The Company’s condensed financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced significant liquidity shortages as shown in the accompanying condensed financial statements and has sustained cumulative operating losses since November 12, 2002 (Inception Date) to September 30, 2018. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and affiliates, the ability of the Company to obtain necessary financing to continue operations, and the attainment of profitable operations. The Company has recorded a net loss of $127,319 for the three months ended December 31, 2018, used net cash flows in operating activities of $51,472, has a working capital deficit of $280,333, and has an accumulated deficit of $1,022,897 as of December 31, 2018. The Company has had difficulty in obtaining working capital lines of credit from financial institutions and trade credit from vendors. These factors, among others, raise a substantial doubt regarding the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying condensed financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company is continuing to focus its efforts on increased marketing campaigns, and distribution programs to strengthen the demand for its products. Management anticipates that the Company’s capital resources will improve if its products gain wider market recognition and acceptance resulting in increased product sales. If the Company is not successful with its marketing efforts to increase sales and weak demand continues, the Company will experience a shortfall in cash and it will be necessary to further reduce its operating expenses in a manner or obtain funds through equity or debt financing in sufficient amounts to avoid the need to curtail its operations. Given the liquidity and credit constraints in the markets, the business may suffer, should the credit markets not improve in the near future. The direct impact of these conditions is not fully known. However, there can be no assurance that the Company would be able to secure additional funds if needed and that if such funds were available on commercially reasonable terms or in the necessary amounts, and whether the terms or conditions would be acceptable to the Company. In such case, the reduction in operating expenses might need to be substantial in order for the Company to generate positive cash flow to sustain the operations of the Company. However, due to the uncertainty in the Company’s ability to raise capital, increase sales and generate significant positive cash flows from operations, management believes that there is substantial doubt in the Company’s ability to continue as a going concern within one year after the date the financial statements were issued.
Unaudited Interim Condensed Financial Information
The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the years ended September 30, 2018 and 2017, respectively.
F-5 |
The accompanying interim condensed financial statements as of December 31, 2018 and for the three months ended December 31, 2018 and 2017, and the related interim information contained within the notes to the condensed financial statements, are unaudited. The unaudited interim condensed financial statements have been prepared in accordance with GAAP and on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited interim condensed financial statements contain all adjustments which are necessary to state fairly the Company’s financial position as of December 31, 2018, and the results of its operations and cash flows for the three months ended December 31, 2018 and 2017. Such adjustments are of a normal and recurring nature. The results for the three months ended December 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year 2018, or for any future period.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. The financial statements and notes are the representation of the Company’s management who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects and have been consistently applied in preparing the accompanying condensed financial statements.
Use of Estimates
The preparation of condensed 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued liabilities and payable to related parties. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The Company had a cash balance of $16,972 and $31,628 at December 31, 2018 and September 30, 2018, respectively. The Company did not have any cash equivalents at December 31, 2018 and September 30, 2018, respectively.
Accounts Receivable
Accounts receivable represent income earned from the sale of products for which the Company has not yet received payment. Accounts receivable are recorded at the invoiced amount and adjusted for amounts management expects to collect from balances outstanding at period-end. The Company estimates the allowance for doubtful accounts based on an analysis of specific accounts and an assessment of the customer’s ability to pay, among other factors. The Company has recorded $0 of bad debts for the three months ended December 31, 2018 and 2017, respectively. At December 31, 2018 and September 30, 2018, no allowance for doubtful accounts was recorded.
F-6 |
Inventories
Inventory is valued at the lower of cost or net realizable value using the first-in, first-out method. The reported net value of inventory includes raw materials, work-in-progress and finished saleable products that will be sold or used in future periods. The Company reserves for obsolete and slow-moving inventory. At December 31, 2018 and September 30, 2018, there were no reserves for obsolete and slow-moving inventory.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation. The Company provides for depreciation on a straight-line basis over the estimated useful lives of the assets which range from three to thirteen years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related assets when they are placed into service. The Company evaluates property, plant and equipment for impairment periodically to determine if changes in circumstances or the occurrence of events suggest the carrying value of the asset or asset group may not be recoverable. Maintenance and repairs are charged to operations as incurred. Expenditures which substantially increase the useful lives of the related assets are capitalized.
Long-lived Assets
In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset compared to the estimated future undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss equal to the excess of the carrying value over the assets fair market value is recognized when the carrying amount exceeds the undiscounted cash flows. The impairment loss is recorded as an expense and a direct write-down of the asset. No impairment loss was recorded during the three months ended December 31, 2018 and September 30, 2018, respectively.
Impairment of Long-Lived Assets
The Company reviews long-lived assets to be held and used, other than goodwill, for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows directly associated with the asset are compared to the asset’s carrying amount. If the estimated future cash flows from the use of the asset are less than the carrying value, an impairment write-down would be recorded to reduce the asset to its estimated fair value.
No impairment of long-lived assets was recorded for the three months ended December 31, 2018 and September 30, 2018, respectively.
Revenue Recognition
The Company generates revenue from manufacturing and distribution of vitamins and health supplements to distributors and retailers of nutritional supplements in the healthcare industry. The Company recognize revenue when the products are delivered and accepted by the customer, the selling price is fixed, and collection is reasonably assured, provided no significant obligations remain. The Company considers authoritative guidance on multiple deliverables in determining whether each deliverable represents a separate unit of accounting. Revenue is recognized net of rebates and customer allowances, as appropriate.
F-7 |
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable and inventories. The Company places its cash with high quality banking institutions. The Company does not have the cash balances in excess of Federal Deposit Insurance Corporation limit at December 31, 2018 and September 30, 2017, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Fair value of Financial Instruments and Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
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. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
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.
F-8 |
The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, accrued expenses and payable to an affiliate. Pursuant to ASC 820, “Fair Value Measurements and Disclosures” and ASC 825, “Financial Instruments”, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table presents assets and liabilities that were measured and recognized at fair value as of December 31, 2018 on a recurring basis:
Description | Level 1 | Level 2 | Level 3 | |||||||||
None | $ | - | $ | - | $ | - | ||||||
The following table presents assets and liabilities that were measured and recognized at fair value as of September 30, 2018 on a recurring basis:
Description | Level 1 | Level 2 | Level 3 | |||||||||
None | $ | - | $ | - | $ | - | ||||||
Foreign Currency Translation
The accompanying financial statements are presented in U.S. dollars (“USD”). The reporting currency of the Company is the USD. The functional currency of the Company's is the Australian dollar (“AUD”). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the spot exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into USD are included in determining comprehensive income (loss). The foreign currency translation adjustment included in other comprehensive income and loss for the three months ended December 31, 2018 and 2017 amounted to a gain of $1,331 and $2,017, respectively.
Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the results of operations as incurred.
As of December 31, 2018 and 2017, the exchange rates used to translate amounts in Australian dollars into USD for the purposes of preparing the financial statements were as follows:
December
31, | December
31, | |||||||
Exchange rate on balance sheet dates | ||||||||
USD : AUD$ exchange rate | 0.7054 | 0.7806 | ||||||
Average exchange rate for the period | ||||||||
USD : AUD exchange rate | 0.7170 | 0.7689 |
F-9 |
Recent Accounting Pronouncements
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently in the process of evaluating the impact of this guidance on our condensed financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020 and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes a majority of existing revenue recognition guidance under US GAAP and requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. Companies may need to apply more judgment and estimation techniques or methods while recognizing revenue, which could result in additional disclosures to the financial statements. In addition, in March 2016, April 2016, May 2016 and December 2016 the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”), ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”), respectively, to amend certain guidance in ASU 2014-09. Topic 606 allows for either a retrospective or cumulative effect transition method. ASU 2014-09 was originally effective for fiscal years beginning after December 15, 2016. In July 2015, the FASB approved a one-year deferral of ASU 2014-09 and all amendments to it, with a new effective date for fiscal years beginning after December 15, 2017 with early adoption permitted as of the original effective date.
The Company plans to adopt on January 1, 2019 ASU 2014-09, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard. The Company is developing a plan for implementing the new standard, which includes, but is not limited to, identifying contract populations and “in scope” customer contracts, identifying performance obligations in those customer contracts, and evaluating any impact of variable consideration. The Company is currently evaluating the transition methods and will likely apply the modified retrospective transition method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts that are not completed at the date of initial application. Under this method, the Company would not restate the prior financial statements presented, therefore the new standard requires the Company to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during the fiscal year ending December 31, 2019, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any.
The impact that the new revenue recognition standard will have on the Company’s financial statements and disclosures has not yet been fully assessed. However, the Company does not expect the provisions of the new standard to have a material effect on the timing or amount of revenue it recognizes. The Company’s assessment also includes determining the impact the new standard may have on the revenue reporting processes, including disclosures, ensuring internal controls will operate effectively with the new standard and performing gap analyses on collected data and determining the relative accounting positions where applicable.
F-10 |
NOTE 3 – INVENTORIES
Inventories consists of the following:
Description | December 31, 2018 | September 30, 2018 | ||||||
Raw material | $ | 260,708 | $ | 282,785 | ||||
Material used | 100,476 | 80,449 | ||||||
Finished goods | 57,179 | 72,789 | ||||||
Total | $ | 418,363 | $ | 436,023 |
NOTE 4 – PROPRTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Description | December 31, 2018 | September 30, 2018 | ||||||
Manufacturing plant and equipment | $ | 175,204 | $ | 179,360 | ||||
Furniture and fixtures | 30,521 | 31,245 | ||||||
Office equipment | 103,088 | 102,143 | ||||||
308,813 | 312,748 | |||||||
Less: Accumulated depreciation | (212,022 | ) | (211,513 | ) | ||||
Property, plant and equipment, net | $ | 96,791 | $ | 101,235 |
Depreciation expense for the three months ended December 31, 2018 and 2017 was $5,410 and $7,082, respectively. In addition, during the three months ended December 31, 2018 and 2017, the Company purchased additional office equipment of $3,312 and $3,221, respectively.
NOTE 5 – ACCRUED EXPENSES
Accrued expenses consists of the following:
Description | December 31, 2018 | September 30, 2018 | ||||||
Accrued employee benefits | $ | 47,473 | $ | 28,954 | ||||
Accrued tax obligations | 373,747 | 377,609 | ||||||
Accrued general sales tax payable | 39,887 | 47,018 | ||||||
Accrued - other expenses | 68,302 | 58,092 | ||||||
Total Accrued Expenses | $ | 529,409 | $ | 511,673 |
NOTE 6 – RELATED PARTY TRANSACTIONS
The Company received a short-term advance for its working capital needs from an affiliate of $215,144 and $180,531 at December 31, 2018 and September 30, 2018, respectively. The advances received are unsecured, non-interest bearing and due on demand.
F-11 |
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Commitments
The Company executed a month-to-month operating lease for its principal office with the lease commencing July 2, 2010. The Company paid no security deposit. The lease required the Company to pay “outgoings” (property operational expenses) estimated to be $12,000 per annum, and monthly rental pursuant to the lease terms. The Company recorded rent expense of $23,976 and $28,627 for the three months ended December 31, 2018 and 2017, respectively.
Litigation Costs and Contingencies
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. Other than as set forth below, management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss.
NOTE 8: STOCKHOLDERS’ DEFICIT
The Company’s capitalization at December 31, 2018 was 2,500 authorized common shares with a par value of $0.76 per share.
Common Stock
On September 5, 2017, the Company sold 25 shares of common stock to a third-party investor for cash proceeds of $73,570.
As a result of all common stock issuances, the Company had 1,025 shares of common stock issued and outstanding as of December 31, 2018 and September 30, 2018, respectively.
The Company also recorded a gain of $3,319 and $963 due to foreign currency translations for the three months ended December 31, 2018 and 2017, respectively.
NOTE 9 – SUBSEQUENT EVENTS
The Company evaluated subsequent events through May 10, 2019, the date of the filing of this report on Form 8-K with the SEC to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of December 31, 2018, and events which occurred subsequent to December 31, 2018 but were not recognized in the financial statements. The Company has determined that there were no subsequent events which required recognition, adjustment to or disclosure in the financial statements, except for the following:
On December 3, 2018, the Company agreed to sell 51% of its issued and outstanding shares of common stock to Natural Heath Farm Holdings Inc. (“NHF”) in exchange of receiving 241,000 shares of common stock of NHF valued at $964,000 based on the closing market price of NHF. The transaction closed on January 1, 2019.
F-12
EXHIBIT 99.4
PREMA LIFE PTY LTD
INDEX TO FINANCIAL STATEMENTS
Independent Auditors’ Report | F-2 |
Balance Sheets as of September 30, 2018 and 2017 | F-3 |
Statements of Operations for the Years Ended September 30, 2018 and 2017 | F-4 |
Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended September 30, 2018 and 2017 | F-5 |
Statements of Cash Flows for the Years Ended September 30, 2018 and 2017 | F-6 |
Notes to Financial Statements | F-7 - F-16 |
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TOTAL ASIA ASSOCIATES PLT (LLP0016837-LCA & AF002128) A Firm registered with US PCAOB and Malaysian MIA
C-3-1, Megan Avenue 1, 189 Off Jalan Tun Razak, 50400 Kuala Lumpur. Tel: (603) 2733 9989 |
To the Shareholders and Board of Directors of PREMA LIFE PTY LTD
11 Aldinga Street,
Brendale, 4500,
Queensland, Australia.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Prema Life Pty Ltd (the ‘Company’) as of September 30, 2017 and September 30, 2018 and the related statements of income, stockholders’ equity, and cash flows for the year ended of September 30, 2017 and September 30, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2017 and September 30, 2018 and the results of its operations and its cash flows for the year ended September 30, 2017 and September 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, for the year ended September 30, 2018 the Company incurred a net loss, working capital deficit and accumulated deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have served as the Company’s auditor since 2018.
/s/ Total Asia Associates PLT | |
TOTAL ASIA ASSOCIATES PLT | |
Kuala Lumpur, Malaysia | |
May 10, 2019 |
F-2 |
PREMA LIFE PTY LTD. | ||||||||
BALANCE SHEETS | ||||||||
September 30, 2018 | September 30, 2017 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 31,628 | $ | 81,503 | ||||
Accounts receivable, net | 164,828 | 517,268 | ||||||
Inventories | 436,023 | 570,598 | ||||||
Other current assets | - | 1,912 | ||||||
Total Current Assets | 632,479 | 1,171,281 | ||||||
Property, plant and equipment, net | 101,235 | 130,906 | ||||||
Total Assets | $ | 733,714 | $ | 1,302,187 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 95,642 | $ | 456,813 | ||||
Accrued expenses | 511,673 | 361,904 | ||||||
Due to related party | 180,531 | 117,480 | ||||||
Total Current Liabilities | 787,846 | 936,197 | ||||||
Total Liabilities | 787,846 | 936,197 | ||||||
Commitments and contingencies (Note 7) | ||||||||
Stockholders' Equity (Deficit) | ||||||||
Common stock, $0.76 par value, 2,500 shares September 30, 2018 and 2017, respectively | 783 | 783 | ||||||
Additional paid-in capital | 836,618 | 836,618 | ||||||
Accumulated other comprehensive income | 4,045 | 11,703 | ||||||
Accumulated deficit | (895,578 | ) | (483,114 | ) | ||||
Total Stockholders' Equity (Deficit) | (54,132 | ) | 365,990 | |||||
Total Liabilities and Stockholders' Equity (Deficit) | $ | 733,714 | $ | 1,302,187 | ||||
The accompanying notes are an integral part of these financial statements.
F-3 |
PREMA LIFE PTY LTD. | ||||||||
STATEMENTS OF OPERATIONS | ||||||||
For the Year Ended September 30, | ||||||||
2018 | 2017 | |||||||
Revenue, net | $ | 2,083,771 | $ | 2,323,664 | ||||
Cost of revenue | 1,335,042 | 1,502,592 | ||||||
Gross Profit | 748,729 | 821,072 | ||||||
Operating expenses | ||||||||
Selling, general and administrative | 1,143,827 | 1,125,039 | ||||||
Research and development | 17,366 | 20,336 | ||||||
Total Operating Expenses | 1,161,193 | 1,145,375 | ||||||
Operating Loss | (412,464 | ) | (324,303 | ) | ||||
Other Income (Expense) | ||||||||
Forgiveness of debt | - | 176,754 | ||||||
Interest expense | - | (1,950 | ) | |||||
Total Other Income (Expense) | - | 174,804 | ||||||
Loss From Operations Before Income Taxes | (412,464 | ) | (149,499 | ) | ||||
Provision for Income Tax | - | - | ||||||
Net Loss | $ | (412,464 | ) | $ | (149,499 | ) | ||
The accompanying notes are an integral part of these financial statements.
F-4 |
PREMA LIFE PTY LTD. | ||||||||||||||||||||||||
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||
Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated Earnings | |||||||||||||||||||||
Number | Amount | Capital | Income (Loss) | (Deficit) | Total | |||||||||||||||||||
Balance - October 1, 2016 | 1,000 | $ | 764 | $ | 763,067 | 15,890 | $ | (333,615 | ) | $ | 446,106 | |||||||||||||
Sale of common stock | 25 | 19 | 73,551 | - | - | 73,570 | ||||||||||||||||||
Foreign currency translation | - | - | - | (4,187 | ) | - | (4,187 | ) | ||||||||||||||||
Net profit | - | - | - | - | (149,499 | ) | (149,499 | ) | ||||||||||||||||
Balance - September 30, 2017 | 1,025 | 783 | 836,618 | 11,703 | (483,114 | ) | 365,990 | |||||||||||||||||
Cancellation of shares | - | - | - | - | - | - | ||||||||||||||||||
Foreign currency translation | - | - | - | (7,658 | ) | - | (7,658 | ) | ||||||||||||||||
Net loss | - | - | - | - | (412,464 | ) | (412,464 | ) | ||||||||||||||||
Balance - September 30, 2018 | 1,025 | $ | 783 | $ | 836,618 | $ | 4,045 | $ | (895,578 | ) | $ | (54,132 | ) | |||||||||||
The accompanying notes are an integral part of these financial statements.
F-5 |
PREMA LIFE PTY LTD. | ||||||||
STATEMENTS OF CASH FLOWS | ||||||||
For the Years Ended September 30 | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (412,464 | ) | $ | (149,499 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation | 34,138 | 87,901 | ||||||
Write-down of property, plant and equipment | - | - | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | 312,101 | (200,951 | ) | |||||
Inventories | 90,078 | 30,196 | ||||||
Other current assets | 1,763 | 516 | ||||||
Accounts payable | (325,547 | ) | 232,826 | |||||
Accrued expenses | 177,992 | (118,500 | ) | |||||
Net Cash Used in Operating Activities | (121,939 | ) | (117,511 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of property, plant and equipment | - | (44,029 | ) | |||||
Net Cash Used in Investing Activities | - | (44,029 | ) | |||||
Cash Flows from Financing Activities | ||||||||
Cash proceeds from sale of common stock | - | 73,570 | ||||||
Cash received from related party | 72,212 | 117,480 | ||||||
Net Cash Flows from Financing Activities | 72,212 | 191,050 | ||||||
Foreign currency translation adjustment | 12,798 | 4,260 | ||||||
Net (Decrease) Increase in Cash | (36,929 | ) | 33,770 | |||||
Cash - Beginning of the Period | 81,503 | 47,733 | ||||||
Cash - End of the Period | $ | 44,574 | $ | 81,503 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid for Income Taxes | $ | - | $ | - | ||||
Cash paid for Interest | $ | - | $ | 1,950 | ||||
The accompanying notes are an integral part of these financial statements.
F-6 |
PREMA LIFE PTY LTD
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017
NOTE 1 – NATURE OF OPERATIONS, LIQUIDITY AND GOING CONCERN
Prema Life Pty Ltd (the “Company”, “We”, “Its”, and “Prema Life”) was incorporated under the laws of Queensland, Australia on November 12, 2002 (Inception date) and trading as Natural Vitality Australia. The Company is a manufacturer and supplier of functional foods, vitamins and supplements, of practitioner only naturopathic and homeopathic medicines in Australia. The Company hosts regular educational webinars and seminars for practitioners to learn about the natural products. The Company operates from a Hazard Analysis and Critical Control Point (“HACCP”) certified manufacturing facility and has the capacity to produce a wide range of powder and liquid products to requirements.
Liquidity and Going Concern
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated small revenues and has sustained cumulative operating losses since November 12, 2002 (Inception Date) to September 30, 2018. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and affiliates, the ability of the Company to obtain necessary financing to continue operations, and the attainment of profitable operations. The Company has recorded a net loss of $412,464 for the year ended September 30, 2018, used net cash flows in operating activities of $121,939, has a working capital deficit of $155,367, and has an accumulated deficit of $895,578 as of September 30, 2018. The Company has had difficulty in obtaining working capital lines of credit from financial institutions and trade credit from vendors. These factors, among others, raise a substantial doubt regarding the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company is continuing to focus its efforts on increased marketing campaigns, and distribution programs to strengthen the demand for its products. Management anticipates that the Company’s capital resources will improve if its products gain wider market recognition and acceptance resulting in increased product sales. If the Company is not successful with its marketing efforts to increase sales and weak demand continues, the Company will experience a shortfall in cash and it will be necessary to further reduce its operating expenses in a manner or obtain funds through equity or debt financing in sufficient amounts to avoid the need to curtail its operations. Given the liquidity and credit constraints in the markets, the business may suffer, should the credit markets not improve in the near future. The direct impact of these conditions is not fully known. However, there can be no assurance that the Company would be able to secure additional funds if needed and that if such funds were available on commercially reasonable terms or in the necessary amounts, and whether the terms or conditions would be acceptable to the Company. In such case, the reduction in operating expenses might need to be substantial in order for the Company to generate positive cash flow to sustain the operations of the Company. However, due to the uncertainty in the Company’s ability to raise capital, increase sales and generate significant positive cash flows from operations, management believes that there is substantial doubt in the Company’s ability to continue as a going concern within one year after the date the financial statements were issued.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. The financial statements and notes are the representation of the Company’s management who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects and have been consistently applied in preparing the accompanying financial statements.
F-7 |
Use of Estimates
The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued liabilities and payable to related parties. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The Company had a cash balance of $31,628 and $81,503 at September 30, 2018 and 2017, respectively. The Company did not have any cash equivalents at September 30, 2018 and 2017, respectively.
Accounts Receivable
Accounts receivable represent income earned from the sale of products for which the Company has not yet received payment. Accounts receivable are recorded at the invoiced amount and adjusted for amounts management expects to collect from balances outstanding at period-end. The Company estimates the allowance for doubtful accounts based on an analysis of specific accounts and an assessment of the customer’s ability to pay, among other factors. The Company has recorded bad debts of $15 and $369 for the years ended September 30, 2018 and 2017, respectively. At September 30, 2018 and 2017, no allowance for doubtful accounts was recorded.
Inventories
Inventory is valued at the lower of cost or net realizable value using the first-in, first-out method. The reported net value of inventory includes raw materials, work-in-progress and finished saleable products that will be sold or used in future periods. The Company reserves for obsolete and slow-moving inventory. At September 30, 2018 and 2017, there were no reserves for obsolete and slow-moving inventory.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation. The Company provides for depreciation on a straight-line basis over the estimated useful lives of the assets which range from three to thirteen years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related assets when they are placed into service. The Company evaluates property, plant and equipment for impairment periodically to determine if changes in circumstances or the occurrence of events suggest the carrying value of the asset or asset group may not be recoverable. Maintenance and repairs are charged to operations as incurred. Expenditures which substantially increase the useful lives of the related assets are capitalized.
F-8 |
Long-lived Assets
In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset compared to the estimated future undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss equal to the excess of the carrying value over the assets fair market value is recognized when the carrying amount exceeds the undiscounted cash flows. The impairment loss is recorded as an expense and a direct write-down of the asset. No impairment loss was recorded during the years ended September 30, 2018 and 2017, respectively.
Impairment of Long-Lived Assets
The Company reviews long-lived assets to be held and used, other than goodwill, for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows directly associated with the asset are compared to the asset’s carrying amount. If the estimated future cash flows from the use of the asset are less than the carrying value, an impairment write-down would be recorded to reduce the asset to its estimated fair value.
No impairment of long-lived assets was recorded for the years ended September 30, 2018 and 2017, respectively.
Revenue Recognition
The Company generates revenue from manufacturing and distribution of vitamins and health supplements to distributors and retailers of nutritional supplements in the healthcare industry. The Company recognize revenue when the products are delivered and accepted by the customer, the selling price is fixed, and collection is reasonably assured, provided no significant obligations remain. The Company considers authoritative guidance on multiple deliverables in determining whether each deliverable represents a separate unit of accounting. Revenue is recognized net of rebates and customer allowances, as appropriate.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable and inventories. The Company places its cash with high quality banking institutions. The Company does not have the cash balances in excess of Federal Deposit Insurance Corporation limit at September 30, 2018 and 2017, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
F-9 |
Fair value of Financial Instruments and Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
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. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
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 Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, accrued expenses and payable to an affiliate. Pursuant to ASC 820, “Fair Value Measurements and Disclosures” and ASC 825, “Financial Instruments”, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table presents assets and liabilities that were measured and recognized at fair value as of September 30, 2018 on a recurring basis:
Description | Level 1 | Level 2 | Level 3 | |||||||||
None | $ | - | $ | - | $ | - |
The following table presents assets and liabilities that were measured and recognized at fair value as of September 30, 2017 on a recurring basis:
Description | Level 1 | Level 2 | Level 3 | |||||||||
None | $ | - | $ | - | $ | - |
F-10 |
Foreign Currency Translation
The accompanying financial statements are presented in U.S. dollars (“USD”). The reporting currency of the Company is the USD. The functional currency of the Company's is the Australian dollar (AUD). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the spot exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into USD are included in determining comprehensive income (loss). The foreign currency translation adjustment included in other comprehensive income and loss for the years ended September 30, 2018 and 2017 amounted to a loss of $7,658 and $4,187, respectively.
Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the results of operations as incurred.
As of September 30, 2018 and 2017, the exchange rates used to translate amounts in Australian dollars into USD for the purposes of preparing the financial statements were as follows:
September 30, |
September 30, |
||||||
Exchange rate on balance sheet dates | |||||||
USD : AUD$ exchange rate | 0.7221 | 0.7832 | |||||
Average exchange rate for the period | |||||||
USD : AUD exchange rate | 0.7606 | 0.7618 |
Recent Accounting Pronouncements
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently in the process of evaluating the impact of this guidance on our condensed financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020 and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements.
F-11 |
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes a majority of existing revenue recognition guidance under US GAAP and requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. Companies may need to apply more judgment and estimation techniques or methods while recognizing revenue, which could result in additional disclosures to the financial statements. In addition, in March 2016, April 2016, May 2016 and December 2016 the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”), ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”), respectively, to amend certain guidance in ASU 2014-09. Topic 606 allows for either a retrospective or cumulative effect transition method. ASU 2014-09 was originally effective for fiscal years beginning after December 15, 2016. In July 2015, the FASB approved a one-year deferral of ASU 2014-09 and all amendments to it, with a new effective date for fiscal years beginning after December 15, 2017 with early adoption permitted as of the original effective date.
The Company plans to adopt on January 1, 2019 ASU 2014-09, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard. The Company is developing a plan for implementing the new standard, which includes, but is not limited to, identifying contract populations and “in scope” customer contracts, identifying performance obligations in those customer contracts, and evaluating any impact of variable consideration. The Company is currently evaluating the transition methods and will likely apply the modified retrospective transition method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts that are not completed at the date of initial application. Under this method, the Company would not restate the prior financial statements presented, therefore the new standard requires the Company to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during the fiscal year ending December 31, 2019, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any.
The impact that the new revenue recognition standard will have on the Company’s financial statements and disclosures has not yet been fully assessed. However, the Company does not expect the provisions of the new standard to have a material effect on the timing or amount of revenue it recognizes. The Company’s assessment also includes determining the impact the new standard may have on the revenue reporting processes, including disclosures, ensuring internal controls will operate effectively with the new standard and performing gap analyses on collected data and determining the relative accounting positions where applicable.
NOTE 3 – INVENTORIES
Inventories consists of the following:
Description | September 30, 2018 | September 30, 2017 | ||||||
Raw material | $ | 282,785 | $ | 275,590 | ||||
Material used | 80,449 | 96,128 | ||||||
Finished goods | 72,789 | 198,880 | ||||||
Total | $ | 436,023 | $ | 570,598 |
F-12 |
NOTE 4 – PROPRTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Description | September 30, 2018 | September 30, 2017 | ||||||
Manufacturing plant and equipment | $ | 179,360 | $ | 184,404 | ||||
Furniture and fixtures | 31,245 | 33,888 | ||||||
Office equipment | 102,143 | 106,866 | ||||||
Motor vehicles | - | 111,999 | ||||||
Clinic equipment | - | 13,806 | ||||||
312,748 | 450,963 | |||||||
Less: Accumulated depreciation | (211,513 | ) | (320,057 | ) | ||||
Property, plant and equipment, net | $ | 101,235 | $ | 130,906 |
Depreciation expense for the years ended September 30, 2018 and 2017 was $34,138 and $87,901, respectively. In addition, during the year ended September 30, 2018, the Company wrote-off property, plant and equipment of $151,162 for which the Company had recorded accumulated depreciation of $142,682. The Company did not write-off any property, plant and equipment for the year ended September 30, 2017.
NOTE 5 – ACCRUED EXPENSES
Accrued expenses consists of the following:
Description | September 30, 2018 | September 30, 2017 | ||||||
Accrued employee benefits | $ | 28,954 | $ | 24,112 | ||||
Accrued tax obligations | 377,609 | - | ||||||
Accrued general sales tax payable | 47,018 | 64,239 | ||||||
Accrued - other expenses | 58,092 | 273,553 | ||||||
Total Accrued Expenses | $ | 511,673 | $ | 361,904 |
NOTE 6 – RELATED PARTY TRANSACTIONS
The Company received a short-term advance for its working capital needs from an affiliate of $180,531 and $117,480 at September 30, 2018 and 2017, respectively. The advances received are unsecured, non-interest bearing and due on demand.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Commitments
The Company executed a month-to-month operating lease for its principal office with the lease commencing July 2, 2010. The Company paid no security deposit. The lease required the Company to pay “outgoings” (property operational expenses) estimated to be $12,000 per annum, and monthly rental pursuant to the lease terms. The Company recorded rent expense of $107,648 and $101,332 for the years ended September 30, 2018 and 2017, respectively.
F-13 |
Litigation Costs and Contingencies
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. Other than as set forth below, management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss.
NOTE 8: STOCKHOLDERS’ DEFICIT
The Company’s capitalization at September 30, 2018 was 2,500 authorized common shares with a par value of $0.76 per share.
Common Stock
On September 5, 2017, the Company sold 25 shares of common stock to a third-party investor for cash proceeds of $73,570.
As a result of all common stock issuances, the Company had 1,025 shares of common stock issued and outstanding as of September 30, 2018 and 2017, respectively.
The Company also recorded a loss of $7,658 and $4,187 due to foreign currency translations for the years ended September 30, 2018 and 2017, respectively.
NOTE 9: INCOME TAX
There was no income tax expense for the years ended September 30, 2018 and 2017 due to the Company’s net taxable losses. At September 30, 2018, the Company has a net operating loss for Australian tax purposes and U.S. tax purposes that approximates $896,000 and is available to offset taxable income through 2033. Consequently, the Company may have a net operating loss carry forwards available for income tax purposes, which will continue to be available until they are recovered through earning taxable income. Deferred tax assets would arise from the recognition of anticipated utilization of these net operating losses to offset future taxable income.
The components for the provision for income taxes are as follows:
September 30, 2018 | September 30, 2017 | |||||||
Deferred: | ||||||||
Federal | $ | (86,617 | ) | $ | (50,830 | ) | ||
State | - | - | ||||||
Change in valuation allowance | 86,617 | (50,830 | ) | |||||
Income tax expense (benefit) | $ | — | $ | — |
F-14 |
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rates of 21% and 34% and the state income tax rates net of federal tax benefit of 0%, for the years ended September 30, 2018 and 2017, respectively, to the income taxes reflected in the Statements of Operations:
September 30, 2018 | September 30, 2017 | |||||||
Book Income (loss) | 21 | % | 34 | % | ||||
State taxes | - | % | - | % | ||||
Total | 21 | % | 34 | % | ||||
Valuation allowance | -21 | % | -34 | % | ||||
Tax expense at actual rate | — | — |
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at September 30, 2018 and 2017, respectively, are as follows:
Balance at September 30, 2018 |
Balance at September 30, 2017 |
|||||||
Deferred tax assets: | ||||||||
Net operating loss carry forward | $ | 188,071 | $ | 164,259 | ||||
Total gross deferred tax assets | 188,071 | 164,259 | ||||||
Less - valuation allowance | (188,071 | ) | (164,259 | ) | ||||
Net deferred tax assets | $ | — | $ | — |
Deferred income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted, significantly altering U.S. corporate income tax law. The SEC issued Staff Accounting Bulletin 118, which allows companies to record reasonable estimates of enactment impacts where all of the underlying analysis and calculations are not yet complete. The provisional estimates must be finalized within a one-year measurement period. The Company reduced its net domestic deferred tax asset balance by $116,425 due to the reduction in corporate tax rate from 34% to 21%. These adjustments are fully offset by a change in the Company’s U.S. valuation allowance.
At September 30, 2018, the Company had accumulated deficit of approximately $896,000 for U.S. federal income tax purposes available to offset future taxable income expiring on various dates through 2035. The Company has recorded a 100% valuation allowance on the deferred tax assets due to the uncertainty of its realization. The net change in the valuation allowance during the years ended September 30, 2018 and 2017 was an increase of $86,617 and $50,830, respectively.
In the normal course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits.
F-15 |
NOTE 10 – SUBSEQUENT EVENTS
The Company evaluated subsequent events through May 10, 2019, the date of the filing of this report on Form 8-K with the SEC to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of September 30, 2018, and events which occurred subsequent to September 30, 2018 but were not recognized in the financial statements. The Company has determined that there were no subsequent events which required recognition, adjustment to or disclosure in the financial statements, except for the following:
On December 3, 2018, the Company agreed to sell 51% of its issued and outstanding shares of common stock to Natural Heath Farm Holdings Inc. (“NHF”) in exchange of receiving 241,000 shares of common stock of NHF valued at $964,000 based on the closing market price of NHF. The transaction closed on January 1, 2019.
F-16
EXHIBIT 99.5
Natural Health Farm Holdings, Inc.
CONTENTS
Introduction | F-1 | |
Unaudited Pro Forma Condensed Combined Balance Sheet as at December 31, 2018 | F-2 | |
Unaudited Pro Forma Condensed Combined Statements of Operations for the three months ended December 31, 2018 | F-3 | |
Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended September 30, 2018 | F-4 | |
Notes to Unaudited Pro Forma Condensed Combined Financial Information | F-5 - F-7 |
F-1 |
Natural Health Farm Holdings, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheets
December 31, 2018
Historical (Unaudited) | Prema Life Pty Ltd | GGLG Properties Pty Ltd | |||||||||||||||||||||||||||||||
Natural Health Farms Holdings, Inc. |
Prema Life Pty Ltd |
GGLG Pty |
Pro Forma Adjustments |
Pro Forma Adjustments |
Pro Forma Adjustments |
Pro Forma Adjustments |
Pro Forma Combined |
||||||||||||||||||||||||||
ASSETS |
Debit (Credit) |
Debit (Credit) |
Debit (Credit) |
Debit (Credit) |
|||||||||||||||||||||||||||||
Current Assets | |||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 13,044 | $ | 16,972 | $ | 4,084 | - | - | - | - | $ | 34,100 | |||||||||||||||||||||
Accounts receivable | - | 140,059 | 13,350 | - | - | - | - | 153,409 | |||||||||||||||||||||||||
Advances receivable | 85,000 | - | - | - | - | - | - | 85,000 | |||||||||||||||||||||||||
Inventories | - | 418,363 | - | - | - | - | - | 418,363 | |||||||||||||||||||||||||
Other current assets | - | 20,162 | 2,164 | - | - | - | - | 22,326 | |||||||||||||||||||||||||
Total Current Assets | 98,044 | 595,556 | 19,598 | 713,198 | |||||||||||||||||||||||||||||
Property, plant and equipment, net | - | 96,791 | 590,076 | - | - | - | (55,958 | )(4) | 630,909 | ||||||||||||||||||||||||
Computer software, net | 27,293 | - | - | - | - | - | - | 27,293 | |||||||||||||||||||||||||
Intangibles and goodwill | 1,079,746 | (3) | - | - | 1,079,746 | ||||||||||||||||||||||||||||
Investment in Prema Life Pty Ltd | - | - | - | 964,000 | (1) | (964,000 | )(3) | - | (2) | - | 4 | - | |||||||||||||||||||||
Investment in GGLG Properties Pty Ltd | - | - | - | - | - | 254,000 | (2) | (254,000) | (4) | - | |||||||||||||||||||||||
Total Assets | $ | 125,337 | $ | 692,347 | $ | 609,674 | $ | 964,000 | $ | 115,746 | $ | 254,000 | $ | (309,958 | ) | $ | 2,451,146 | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||||||||||||||||||||||||||||
Current Liabilities | |||||||||||||||||||||||||||||||||
Accounts payable | $ | 52,081 | $ | 125,926 | $ | 282,156 | - | - | - | - | $ | 460,163 | |||||||||||||||||||||
Accrued expenses | 5,832 | 529,409 | 14,365 | - | - | - | - | 549,606 | |||||||||||||||||||||||||
Deferred revenue - related party | 50,758 | - | - | - | - | - | - | 50,758 | |||||||||||||||||||||||||
Deferred revenue - third party | 43,527 | - | - | - | - | - | - | 43,527 | |||||||||||||||||||||||||
Payable to affiliate | 98,837 | - | - | - | - | - | - | 98,837 | |||||||||||||||||||||||||
Note payable | 40,000 | - | - | - | - | - | - | 40,000 | |||||||||||||||||||||||||
Advance from related party - NH&E | - | 215,144 | - | - | - | - | - | 215,144 | |||||||||||||||||||||||||
Advance from director | 14,500 | - | - | - | - | - | - | 14,500 | |||||||||||||||||||||||||
Total Current Liabilities | 305,535 | 870,479 | 296,521 | 1,472,535 | |||||||||||||||||||||||||||||
Total Liabilities | 305,535 | 870,479 | 296,521 | 1,472,535 | |||||||||||||||||||||||||||||
Commitments and Contingencies | |||||||||||||||||||||||||||||||||
Stockholders' Equity (Deficit) | |||||||||||||||||||||||||||||||||
Common stock - $0.001 par value | 161,860 | 783 | 1 | (241 | ) | 783 | (63 | ) | 1 | 162,164 | |||||||||||||||||||||||
Additional paid in capital | 2,075,478 | 836,618 | 791,031 | (963,759 | ) | 836,618 | (253,937 | ) | 791,031 | 3,293,174 | |||||||||||||||||||||||
Stock subscriptions receivable | (1,218,000 | ) | - | - | - | - | - | - | (1,218,000 | ) | |||||||||||||||||||||||
Accumulated other comprehensive income (loss) |
- | 7,364 | (35,091 | ) | - | 7,364 | - | (35,091 | ) | - | |||||||||||||||||||||||
Loss (profit) attributable to non-controlling interest |
- | (62,386 | ) | 3,195 | - | - | - | - | (59,191 | ) | |||||||||||||||||||||||
Accumulated deficit | (1,199,536 | ) | (960,511 | ) | (445,983 | ) | - | (960,511 | ) | - | (445,983 | ) | (1,199,536 | ) | |||||||||||||||||||
Total Stockholders' Equity (Deficit) | (180,198 | ) | (178,132 | ) | 313,153 | 978,611 | |||||||||||||||||||||||||||
Total Liabilities and Stockholders' Equity (Deficit) |
$ | 125,337 | $ | 692,347 | $ | 609,674 | $ | 964,000 | $ | 115,746 | $ | 254,000 | $ | (309,958 | ) | $ | 2,451,146 |
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
F-2 |
Natural Health Farm Holdings, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For The Three Months Ended December 31, 2018
Historical (Unaudited) | ||||||||||||||||||||
Natural
Health Farms Holdings, Inc. | Prema Life
Pty Ltd | GGLG Properties Pty Ltd | Pro Forma
Adjustments | Pro Forma
Combined | ||||||||||||||||
Debit (Credit) | ||||||||||||||||||||
Revenues - related parties | $ | 6,583 | $ | - | $ | - | $ | $ | 6,583 | |||||||||||
Revenues - non-related parties | 115,167 | 323,044 | 14,647 | 14,647 | (5) | 438,211 | ||||||||||||||
Total Revenues | 121,750 | 323,044 | 14,647 | 444,794 | ||||||||||||||||
Cost of goods sold | 28,488 | 223,836 | - | - | 252,324 | |||||||||||||||
Gross Profit | 93,262 | 99,208 | 14,647 | 192,470 | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||
Selling, general and administrative | 46,313 | 226,527 | 4,916 | (14,647 | )(5) | 263,109 | ||||||||||||||
Research and development | - | - | - | |||||||||||||||||
Total Operating Expenses | 46,313 | 226,527 | 4,916 | 263,109 | ||||||||||||||||
Income (Loss) from Operations | 46,949 | (127,319 | ) | 9,731 | (70,639 | ) | ||||||||||||||
Other Income (Expense) | ||||||||||||||||||||
Interest expense | (807 | ) | - | (1,743 | ) | - | (2,550 | ) | ||||||||||||
Total Other Income (Expense) | (807 | ) | - | (1,743 | ) | (2,550 | ) | |||||||||||||
Income (Loss) before Provision For Income Tax | 46,142 | (127,319 | ) | 7,988 | (73,189 | ) | ||||||||||||||
Provision for Income Tax | - | - | - | - | - | |||||||||||||||
Net Income (Loss) | $ | 46,142 | $ | (127,319 | ) | $ | 7,988 | $ | $ | (73,189 | ) | |||||||||
Non-controlling interest | - | 62,386 | (3,195 | ) | - | 59,191 | ||||||||||||||
Net income (loss) after non-controlling interest | $ | 46,142 | $ | (64,933 | ) | $ | 4,793 | $ | (13,998 | ) | ||||||||||
Net income per common share - basic & diluted | $ | 0.00 | ||||||||||||||||||
Weighted average number of common shares outstanding - basic and diluted | 161,647,674 |
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
F-3 |
Natural Health Farm Holdings, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For The Year Ended September 30, 2018
Historical (Unaudited) | ||||||||||||||||||||
Natural
Health Farms Holdings, Inc. | Prema Life
Pty Ltd | GGLG Properties Pty Ltd | Pro Forma
Adjustments | Pro Forma
Combined | ||||||||||||||||
Debit (Credit) | ||||||||||||||||||||
Revenues - related parties | $ | 21,659 | $ | - | $ | 67,442 | $ | 67,442 | (6) | $ | 21,659 | |||||||||
Revenues - non-related parties | 32,106 | 2,083,771 | - | - | 2,115,877 | |||||||||||||||
Total Revenues | 53,765 | 2,083,771 | 67,442 | 2,137,536 | ||||||||||||||||
Cost of goods sold | 14,669 | 1,335,042 | - | - | 1,349,711 | |||||||||||||||
Gross Profit | 39,096 | 748,729 | 67,442 | 787,825 | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||
Selling, general and administrative | 1,165,282 | 1,143,827 | 57,248 | (67,442 | )(6) | 2,298,915 | ||||||||||||||
Research and development | - | 17,366 | - | - | 17,366 | |||||||||||||||
Total Operating Expenses | 1,165,282 | 1,161,193 | 57,248 | 2,316,281 | ||||||||||||||||
Income (Loss) from Operations | (1,126,186 | ) | (412,464 | ) | 10,194 | (1,528,456 | ) | |||||||||||||
Other Income (Expense) | ||||||||||||||||||||
Interest expense | (1,026 | ) | - | (53,581 | ) | - | (54,607 | ) | ||||||||||||
Total Other Income (Expense) | (1,026 | ) | - | (53,581 | ) | (54,607 | ) | |||||||||||||
Loss before Provision For Income Tax | (1,127,212 | ) | (412,464 | ) | (43,387 | ) | (1,583,063 | ) | ||||||||||||
Provision for Income Tax | - | - | - | - | - | |||||||||||||||
Net Loss | $ | (1,127,212 | ) | $ | (412,464 | ) | $ | (43,387 | ) | $ | $ | (1,583,063 | ) | |||||||
Non-controlling interest | - | 202,107 | 17,355 | - | 219,462 | |||||||||||||||
Net Loss after non-controlling interest | $ | (1,127,212 | ) | $ | (210,357 | ) | $ | (26,032 | ) | $ | $ | (1,363,601 | ) | |||||||
Net income per common share - basic & diluted | $ | (0.01 | ) | |||||||||||||||||
Weighted average number of common shares outstanding - basic and diluted | 154,691,466 |
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
F-4 |
Natural Health Farm Holdings Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
December 31, 2018
Note 1 – Description of the Transaction
On December 3, 2018, the Company agreed to purchase 51% of the issued and outstanding capital stock of Prema Life Pty Ltd by issuing 241,000 shares of its common stock valued at $964,000, and 60% of the issued and outstanding capital stock of GGLG Properties PTY Ltd by issuing 63,500 shares of its common stock valued at $254,000, respectively. On December 28, 2018, the parties mutually agreed to extend the closing date of the purchase transaction on January 1, 2019. The Company issued 304,500 shares of its common stock on December 3, 2018 in good faith for consummating the purchase.
All of the securities set forth above were issued pursuant to exemptions from registration under Section 4(2) and/or Reg. S of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering. No general advertising or solicitation was used. All issued securities were affixed with appropriate legends restricting sales and transfers.
Note 2 – Basis of Pro Forma Presentation
The unaudited pro forma condensed combined balance sheet as of December 31, 2018 combines our historical balance sheet with the historical balance sheets of Prema Life and GGLG and has been prepared as if our acquisition of Prema Life and GGLG had occurred on December 31, 2018. The unaudited pro forma condensed combined statements of operations for the three months ended December 31, 2018 and for the year ended September 30, 2018 combine our historical statements of operations with Prema Life and GGLG’s historical statements of operations and have been prepared as if the acquisition had occurred on October 1, 2017. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the condensed combined statements of income, expected to have a continuing impact on the combined results.
We have accounted for the acquisition in this unaudited pro forma condensed combined financial information using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”). In accordance with ASC 805, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the Acquisition Date. Goodwill as of the Acquisition Date is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.
The pro forma adjustments described below were developed based on assumptions and estimates of NHF’s management, including assumptions relating to the consideration payable and the allocation thereof to the assets acquired and liabilities assumed from Prema Life and GGLG based on preliminary estimates of fair value. The final purchase consideration and the allocation of the purchase consideration may differ from that reflected in the unaudited pro forma condensed combined financial information after final valuation procedures are performed and amounts are finalized following the completion of the acquisition.
The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or financial position.
The Company expects to incur costs and realize benefits associated with integrating the operations of NHF, Prema Life and GGLG. The unaudited pro forma condensed combined financial information does not reflect the costs of any integration activities or any benefits that may result from operating efficiencies, revenue synergies, asset dispositions or other restructurings that could result from the acquisition. The unaudited pro forma condensed combined statement of operations does not reflect any non-recurring charges directly related to the acquisition that the combined company may incur upon completion of the transaction.
F-5 |
Note 3 – Estimated Preliminary Purchase Price Allocation
For the purpose of these Pro Forma Financial Statements, the estimated preliminary purchase price allocation to net assets acquired and liabilities assumed is based on their estimated fair values on the assumed acquisition date of December 31, 2018. Actual amounts on the acquisition date of January 1, 2019 may differ, however the Company does not believe this will result in a materially different allocation:
Fair Value | ||||||||
Assets Acquired | Prema Life | GGLG | ||||||
Cash and cash equivalents | $ | 16,972 | $ | 4,084 | ||||
Accounts receivable | 140,059 | 13,350 | ||||||
Inventories | 418,363 | - | ||||||
Other current assets | 20,162 | 2,164 | ||||||
Goodwill | 1,079,746 | - | ||||||
Property, plant and equipment, net | 96,791 | 530,923 | ||||||
Total Assets Acquired | $ | 1,772,093 | $ | 550,521 | ||||
Liabilities Assumed | ||||||||
Accounts payable | $ | 125,926 | $ | 282,156 | ||||
Accrued expenses | 529,409 | 14,365 | ||||||
Advances from related parties | 215,144 | - | ||||||
Total Liabilities Assumed | $ | 870,479 | $ | 296,521 | ||||
Non-controlling interest | 62,386 | (3,195 | ) | |||||
Purchase Price Allocated | $ | 964,000 | $ | 254,000 |
We believe the amount of goodwill resulting from the allocation of purchase consideration is primarily attributable to expected synergies from future growth and strategic advantages. In accordance with ASC 805, goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently if certain indicators of impairment are present. In the event that goodwill has become impaired, we will record an expense for the amount impaired during the fiscal quarter in which the determination is made.
F-6 |
Note 4 – Pro Forma Adjustments
The following is a description of the unaudited pro forma adjustments reflected in the unaudited pro forma condensed combined financial information:
Adjustments to the pro forma condensed combined balance sheet:
(1) The pro forma adjustment records the investment in Prema Life by issuance of 241,000 shares of common stock of NHF valued at their fair value on the date of acquisition totaling $964,000.
(2) The pro forma adjustment records the investment in GGLG by issuance of 63,500 shares of common stock of NHF valued at their fair value on the date of acquisition totaling $254,000.
(3) The pro forma adjustment to total equity includes elimination of pre-acquisition equity balances of Prema Life as used in calculating goodwill.
(4) The pro forma adjustment to total equity includes elimination of pre-acquisition equity balances of GGLG as used in calculating goodwill.
Prema Life | GGLG | |||||||
Common Shares | $ | (783 | ) | $ | (1 | ) | ||
Additional paid in capital | (836,618 | ) | (791,031 | ) | ||||
Accumulated other comprehensive income ( loss) | (7,364 | ) | 35,091 | |||||
Accumulated deficit | 960,511 | 445,983 | ||||||
Total pre-acquisition equity balances eliminated | $ | 115,746 | $ | (309,958 | ) |
Adjustments to the pro forma condensed combined statements of operations for the three months ended December 31, 2018:
(5) The pro forma adjustment records elimination of rent of $14,647 received by GGLG from Prema Life for the three months ended December 31, 2018.
Adjustments to the pro forma condensed combined statements of operations for the year ended September 30, 2018:
(6) The pro forma adjustment records elimination of rent of $14,647 received by GGLG from Prema Life for the year ended September 30, 2018.
F-7