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EX-32.2 - EX-32.2 - FUSE ENTERPRISES INC.ex32-2.htm
EX-32.1 - EX-32.1 - FUSE ENTERPRISES INC.ex32-1.htm
EX-31.2 - EX-31.2 - FUSE ENTERPRISES INC.ex31-2.htm
EX-31.1 - EX-31.1 - FUSE ENTERPRISES INC.ex31-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 

 
   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2017
 
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number: 333-202948
 
FUSE ENTERPRISES INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
47-1017473
(State or other jurisdiction of 
incorporation or organization)
 
(I.R.S. Employer 
Identification No.)
 
444 E. Huntington Dr., Suite 105
Arcadia, CA 91006
(Address of principal executive offices including zip code)
 
(626) 210-0000
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  No
 
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
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.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No
 
Class
 
Outstanding at February 9, 2018
Common Stock, $0.001 par value per share
 
45,150,000*

* The registrant completed a 5-for-1 forward stock split on May 26, 2017.

 
TABLE OF CONTENTS
 
PART I.
FINANCIAL INFORMATION
1
Item 1.
1
Item 2.
12
Item 3.
14
Item 4.
14
 
 
 
PART II.
OTHER INFORMATION
15
Item 1.
15
Item 1A.
15
Item 2.
15
Item 3.
15
Item 4.
15
Item 5.
15
Item 6.
16
17
  
 

PART I.  FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
FUSE ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 (UNAUDITED) AND SEPTEMBER 30, 2017

   
DECEMBER 31, 2017
   
SEPTEMBER 30, 2017
 
   
(UNAUDITED)
       
             
 ASSETS
           
             
 CURRENT ASSETS
           
      Cash and equivalents
 
$
4,102,537
   
$
419,093
 
      Deposit
   
1,000,000
     
1,000,000
 
      Notes receivable
   
-
     
3,925,000
 
                 
         Total current assets
   
5,102,537
     
5,344,093
 
                 
 NON-CURRENT ASSETS
               
      Property and equipment, net
   
12,407
     
12,955
 
                 
         Total non-current assets
   
12,407
     
12,955
 
                 
 TOTAL ASSETS
 
$
5,114,944
   
$
5,357,048
 
                 
 LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
 CURRENT LIABILITIES
               
      Other payables
 
$
6,750
   
$
9,465
 
      Note payable
   
6,869,818
     
6,869,818
 
                 
          Total current liabilities
   
6,876,568
     
6,879,283
 
                 
 CONTINGENCIES AND COMMITMENTS
               
                 
 STOCKHOLDERS' DEFICIT
               
      Common stock, par value $0.001 per share, 375,000,000 shares
            authorized; 45,150,000 shares issued and outstanding 
   
45,150
     
45,150
 
      Additional paid in capital
   
47,432
     
47,432
 
      Accumulated deficit
   
(1,854,206
)
   
(1,614,817
)
                 
          Total stockholders' deficit
   
(1,761,624
)
   
(1,522,235
)
                 
 TOTAL LIABILITIES AND DEFICIT
 
$
5,114,944
   
$
5,357,048
 

The accompanying notes are an integral part of these consolidated financial statements.
 

FUSE ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) 

   
THREE MONTHS ENDED
DECEMBER 31,
 
   
2017
   
2016
 
             
 Revenue
 
$
-
   
$
-
 
                 
 Cost of revenue
   
-
     
-
 
                 
 Gross profit
   
-
     
-
 
                 
 Operating expenses
               
      General and administrative
   
227,791
     
37,370
 
                 
      Total operating expenses
   
227,791
     
37,370
 
                 
 Loss from operations
   
(227,791
)
   
(37,370
)
                 
 Non-operating expenses
               
      Interest income
   
41,410
     
-
 
      Interest expense
   
(52,668
)
   
-
 
      Financial expense
   
(340
)
   
(181
)
                 
      Total non-operating loss, net
   
(11,598
)
   
(181
)
                 
 Loss before income tax
   
(239,389
)
   
(37,551
)
 Income tax provision
   
-
     
-
 
                 
 Net loss
 
$
(239,389
)
 
$
(37,551
)
                 
 Basic and diluted weighted average shares outstanding
   
45,150,000
     
45,150,000
 
                 
 Basic and diluted net loss per share
 
$
(0.01
)
 
$
(0.001
)

 The accompanying notes are an integral part of these consolidated financial statements.
  

FUSE ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
THREE MONTHS ENDED
DECEMBER 31,
 
   
2017
   
2016
 
             
 CASH FLOWS FROM OPERATING ACTIVITIES:
           
             Net loss
 
$
(239,389
)
 
$
(37,551
)
             Adjustments to reconcile loss including noncontrolling
                  interest to net cash used in operating activities:
               
                          Depreciation
   
548
     
189
 
                          Changes in assets and liabilities:
               
                                    Accounts payable and accrued liabilities
   
-
     
(4,539
)
                                    Other payables
   
(2,715
)
   
-
 
                 
             Net cash used in operating activities
   
(241,556
)
   
(41,901
)
                 
 CASH FLOWS FROM INVESTING ACTIVITIES:
               
                                    Repayment from notes receivable
   
3,925,000
     
-
 
                 
             Net cash provided by investing activities
   
3,925,000
     
-
 
                 
 CASH FLOWS FROM FINANCING ACTIVITIES:
               
                                    Capital contribution
   
-
     
11,645
 
                                    Proceeds from issuance of note
   
-
     
6,869,818
 
                 
             Net cash provided by financing activities
   
-
     
6,881,463
 
                 
 NET INCREASE IN CASH AND EQUIVALENTS
   
3,683,444
     
6,839,562
 
                 
 CASH AND EQUIVALENTS, BEGINNING OF PERIOD
   
419,093
     
8,165
 
                 
 CASH AND EQUIVALENTS, END OF PERIOD
 
$
4,102,537
   
$
6,847,727
 
                 
 Supplemental cash flow data:
               
    Income tax paid
 
$
-
   
$
-
 
    Interest paid
 
$
-
   
$
-
 
                 
 Supplemental disclosure of non-cash financing activities:
               
     Liabilities assumed by shareholders
 
$
-
   
$
23,470
 

The accompanying notes are an integral part of these consolidated financial statements.


FUSE ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 (UNAUDITED) AND SEPTEMBER 30, 2017

Note 1 – Organization and Operations

Fuse Enterprises Inc. (the “Company” or “Enterprises” or “We”) was incorporated under the laws of the State of Nevada on December 24, 2013.  Enterprises is currently a full service online marketing agency, but is exploring opportunities in the mining industry. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in the mining industry and is currently investigating potential mining targets in Asia and North America.  Enterprises is the sole shareholder of Processing.  On November 28, 2016, 5,500,000 shares of the common stock of Enterprises, or 60.91% of the Company’s issued and outstanding shares of common stock, were sold by Pavel Mikhalkov and Aleksandr Kriukov in a series of private transactions to a new shareholder for an aggregate purchase price of $55,000 (collectively, the “Stock Sales”). In connection with the Stock Sales, Messrs. Mikhalkov and Kriukov released the Company from certain liabilities and obligations arising out of their service as directors and officers of the Company. In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 (US$0.13). Trading had no operations prior to the acquisition by Processing, and Trading expects to be engaged in mining-related businesses. On May 26, 2017, the Company filed a Certificate of Change with the State of Nevada to (i) increase its authorized shares of common stock from 75,000,000 to 375,000,000 and (ii) effect a corresponding 5-for-1 forward stock split of the issued and outstanding shares of the Company’s common stock (the “Stock Split”).  The consolidated financial statements (“CFS”) were retroactively restated to reflect the Stock Split for the periods presented.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The Company’s CFS were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The CFS include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances were eliminated in consolidation.

Development Stage Company

Enterprises is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification (“ASC”).  Although the Company has recognized nominal amounts of revenue, it is still devoting substantially all of its efforts on establishing its business.  All losses accumulated since its inception on December 24, 2013 were considered part of the Company’s development stage activities.

In June 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.

The amendments in this Update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

For public business entities, those amendments were effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Fuse Enterprises adopted ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to the development stage.

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).


Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

(i)
Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
 
 
(ii)
Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.  Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value (“FV”) of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph 820-10-35-37”) to measure the FV of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring FV in U.S. GAAP, and expands disclosures about FV measurements. 

Paragraph 820-10-35-37 establishes a FV hierarchy which prioritizes the inputs to valuation techniques used to measure FV into three broad levels.  The FV hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three levels of FV hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1
 
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
 
Level 2
 
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
 
Level 3
 
Pricing inputs that are generally observable inputs and not corroborated by market data.

Financial assets are considered Level 3 when their FVs are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

The FV hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the FV measurement of the instrument.
 
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued expenses, approximate their FV because of the short maturity of those instruments. 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.


Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.  The Company had no accounts receivable or bad debt allowances at December 31, 2017 or September 30, 2017.

Plant, Property and Equipment

Plant, property and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Expenditures for maintenance and repairs are expensed as incurred; while additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets and estimated lives as follows:

Building and workshops
20 years
Computer and office equipment
5 years
Office furniture
7 years 
Decoration and renovation
10 years
Production machinery
10 years
Autos
5 years

Depreciation of plant, property and equipment attributable to manufacturing activities is capitalized as part of inventories, and expensed to cost of goods sold when inventories are sold.

Related Parties

The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include: a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the FV option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements.

The disclosures shall include:  a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Commitments and Contingencies

The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.


In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. 

If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be reasonably estimated, then the estimated liability would be accrued in the Company’s financial statements.  If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.  Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

Revenue Recognition

The Company applies paragraph 605-10-S99-1 of the FASB ASC for revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

The Company derives its revenues from sales contracts with its customer with revenues being generated upon rendering of services.  Persuasive evidence of an arrangement is demonstrated via invoice; service is considered provided when the service is delivered to the customers; and the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or volume incentive.

Income Tax Provision

The Company accounts for income taxes under Section 740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. 

Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

Uncertain Tax Positions

The Company follows paragraph 740-10-25 of the FASB ASC. Paragraph 740-10-25-13 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.  The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is 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. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.


The Company did not take any uncertain tax positions and had no unrecognized tax liabilities or benefits in accordance with the provisions of Section 740-10-25 at December 31, 2017 or September 30, 2017.  The tax years 2014-2016 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject.

Earnings (Loss) per Share

Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and warrants, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

Cash Flows Reporting

The Company follows paragraph  230-10-45-24 of the FASB ASC for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB ASC to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB ASC.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its CFS.
  
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its CFS.
 
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future CFS.

Note 3 – Going Concern

The accompanying CFS were prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
 
As reflected in the accompanying CFS, the Company had an accumulated deficit of $1,854,206 at December 31, 2017, working capital deficit of $1,774,031 and net loss of $239,389 for the three months ended December 31, 2017, which raise substantial doubt about the Company’s ability to continue as a going concern.
 

Management intends to raise additional funds by way of a private or public offering, or obtaining loans from banks or others.  While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

Note 4 – Property and Equipment

Property and equipment at December 31, 2017, and September 30, 2017 consisted of the following:

 
 
Estimated
Useful Lives
(Years)
   
December 31, 2017
   
September 30, 2017
 
 
                 
Computer equipment
   
5
   
$
1,852
   
$
1,825
 
       Less accumulated depreciation
           
(371
)
   
(278
)
  Computer equipment, net
           
1,481
     
1,574
 
 
                       
Office furniture
   
7
     
12,746
     
12,746
 
         Less accumulated depreciation
           
(1,820
)
   
(1,365
)
  Office furniture, net
           
10,926
     
11,381
 
Total property and equipment, net
         
$
12,407
   
$
12,955
 

Depreciation expense for the three months ended December 31, 2017 and 2016 was $548 and $189, respectively. 

Note 5 – Deposit and prepaid expenses

As of December 31 and September 30, 2017, the Company had a deposit of $1,000,000.  On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month service term.  On July 3, 2017, the Company and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost. The consultant will provide Processing market research findings, exploration and advise on business development opportunities in certain countries, and other general business advisory services. Processing paid a deposit of $1,325,000 for the consulting fee. If Processing does not make any investment or enter into a business relationship with a target located in Mexico by the end of the service term, the consultant will refund Processing $1,000,000 of the consulting fee.  On January 3, 2018, the Company renewed the agreement until July 3, 2018.
 
Note 6 – Notes receivable and interest receivable

As of September 30, 2017, the Company had notes receivable of $3,925,000.  During the three months ended December 31, 2017, the Company collected all the amounts outstanding under the notes receivable, and received interest income of $41,410.

Note 7 – Other payables

As of December 31 and September 30, 2017, the Company had other payables of $6,750 and $9,465, respectively. Other payables mainly consisted of salary and payroll tax payables.

Note 8 – Note payable (related party)
 
On December 19, 2016, the Company entered into a Convertible Promissory Note Purchase Agreement (the “Original Agreement”) with one of its major shareholders (“Purchaser”). Under the Agreement, the Company sold a Convertible Promissory Note to the lender of $6,869,818 with interest of 6% (the “Original Note”). The Original Note was to mature on the date that is 24 months from the original issue date, and any outstanding principal and interest on the Original Note could be converted at any time prior to maturity at the lender’s option at a conversion price of $1.50 per share of the Company’s common stock.  There was no beneficial conversion feature for the Original Note due to the conversion price being higher than the stock price at the time of the issuance of the Original Note.


On March 20, 2017, the Company entered into an Amended and Restated Promissory Note Purchase Agreement with the major shareholder and Trading (the “Amended Agreement”).  The Amended Agreement amends and restates the Original Agreement.  Under the terms of the Amended Agreement, the Original Note issued under the Original Agreement was cancelled and Trading issued a Promissory Note to the Purchaser of $6,869,818, with a term of 12 months, renewable for up to an additional 12 months at the Purchaser’s option, with interest of 3% (the “New Note”).  The Purchaser does not have conversion option under the New Note. The principal amount of the New Note and any unpaid interest accrued thereon may become due and payable immediately upon the occurrence of certain events of default, including but not limited to Trading’s insolvency or the institution of bankruptcy proceedings against Trading.

As of December 31 and September 30, 2017, the Company had an outstanding balance of $6,869,818 on the New Note.  During the three months ended December 31, 2017, the Company incurred interest expense of $52,668, and had interest payable of $0 as of December 31 and September 30, 2017.
 
Note 9 – Shareholders’ Equity

Shares Authorized

Upon formation, the number of shares of all classes of stock which the Company was authorized to issue was 75,000,000 shares of common stock, par value $0.001 per share. On May 26, 2017, the Company filed a Certificate of Change with the State of Nevada to (i) increase its authorized shares of common stock from 75,000,000 to 375,000,000 and (ii) effect a corresponding 5-for-1 forward stock split of the issued and outstanding shares of the Company's common stock (the "Stock Split").  The CFS were retroactively restated to reflect the Stock Split for the periods presented.
 
Common Stock

During the fiscal year ended September 30, 2016, the Company sold 3,530,000 common shares (prior to 5-for-1 stock split) at $0.01 per share for aggregate proceeds of $35,300.

Note 10 – Income Tax

Deferred Tax Assets

At December 31 and September 30, 2017, the Company had net operating loss (“NOL”) carry–forwards for Federal income tax purposes of $1,652,504 and $1,419,393, respectively, which may be offset against future taxable income through 2034.  No tax benefit was reported with respect to these NOL carry-forwards in the accompanying CFS because the Company believes the realization of the Company’s net deferred tax assets of approximately $367,763 as of December 31, 2017, was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a full valuation allowance.

Components of deferred tax assets are as follows:

 
 
December 31,
2017
   
September 30,
2017
 
Net deferred tax assets – Non-current:
           
Expected income tax benefit from NOL carry-forwards
 
$
367,763
   
$
315,280
 
Less valuation allowance
   
(367,763
)
   
(315,280
)
Deferred tax assets, net of valuation allowance
 
$
-
   
$
-
 

Income Tax Provision in the Statements of Operations
 
A reconciliation of the consolidated federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes for the three months ended December 31, 2017 and 2016 is as follows:

 
 
December 31, 2017
   
December 31, 2016
 
 
           
Federal statutory income tax expense (benefit) rate
   
(34.00
)%
   
(34.00
)%
Federal income tax rate difference
   
19.00
%
   
19.00
%
State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax
   
(7.51
)%
   
(7.51
)%
Change in valuation allowance on net operating loss carry-forwards
   
22.51
%
   
22.51
%
Effective income tax rate
   
0.00
%
   
0.00
%




Note 11 – Commitments

Effective January 1, 2017, Processing, as a sublessee, entered into a sublease agreement for office space with a sublessor for a term of two years. The monthly rent is $1,897. The Company recorded rental expense of $5,690 and $0 for the three months ended December 31, 2017 and 2016, respectively.   The future annual minimum lease payments as of December 31, 2017 was: $22,764 for the year ending December 31, 2018.

On April 1, 2017, the Company entered a strategist consulting agreement with a consulting company for a service term of one year. The compensation to the consulting company will be $50,000 per year, payable in equal installments at the end of each month.
 
Employment Agreements
 
The Company currently has an employment agreement with Michael Viotto, the Company's CFO.  Pursuant to the terms of his employment agreement, dated August 16, 2017, Mr. Viotto receives annual compensation of $50,000, and the agreement has a term of one year.  Mr. Viotto's employment agreement includes typical clauses relating to noncompetition, nonsolicitation and indemnification of Mr. Viotto in connection with his service as the Company's CFO.

Note 12 – Subsequent Events

The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company did not have any material subsequent events to disclose in its CFS other than the events discussed above.




Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.
 
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS

The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed in this report and those discussed in our most recent Annual Report on Form 10-K.

Overview

Fuse Enterprises Inc. (the “Company” or “Enterprises” or “We”) was incorporated under the laws of the State of Nevada on December 24, 2013.  Enterprises is currently a full service online marketing agency, but is exploring opportunities in the mining industry. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in the mining industry and is currently investigating potential mining targets in Asia and North America.  Enterprises is the sole shareholder of Processing.  On November 28, 2016, 5,500,000 shares of the common stock of Enterprises, or 60.91% of the Company’s issued and outstanding shares of common stock, were sold by Pavel Mikhalkov and Aleksandr Kriukov in a series of private transactions to a new shareholder for an aggregate purchase price of $55,000 (collectively, the “Stock Sales”). In connection with the Stock Sales, Messrs. Mikhalkov and Kriukov released the Company from certain liabilities and obligations arising out of their service as directors and officers of the Company. In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 (US$0.13). Trading had no operations prior to the acquisition by Processing, and Trading expects to be engaged in mining-related businesses.

Results of operations for the three months ended December 31, 2017 and 2016

Revenue

We have historically generated revenue from sales of our marketing and web development services directly to small and medium-sized business. We have acquired customers through direct telemarketing and referrals. We are currently seeking business opportunities in the mining industry and are investigating potential mining targets in Asia and North America.
 
Our gross revenue for the three months ended December 31, 2017 and 2016 was $0, respectively. Our cost of revenues for the three months ended December 31, 2017 and 2016 was $0, respectively, resulting in a gross profit of $0 for the three months ended December 31, 2017 and 2016, respectively.  The Company did not generate any revenue because the Company did not receive any new orders for our consulting and website development services. The Company is also in the process of transforming its business by seeking new business opportunities in the mining industry.

Costs and Expenses

The major components of our expenses for the three months ended December 31, 2017 and 2016 are outlined in the table below:

 
 
2017
   
2016
   
Increase
(Decrease)
 
 
                 
General and administrative
 
$
227,791
   
$
37,370
   
$
190,421
 
 
 
$
227,791
   
$
37,370
   
$
190,421
 

The increase in our operating costs for the three months ended December 31, 2017, compared to the three months ended December 31, 2016, mainly included increased: salary expenses of $49,167, travel expenses of $68,242, consulting expense of $55,389, and auditing fees of $16,000, as a result of the Company recruiting experienced personnel, advisors and consultants, and becoming more aggressive in seeking business opportunities for its development and expansion.  In addition to the online marketing and consulting business, the Company is actively seeking opportunities in the mining industries in Asia and North America.


Non-operating expenses

Non-operating expenses were $11,598 for the three months ended December 31, 2017, compared to $181 for the three months ended December 31, 2016.  The increase in non-operating expenses was mainly due to increased interest expense of $52,668 on a note payable to one of our major shareholder, which was partially offset by interest income of $41,410 from notes receivables. The Company collected all amounts outstanding under the notes receivable in December 2017.
 
Liquidity and Capital Resources
 
The table below provides selected working capital information for the periods indicated:

 
 
As of
   
As of
 
 
 
December 31,
   
September 30,
 
 
 
2017
   
2017
 
 
           
Total current assets
 
$
5,102,537
   
$
5,344,093
 
Total current liabilities
   
(6,876,568
)
   
(6,879,283
)
Working capital deficiency
 
$
(1,774,031
)
 
$
(1,535,190
)

Liquidity
 
During the three months ended December 31, 2017 and 2016, the Company reported net loss of $239,389 and $37,551 respectively. 
 
If we are not successful in expanding our clientele base and establishing profitability and positive cash flow, additional capital may be required to maintain ongoing operations. We have explored and are continuing to explore options to provide additional financing to fund future operations as well as other possible courses of action. Such actions may include, but are not limited to, securing lines of credit, sales of debt or equity securities (which may result in dilution to existing shareholders), loans and cash advances from other third parties or banks, and other similar actions. There can be no assurance that we will be able to obtain additional funding (if needed), on acceptable terms or at all, through a sale of our common stock, loans from financial institutions, or other third parties, or any of the actions discussed above. If we cannot sustain profitable operations, and additional capital is unavailable, lack of liquidity could have a material adverse effect on our business viability, financial position, results of operations and cash flows.

Cash Flows

The table below, for the period indicated, provides selected cash flow information:

 
 
For the Three Months Ended December 31, 2017
   
For the Three Months Ended December 31, 2016
 
 
           
Net cash used in operating activities
 
$
(241,556
)
 
$
(41,901
)
Net cash used in investing activities
   
3,925,000
     
-
 
Net cash provided by financing activities
   
-
     
6,881,463
 
Net increase (decrease) in cash
 
$
3,683,444
   
$
6,839,562
 

Cash Used in Operating Activities

Our cash used in operating activities for the three months ended December 31, 2017 and 2016 was $241,556 and $41,901, respectively.  The increase in net cash used in operating activities was mainly due to increased net loss of $239,389.

Cash Flows from Investing Activities

Our cash provided by investing activities for the three months ended December 31, 2017 and 2016 was $3,925,000 and $0, respectively. The increase in net cash provided by investing activities was mainly due to the collection of outstanding notes receivable of $3,925,000.  

Cash Flows from Financing Activities

During the three months ended December 31, 2017 and 2016, we received proceeds from the issuance of a note to one of our major shareholders of $0 and $6,881,463, respectively; we had an increase in paid in capital of $0 and $11,645, respectively, through the payment for certain payables made by former management as capital contributions.


Recent Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements.

Off Balance Sheet Arrangements

As of December 31, 2017, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
Not applicable.

Item 4.
Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the end of the period covered by this report that our disclosure controls and procedures were not effective due to a material weakness. The material weakness relates to our having one employee assigned to positions that involve processing financial information, resulting in a lack of segregation of duties so that all journal entries and account reconciliations are reviewed by someone other than the preparer, heightening the risk of error or fraud. If we are unable to remediate the material weakness, or other control deficiencies are identified, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner. Due to our small size and the early stage of our business, segregation of duties may not always be possible and may not be economically feasible. We have limited capital resources and have given priority in the use of those resources to our business development efforts. As a result, we have not been able to take steps to improve our internal controls over financial reporting during the quarter ended December 31, 2017. However, we continue to evaluate the effectiveness of internal controls and procedures on an on-going basis. As our operations grow and become more complex, we intend to hire additional personnel in financial reporting and other areas. However, there can be no assurance of when, if ever, we will be able to remediate the identified material weaknesses.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
  


PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
We may from time to time be party to litigation and subject to claims incident to the ordinary course of business. As we grow and gain prominence in the marketplace we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial position. We are not currently a party to any legal proceedings.
   
Item 1A.
Risk Factors
 
Not applicable.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3.
Defaults upon Senior Securities
 
None.
 
Item 4.
Mine Safety Disclosure
 
Not applicable.
 
Item 5.
Other Information
 
None.
 
Item 6.
Exhibits
 
Exhibit No.
 
Description
31.1
 
31.2
 
32.1
 
32.2
 
101.INS
 
XBRL Instance Document*
101.SCH
 
XBRL Schema Document*
101.CAL
 
XBRL Calculation Linkbase Document*
101.DEF
 
XBRL Definition Linkbase Document*
101.LAB
 
XBRL Label Linkbase Document*
101.PRE
 
XBRL Presentation Linkbase Document*
 

* filed herewith
† furnished herewith




SIGNATURES
 
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.
 
 
FUSE ENTERPRISES INC.
 
 
 
By:
/s/ Umesh Patel
 
 
Umesh Patel
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
 
February 13, 2018
 
 
 
 
By:
/s/ Michael Viotto
 
 
Michael Viotto
 
 
Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
 
 
 
 
 
February 13, 2018
 
 
 
17