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EX-32.2 - EXHIBIT 32.2 - FUSE ENTERPRISES INC.ex_132137.htm
EX-32.1 - EXHIBIT 32.1 - FUSE ENTERPRISES INC.ex_132136.htm
EX-31.2 - EXHIBIT 31.2 - FUSE ENTERPRISES INC.ex_132135.htm
EX-31.1 - EXHIBIT 31.1 - FUSE ENTERPRISES INC.ex_132134.htm
EX-10.7 - EXHIBIT 10.7 - FUSE ENTERPRISES INC.ex_132139.htm
EX-10.6 - EXHIBIT 10.6 - FUSE ENTERPRISES INC.ex_132138.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-K

 


 

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2018

OR

☐ 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

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

805 W. Duarte Rd. #102.

 

 

Arcadia, CA 91007

 

91006

(Address of principal executive offices)

 

(Zip Code)

Registrant's Telephone Number: (626) 210-0000

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

None.

Securities registered pursuant to Section 12(g) of the Act:

 

None

 

 

(Title of class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No ☒

 

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, if any, every Interactive Data File required to be submitted 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 such files). Yes ☒No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions 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

(Do not check if a 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 Act.) Yes ☐No ☒

 

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant based upon the closing price of the Registrant’s Common Stock as of March 29, 2018 was approximately $16,591,000 (based on 17,650,000 shares of common stock outstanding held by non-affiliates on such date, $0.94 per share). Shares of the Registrant’s Common Stock held by each executive officer and director and by each entity or person that, to the Registrant’s knowledge, owned 5% or more of the Registrant’s outstanding Common Stock as of March 29, 2018 have been excluded in that such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

 

The number of outstanding shares of Registrant’s Common Stock, $0.001 par value, was 64,778,050 shares as of December 26, 2018.

 

 

FUSE ENTERPRISES INC.

 

Annual Report on Form 10-K for Fiscal Year Ended September 30, 2018

 

PART I

1

ITEM 1 – BUSINESS

1

ITEM 1A – RISK FACTORS

2

ITEM 2 – PROPERTIES

7

ITEM 3 – LEGAL PROCEEDINGS

7

ITEM 4 – MINE SAFETY DISCLOSURES

7

 

 

PART II

8

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

8

ITEM 6 – SELECTED FINANCIAL DATA

8

ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

8

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

11

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

11

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

11

ITEM 9A – CONTROLS AND PROCEDURES

11

 

 

PART III

14

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

14

ITEM 11 – EXECUTIVE COMPENSATION

14

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

16

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

17

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

17

 

 

PART IV

18

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

18

Signature

19

 

 

 

 

NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K for the fiscal year ended September 30, 2018 (“Annual Report”) of Fuse Enterprises Inc. (together with our direct or indirect subsidiaries, “we,” “us,” “our” or “the Company”) includes forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Other than statements of historical fact, all statements made in this Annual Report are forward-looking, including, but not limited to (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions. The following important factors, among others, could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements:

 

The uncertainty of profitability based upon our history of losses;

Risks related to failure to obtain adequate financing on a timely basis and on acceptable terms to continue as going concern;

Risks related to our international operations and currency exchange fluctuations; and

Other risks and uncertainties related to our business plan and business strategy.

 

Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under “Item 1A. Risk Factors” in this Annual Report.  In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

 

Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. All references to “common stock” refer to the common shares in our capital stock.

  

We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances or the occurrence of unanticipated events.

 

 

 

PART I

  

ITEM 1 – BUSINESS

 

Overview and History

  

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”).

 

Research and Development Activities

 

Other than time spent researching our proposed business, we have not spent any funds on research and development activities to date. We do not currently plan to spend any funds on research and development activities in the near future. 

 

We are not aware of any environmental laws that have been enacted, nor are we aware of any such laws being contemplated for the future, that affect our current operations. 

 

Employees

 

As of the date of this Annual Report we have four employees, all of which are full-time employees.  Our officers and directors are responsible for planning, developing and operational duties, and will continue to do so throughout the early stages of our growth.

 

Reports to Securities Holders

 

We provide an annual report that includes audited financial information to our shareholders. We will make our financial information equally available to any interested parties or investors through compliance with the disclosure rules for a small business issuer under the Securities Exchange Act of 1934. We are subject to disclosure filing requirements including filing Form 10-K annually and Form 10-Q quarterly. In addition, we will file Form 8K from time to time as required. We do not intend to voluntarily file the above reports in the event that our obligation to file such reports is suspended under the Exchange Act. The public may read and copy any materials that we file with the Securities and Exchange Commission, (“SEC” or “Commission”), at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549.

 

The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

 

ITEM 1A – RISK FACTORS

 

An investment in the Company’s common stock involves a high degree of risk. In addition to the following risk factors, you should carefully consider the risks, uncertainties and assumptions discussed herein, and in other documents that the Company subsequently files with the SEC, that update, supplement or supersede such information for which documents are incorporated by reference into this Report. Additional risks not presently known to the Company, or which the Company considers immaterial based on information currently available, may also materially adversely affect the Company’s business. If any of the events anticipated by the risks described herein occur, the Company’s business, cash flow, results of operations and financial condition could be adversely affected, which could result in a decline in the market price of the Company’s common stock, causing you to lose all or part of your investment.  

 

We are an “emerging growth company” under the Jumpstart Our Business Startups Act. We cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our shares of common stock less attractive to investors.

 

We are and will remain an “emerging growth company” until the earliest to occur of (a) the last day of the fiscal year during which our total annual revenues equal or exceed $1 billion (subject to adjustment for inflation), (b) the last day of the fiscal year following the fifth anniversary of our initial public offering, (c) the date on which Enterprises has, during the previous three-year period, issued more than $1 billion in non-convertible debt securities, or (d) the date on which Enterprises is deemed a “large accelerated filer” (with at least $700 million in public float) under the Securities and Exchange Act of 1934 (the “Exchange Act”).

 

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” as described in further detail in the risk factors below. We cannot predict if investors will find our shares of common stock less attractive because Enterprises will rely on some or all of these exemptions. If some investors find our shares of common stock to be less attractive as a result, there may be a less active trading market for our shares of common stock and our stock price may be more volatile. 

 

If we avail ourselves of certain exemptions from various reporting requirements, such reduced disclosure may make it more difficult for investors and securities analysts to evaluate us and may result in less investor confidence.

 

The recently enacted JOBS Act is intended to reduce the regulatory burden on “emerging growth companies”. We meet the definition of an “emerging growth company” and so long as we qualify as an “emerging growth company,” we will not be required to:

 

● Have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

● Comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

● Submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

● Disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period, and as a result, Enterprises will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that its decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

 

Notwithstanding the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $250 million or annual revenues of less than $100 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company”, at such time are we cease being an “emerging growth company”, we will be required to provide additional disclosure in our SEC filings.  However, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2013; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. 

 

Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze the Company’s results of operations and financial prospects.

  

We lack an operating history. There is no assurance our future operations will result in profitable revenues.  If we cannot generate sufficient revenues to operate profitably, our business will fail.

 

As of September 30, 2018, we had accumulated a deficit of $5,834,737. We have a limited operating history upon which an evaluation of our future success or failure can be made.  Based upon current plans, we expect to continue generating revenues. However, our revenues may not be sufficient to cover our operating costs.  We cannot guarantee that we will be successful in generating significant revenues in the future.  Failure to achieve a sustainable sales level will cause us to go out of business.

 

Our success depends substantially on the continued retention of certain key personnel and our ability to hire and retain qualified personnel in the future to support our growth.

 

If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. We are dependent upon Mr. Umesh Patel, our chief executive officer (“CEO”) and a director; and Mr. Umesh Patel, our chief financial officer (“CFO”) and a director. The loss of the services of Messrs. Patel or Viotto for any reason could significantly adversely impact our business and results of operations. Competition for senior management in the United States is intense and the pool of qualified candidates is very limited. Accordingly, we cannot guarantee that the services of our senior executives and other key personnel will continue to be available to us, or that we will be able to find a suitable replacement for them if they were to leave.

 

We face intense competition in our industry. If we are unable to compete successfully, our business will be seriously harmed.

 

The market for online marketing services is highly competitive and has low barriers to entry. Our competitors vary in size and in the variety of services they offer. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, and an established client base. These competitors may be able to adapt more quickly to new or emerging online marketing technologies and changes in customer requirements. They may also be able to devote greater resources to the promotion and sales of their services than we can, or may adopt more aggressive pricing policies. If we fail to compete successfully against our competitors, our revenue could decline and our business could be harmed.

 

None of the members of our Board of Directors are considered audit committee financial experts. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

 

Members of our Board of Directors are inexperienced with U.S. GAAP and the related internal control procedures required of U.S. public companies. Management has determined that our internal audit function is also significantly deficient due to insufficient qualified resources to perform internal audit functions. Finally, we have not established an Audit Committee of our Board of Directors.

 

 

We are a development stage company with limited resources. Therefore, we cannot assure investors that we will be able to maintain effective internal controls over financial reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. For these reasons, we are considering the costs and benefits associated with improving and documenting our disclosure controls and procedures and internal controls and procedures, which includes (i) hiring additional personnel with sufficient U.S. GAAP experience and (ii) implementing ongoing training in U.S. GAAP requirements for our CFO and accounting and other finance personnel.  If the result of these efforts are not successful, or if material weaknesses are identified in our internal control over financial reporting, our management will be unable to report favorably as to the effectiveness of our internal control over financial reporting and/or our disclosure controls and procedures, and we could be required to further implement expensive and time-consuming remedial measures and potentially lose investor confidence in the accuracy and completeness of our financial reports which could have an adverse effect on our stock price and potentially subject us to litigation.

 

We do not have a majority of independent directors on our Board and the Company has not voluntarily implemented various corporate governance measures, in the absence of which shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

 

Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. We have not yet adopted any of these other corporate governance measures and since our securities are not yet listed on a national securities exchange, we are not required to do so.

 

Our Board of Directors is comprised of two individuals, both of whom are also our executive officers. As a result, we do not have independent directors on our Board of Directors.  

 

We have not adopted corporate governance measures such as an audit or other independent committee of our Board, as we presently do not have independent directors on our Board. If we expand our Board membership in future periods to include additional independent directors, we may seek to establish an audit and other committees of our Board. It is possible that if our Board of Directors included independent directors and if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurance that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct.

 

For example, at present in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages or employment contracts to our senior officers are made by a majority of directors who have an interest in the outcome of the matters being decided. However, as a general rule, the Board, in making its decisions, determines first that the terms of such transaction are no less favorable to us that those that would be available to us with respect to such a transaction from unaffiliated third parties. The company executes the transaction between executive officers and the company once it was approved by the Board of Directors.

 

Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

 

 

Landbond Home Limited, our largest shareholder, will have control over key decision making as a result of its control of a substantial amount of our voting stock.

 

As of December 21, 2018, Landbond Home Limited (“Landbond”), and its sole director, Mr. Yong Zhang, directly and indirectly owned 37,128,050 shares, or 57.32%, of our outstanding common stock. Landbond’s beneficial ownership of 57.32% of our issued and outstanding common stock will give it the ability to control the outcome of matters submitted to shareholders for approval in the future, including the election of directors and any merger, consolidation, or sale of all or substantially all of their respective assets. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of their respective assets that other shareholders support, or conversely this concentrated control could result in the consummation of such a transaction that other shareholders do not support. This concentrated control could also discourage a potential investor from acquiring our common stock, due to the limited voting power of such shares. As a shareholder, even a controlling shareholder, Landbond is entitled to vote its shares in its own interests, which may not always be in the interests of our shareholders generally.

 

The Company is subject to the 15(d) reporting requirements under the Securities Exchange Act of 1934 which does not require a company to file all the same reports and information as fully reporting company.

  

Pursuant to Section 15(d), we are required to file periodic reports with the SEC, such as annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. That filing obligation will generally apply even if our reporting obligations have been suspended automatically under section 15(d) of the Exchange Act prior to the due date for the Form 10-K.

 

After that fiscal year and provided the Company has fewer than 300 shareholders, the Company is not required to file these reports. If the reports are not filed, the investors will have reduced visibility as to the Company and its financial condition. In addition, as a filer subject to Section 15(d) of the Exchange Act, the Company is not required to prepare proxy or information statements; our common stock will not be subject to the protection of the going private regulations; the company will be subject to only limited portions of the tender offer rules; our officers, directors, and more than ten (10%) percent shareholders are not required to file beneficial ownership reports about their holdings in our company; these persons will not be subject to the short-swing profit recovery provisions of the Exchange Act; and more than five percent (5%) holders of classes of our equity securities will not be required to report information about their ownership positions in the securities.

 

The relative lack of public company experience of our management team may put us at a competitive disadvantage.

 

Our management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by the Sarbanes-Oxley Act of 2002, (“Sarbanes-Oxley”). Our senior management does not have significant experience managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior management may be unable to implement programs and policies in an effective and timely manner or that adequately respond to the increased legal, regulatory and reporting requirements associated with being a publicly traded company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties, distract our management from attending to the management and growth of our business, result in a loss of investor confidence in our financial reports and have an adverse effect on our business and stock price.

 

If our costs and demands upon management increase disproportionately to the growth of our business and revenue as a result of complying with the laws and regulations affecting public companies, our operating results could be harmed.

 

As a public company, we do and will continue to incur significant legal, accounting, and other expenses, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with current corporate governance requirements, including requirements under Section 404 and other provisions of Sarbanes-Oxley, as well as rules implemented by the SEC and the stock exchange on which our common stock is traded. The expenses incurred by public companies for reporting and corporate governance purposes have increased dramatically over the past several years. These rules and regulations have increased our legal and financial compliance costs substantially and make some activities more time consuming and costly. If our costs and demands upon management increase disproportionately to the growth of our business and revenue, our operating results could be harmed.

 

 

We do not intend to pay dividends and there may be fewer ways in which you can make a gain on any investment in Enterprises.

 

We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future.  To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend.  Because we do not intend to declare dividends, any gain on an investment in Enterprises will need to come through appreciation of the stock price.

 

We may engage in future acquisitions involving significant expenditures of cash, the incurrence of debt or the issuance of stock, all of which could have a materially adverse effect on our operating results.

 

As part of our business strategy, we review acquisition and strategic investment prospects that we believe would offer strategic growth opportunities. From time to time, we review investments in new businesses and we expect to make investments in, and to acquire, businesses, products or technologies in the future. In the event of any future acquisitions, we may expend significant cash, incur substantial debt and/or issue equity securities and dilute the percentage ownership of current shareholders, all of which could have a material adverse effect on our operating results and the price of our common stock. We cannot guarantee that we will be able to successfully integrate any businesses, products, technologies or personnel that we may acquire in the future, and our failure to do so could have a material adverse effect on our business, operating results and financial condition.

 

There is a very limited public market for our common stock and; therefore, our investors may not be able to sell their shares.

 

Our common stock is listed on the over-the-counter exchange, and is thinly traded. As a result, shareholders may be unable to liquidate their investments, or may encounter considerable delay in selling shares of our common stock.  If an active trading market does develop, the market  price of our  common  stock is  likely to be highly volatile due to, among other  things,  the nature of our business and our being a new public company with a limited operating  history.  Further, even if a public market develops, the volume of trading in our common stock will presumably be limited and likely be dominated by a few individual shareholders.  The limited volume, if any, will make the price of our common stock subject to manipulation by one or more shareholders and will significantly limit the number of shares that one can purchase or sell in a short period of time.  The market price of our common stock may also fluctuate significantly in response to the following factors, most of which are beyond our control:

 

     -   Variations in our quarterly operating results;

     -   Changes in general economic conditions;

     -   Price competition or pricing changes by us or our competitors;

     -   New services offerings or other actions by our competitors;

     -   Loss of a major customer, partner or joint venture participant; and

     -   The addition or loss of key managerial and collaborative personnel.

 

The equity markets have, on occasion,  experienced  significant price and volume fluctuations that have affected the market prices for many companies' securities and that  have  often  been  unrelated  to the  operating  performance  of these companies. 

 

Any such fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance.  As a result, shareholders may be unable to sell their shares, or may be forced to sell them at a loss.

 

Our common stock was accepted for quotation on the OTC Bulletin Board and OTC Link during the year ended September 30, 2016. As a result, the application of the “Penny Stock” rules could adversely affect the market price of our common shares and increase your transaction costs to sell those shares.  The SEC has adopted Rule 3A51-1, which establishes the definition of a “Penny Stock,” for the purposes relevant to us, as any equity security that has market price of less than $5.00 per share or within an exercise price of less than $5.00 per share, subject to certain exceptions.  For any transaction involving a penny stock, unless exempt, Rule 15G-9 requires:

 

      -   That a broker or dealer approve a person's account for transactions in penny stocks; and           

      -   That the broker or dealer receive from the investor a written agreement to the transaction, setting forth the

           identity and  quantity of the penny stock to be purchased.

 

 

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

 

      -   Obtain the financial information and investment experience objectives of the person; and     

      -   Make a reasonable determination that the transactions in penny stocks are suitable for that person and that the

          person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of

          transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

  

     -   Sets forth the basis on which the broker or dealer made the suitability determination; and 

     -   That the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

ITEM 2 – PROPERTIES

 

We lease office space in Arcadia, California for monthly rent of approximately $1,896 pursuant to a lease agreement with a term from January 1, 2017 to December 31, 2018. In January 2018, the monthly rent was increased to $1,949.

 

Effective April 16, 2018, the Company entered a one-year lease agreement to lease another office in the City of Diamond Bar, California. The monthly rent is approximately $1,500.

 

Commencing December 1, 2018, the Company leased an office in the City of Arcadia for a term of three years, with base rent of $2,115 per month.

 

ITEM 3 – 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 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

On August 8, 2016, our common stock was verified for trading on OTCQB under the trading symbol “FSNT.” Prior to that time, there was no public market for our stock. Any over-the-counter quotations in the OTCQB reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Holders.

 

As of September 30, 2018, there were 76 record holders of 64,778,050 shares of the Company's common stock.

 

Dividends.

 

The Company has not paid any cash dividends to date and does not anticipate or contemplate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of the Company's business.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

None.

 

Recent Sales of Unregistered Securities and Use of Proceeds

 

The Company did not make any sales of unregistered securities during the fiscal year ended September 30, 2018 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K.

 

ITEM 6 – SELECTED FINANCIAL DATA

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. 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 below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Risk Factors.”

 

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 an 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.  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 3, 2018, the Company incorporated Fuse Technology Inc. (“Technology”) in the State of Nevada.  Enterprises is the sole shareholder of Technology, which currently has no operations.

 

 

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.  

 

Results of operations for the years ended September 30, 2018 and 2017 

 

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 revenue for the years ended September 30, 2018 and 2017 was $0. Our cost of revenues for the years ended September 30, 2018 and 2017 was $0, resulting in a gross profit of $0 for each of those periods.  The Company did not generate any revenue during those periods 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 years ended September 30, 2018 and 2017 are outlined in the table below:

 

   

2018

   

2017

   

Increase

(Decrease)

 
                         

General and administrative

  $ 632,647     $ 861,366     $ (228,719

)

Consulting fees and software development costs

    3,468,923       657,929       2,810,994  

Total operating expenses

  $ 4,101,570     $ 1,519,295     $ 2,582,275  

 

The increase in our operating costs for the year ended September 30, 2018, compared to the year ended September 30, 2017, was mainly due to an increase in consulting fees and software development costs by $2,810,994, which was partly offset by a decrease in travel expense by $182,503. The Company entered several consulting agreements for advisory services on business development strategy in the Far East, including in Hong Kong and Russia, and acquisition opportunities in Mexico and North America. The Company also entered a consulting agreement for developing software programs, to be used primarily to meet its internal needs, which are to allow the Company to operate a platform for investment in raw metals—often considered to be a stable investment vehicle.

 

Non-operating expenses, net

 

Net non-operating expenses were $117,550 for the year ended September 30, 2018, compared to $38,530 for the year ended September 30, 2017.  The increase in non-operating expenses was mainly due to a decrease in interest income by $64,273, and a decrease in consulting income by $20,000, which was partly offset by a decrease in interest expense by $5,153 on a note payable to one of our major shareholders.

 

Liquidity and Capital Resources

 

The table below provides selected working capital information for the periods indicated: 

 

   

As of

   

As of

 
   

September 30,

   

September 30,

 
   

2018

   

2017

 
                 

Total current assets

  $ 178,627     $ 5,344,093  

Total current liabilities

    (9,633

)

    (6,879,283

)

Working capital (deficiency)

  $ 168,994     $ (1,535,190

)

 

 

Liquidity

 

During the years ended September 30, 2018 and 2017, the Company reported net loss of $4,219,920 and $1,557,825, 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 Year Ended September 30, 2018

   

For the Year Ended September 30, 2017

 
                 

Net cash used in operating activities

  $ (4,240,729

)

  $ (2,521,330

)

Net cash provided by (used in) investing activities

    3,925,000       (3,939,598

)

Net cash provided by financing activities

    -       6,871,856  

Net increase (decrease) in cash

  $ (315,729 )   $ 410,928  

 

We have generated revenues of $0 during years ended September 30, 2018 and 2017. 

 

Cash Flows from Operating Activities

 

Our cash used in operating activities for the years ended September 30, 2018 and 2017 was $4,240,729 and $2,521,330, respectively.  The increase in net cash used in operating activities was mainly due to increased net loss of $2,662,095, which was partly offset by decreased cash outflow on prepaid expenses of $1,200,036. 

 

Cash Flows from Investing Activities 

 

Our cash provided by (used in) investing activities for the years ended September 30, 2018 and 2017 was $3,925,000 and $(3,939,598), respectively. The increase in net cash provided by investing activities was mainly due to the collection of outstanding notes receivable in full in the amount of $3,925,000, and the fact that we did not have any fixed asset purchases during the year ended September 30, 2018.  During the year ended September 30, 2017, we loaned out $3,925,000 and paid $14,598 for office furniture and equipment.

 

Cash Flows from Financing Activities

 

During the year ended September 30, 2018, we did not have any financing activities.  During the year ended September 30, 2017, we received proceeds from the issuance of a note to one of our major shareholders in the amount of $6,869,818.

 

Recent Accounting Pronouncements

 

See Note 2 to the CFS.

 

 

Off Balance Sheet Arrangements

 

As of September 30, 2018, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The information called for by this item is included in the Company's consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K.

 

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Changes in Registrant’s Certifying Accountant

 

On April 20, 2017, the Board of Directors of the Company approved and ratified the dismissal of KLJ & Associates, LLP (“KLJ”) as the Company’s independent registered public accounting firm for the fiscal year ended September 30, 2017, effective as of February 13, 2017.

 

KLJ’s audit reports on the Company’s consolidated financial statements as of and for the fiscal years ended September 30, 2016 and 2015 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

 

During the fiscal years ended September 30, 2016 and 2015, and in the subsequent interim period through February 13, 2017, there were (i) no disagreements between the Company and KLJ on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KLJ, would have caused KLJ to make reference to the subject matter of the disagreement in their reports on the financial statements for such years, and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

  

On April 20, 2017, the Company’s Board of Directors approved and ratified the engagement of MJF & Associates, APC (“MJF”), as the Company’s independent registered public accounting firm, effective as of February 13, 2017.  The Board of Directors also approved MJF to act as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2017.

 

In deciding to approve and ratify the engagement of MJF, the Board of Directors reviewed auditor independence and existing commercial relationships with MJF, and concluded that MJF has no commercial relationship with the Company that would impair its independence. During the fiscal years ended September 30, 2016 and 2015, respectively, and in the subsequent interim period through February 13, 2017, neither the Company nor anyone acting on its behalf has consulted with MJF on any of the matters or events set forth in Item 304(a)(2) of Regulation S-K.

 

ITEM 9A – CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls

 

We evaluated the effectiveness of our disclosure controls and procedures as of the end of the 2018 fiscal year.  This evaluation was conducted with the participation of our chief executive officer and our chief financial officer.

 

Disclosure controls are controls and other procedures that are designed to ensure that information that we are required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported. 

 

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

 

With the participation of management, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the conclusion of the period ended September 30, 2018. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective in ensuring that material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission.

 

 Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of the inherent limitations of internal control over financial reporting, misstatements may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this assessment, management, with the participation of the Chief Executive Officer and Chief Financial Officer, believes that, as of September 30, 2018, our internal control over financial reporting is not effective based on those criteria. 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.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of September 30, 2018, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

 

1.  We do not have an Audit Committee. While we are not legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is of the utmost importance for entity-level control over the Company’s financial statements. Currently, the Board of Directors acts in the capacity of an audit committee.

 

2.  We did not implement appropriate information technology controls. As of September 30, 2018, the Company was retaining copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors. 

 

3.   We currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements.

 

 

As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2018 based on criteria established in Internal Control—Integrated Framework issued by COSO (2013 framework).

 

We have taken certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We have engaged an outside CPA with U.S. GAAP knowledge and experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP. The Company’s operations are relatively uncomplicated; the Company had no sales but only expenses.  The Company maintains adequate policies and procedures for ensuring that receipts and expenditures of Company assets are made in accordance with management authorization; and any investing and financing activities are made with both management and Board authorization, and any unauthorized expenses or usage of the Company’s assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.  The Company also keeps accounting records for each of the Company’s transactions including expenses, assets purchase, prepayments, notes receivable and payable that in reasonable detail accurately and fairly reflect the transaction; and for providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements.

 

We have limited capital resources and have given priority in the use of those resources to the development of our business. 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. 

 

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, the management’s report is not subject to attestation by the Company’s registered public accounting firm.

 

Conclusions

 

Based upon their evaluation of our controls, the chief executive officer and principal accounting officer have concluded that, subject to the limitations noted above, the disclosure controls are effective providing reasonable assurance that material information relating to us is made known to management on a timely basis during the period when our reports are being prepared.  There were no changes in our internal controls that occurred during the year covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls. 

 

 

PART III

 

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

The following table sets forth as of December 21, 2018 the names, positions and ages of our current executive officers and directors. Our directors serve until the next meeting of shareholders or until their successors are elected and qualified. Our officers are elected by the Board and their terms of office are, except to the extent governed by an employment contract, at the discretion of the Board.

 

Name of Current Director and/or Executive Officer

 

Age

 

Position(s)

Umesh Patel (1)

 

62

 

Director, Chief Executive Officer

Michael Viotto (2)

 

67

 

Director, Chief Financial Officer

 

(1)

On February 15, 2017, the Board appointed Mr. Patel to serve as a director and the Company’s Chief Executive Officer.

(2)

On August 15, 2017, the Board appointed Mr. Viotto to serve as a director and the Company’s Chief Financial Officer, effective August 16, 2017.

 

Umesh Patel

 

Mr. Patel has served as a director of Nova Lifestyle, Inc. (NASDAQ: NVFY), a furniture manufacturer and retailer, since October, 2016, and has also served as Chairman of its Compensation Committee and a member of the Nominating and Corporate Governance and Audit Committees.  Mr. Patel has also served as a managing partner of DviBri LLC, a California-based consulting company providing services to private companies interested in conducting initial public offerings, along with other associated securities and investment services, since December, 2009.  Mr. Patel has been a consultant and coordinator for Eos-Petro Inc., an international and domestic petroleum exploration and production company based in Southern California, since March, 2013. Mr. Patel received his Bachelor of Commerce degree specializing in audits and accounts, and an Associate degree in hotel management and catering from Maharaja Sayaji Rao University in Baroda, India in 1978.  The Board believes that Mr. Patel is well qualified to serve as a member of the Board and as the Company’s Chief Executive Officer due to his extensive regulatory and investment experience.

 

Michael Viotto

 

Mr. Viotto served as President of MJV Consulting Inc. from October, 2014 to August, 2017.  From May, 2013 to January, 2017, Mr. Viotto served as a member of the Board of Directors to Nova Lifestyle, Inc. (NASDAQ: NVFY); as Chairman of its Nominating and Corporate Governance Committee, and as a member of the Compensation and Audit Committees. From May, 2009 to September, 2014, Mr. Viotto was the President of MJV Financial Inc. and was appointed as exclusive agent for Coface North America, an internationally recognized leader in the Trade Finance Industry.  

 

Mr. Viotto received his Bachelor of Science Degree in Business Administration from California Polytechnic University in Pomona, California in 1985. The Board has selected Mr. Viotto to serve as a qualified member to the Board due to his extensive experience in the finance industry, including business development and risk assessment and management.

 

Given the Company’s limited operations, it has not adopted a code of ethics applicable to its principal executive officer and principal financial officer.

 

ITEM 11 – EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

We currently have two executive officers: our Chief Executive Officer and Chief Financial Officer.  These executives, along with other individuals who served in those positions during the last fiscal year, comprise our “Named Executive Officers” (NEOs) for purposes of applicable SEC disclosure regulations.

 

 

Compensation Objectives

 

We operate in a highly competitive and rapidly changing industry. The key objectives of our executive compensation programs are to:

 

attract, motivate and retain executives who drive our success and industry leadership; and provide each executive, from CFO to CEO, with a base salary on the market value of that role, and

 

the individual’s demonstrated ability to perform that role.

 

Employment Agreements

 

We currently have an employment agreement with Michael Viotto, our CFO.  Pursuant to the terms of his employment agreement, dated August 20, 2018, Mr. Viotto receives annual compensation in the amount 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.

 

Summary Compensation of Named Executive Officers

 

The following table summarizes the compensation earned by, awarded to or paid to our NEOs in the years ended September 30, 2018 and 2017:

 

Name and Principal
Position

 

Year
Ended

 

Salary
($)

 

 

Bonus
($)

 

 

Stock Awards

 

 

Option Awards

 

 

Non-Equity Incentive

Plan Compensation
($)

 

 

Non-Qualified Deferred Compensation Earnings
($)

 

 

All Other

Compensation
($)

 

 

Total
($)

 

Yong Zhang(1)

 

2018

 

 

-

 

 

 

 

 

 

-

 

 

 

 -

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2017

 

 

16,667

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Choon Kang Roy Tan (2)

 

2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2017

 

 

40,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

40,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Umesh Patel (3)

 

2018

 

 

74,500

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

74,500

 

 

 

2017

 

 

41,596

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41,596

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Viotto (4)

 

2018

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

2017

 

 

5,133

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,133

 

 

(1)

Mr. Zhang was appointed as Chief Executive Officer and a director on November 28, 2016, and resigned from those positions on February 15, 2017.

 

 

(2)

Mr. Kang was appointed as Chief Financial Officer and a director on November 28, 2016, and resigned from those positions on August 16, 2017.

 

 

(3)

Mr. Patel was appointed as Chief Executive Officer and a director on February 15, 2017.

 

 

(4)

Mr. Viotto was appointed as Chief Financial Officer and a director on August 16, 2017.

 

 

Outstanding Equity Awards at September 30, 2018

 

There were no outstanding stock options and stock awards held by our NEOs as of September 30, 2018.

 

Compensation of Directors

 

Our directors did not receive compensation for their service on the board of directors for the fiscal years ended September 30, 2018 and 2017.

 

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table provides information concerning beneficial ownership of our capital stock as of December 26, 2018 by:

 

each shareholder or group of affiliated shareholders who owns more than 5% of our outstanding capital stock;

 

 

each of our named executive officers;

 

 

each of our directors; and all of our directors and

 

 

executive officers as a group.

 

The following table lists the number of shares and percentage of shares beneficially owned based on 64,778,050 shares of our Common Stock outstanding as of December 26, 2018.

  

Beneficial ownership is determined in accordance with the SEC rules, and generally includes voting power and/or investment power with respect to the securities held. Shares of Common Stock subject to options and warrants currently exercisable or exercisable within 60 days of December 26, 2018 or issuable upon conversion of convertible securities which are currently convertible or convertible within 60 days of December 26, 2018 are deemed outstanding and beneficially owned by the person holding those options, warrants or convertible securities for purposes of computing the number of shares and percentage of shares beneficially owned by that person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, and subject to applicable community property laws, the persons or entities named have sole voting and investment power with respect to all shares of our Common Stock shown as beneficially owned by them.

 

Unless otherwise indicated in the footnotes, the principal address of each of the shareholders below is c/o Fuse Enterprises Inc., 805 W. Duarte Rd. #102, Arcadia, CA 91007.

 

   

Shares Beneficially Owned

 

Name of Beneficial Owner

 

Number

   

Percent

 

Directors, Named Executive Officers and 5% Shareholders

               

Yong Zhang

    37,128,050       57.32  

Choon Kang Roy Tan

           

Umesh Patel

           

Michael Viotto

           

All current directors and executive officers as a group (6 persons)

    37,128,050       57.32

%

Landbond Home Limited (1)

    37,128,050       57.32

%

 

(1)          Mr. Yong Zhang is the sole director and beneficial owner of the securities held of record by Landbond Home Limited.

 

 

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

For details of related party transactions, see Note 5 “Related Party Transaction” to our consolidated financial statements.

 

Director Independence

 

Under NASDAQ rule 4200(a)(15), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation.

 

Our directors, Umesh Patel and Michael Viotto, serve as our CEO and CFO, respectively. As a result, we do not have independent directors on our Board of Directors. 

 

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table shows the fees that we paid or accrued for audit and other services for fiscal years ended September 30, 2018 and 2017. All of the services described in the following fee table were approved in conformity with the Board’s pre-approval process.

 

 

   

2018

   

2017

 

Audit Fees

  $ 34,500     $ 25,000  

Tax Fees

    0       0  

All Other Fees

    0       0  

Total

  $ 34,500     $ 26,565  

 

Audit Fees

 

The amounts set forth opposite “Audit Fees” above reflect the aggregate fees billed or billable by MJF & Associates, APC (“MJF”).

 

KLJ provided professional services for the audit of our fiscal year 2016 and reviews of our quarterly financial statements. MJF’s fees for audit and reviews are $34,500 and $25,000 for 2018 and 2017, respectively.

 

The Company engaged KLJ until February 13, 2017 (the “Engagement Period”). During the Engagement Period, KLJ did not issue any reports on the Company’s consolidated financial statements, and there were no disagreements between the Company and KLJ on matters of accounting principles or practices, financial statement disclosure or auditing scope or procedures.

 

Tax Fees

 

The amounts set forth opposite “Tax Fees” above reflect the aggregate fees billed for fiscal 2018 and 2017 for professional services rendered for tax compliance and return preparation. The compliance and return preparation services consisted of the preparation of original and amended tax returns and support during the income tax audit or inquiries.

 

Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants.  These services may include audit services, audit-related services, tax services and other services.  Under our audit committee’s policy, pre-approval is generally provided for particular services or categories of services, including planned services, project based services and routine consultations.  In addition, the Board may also pre-approve particular services on a case-by-case basis.  Our Board approved all services that our independent accountants provided to us in the past two fiscal years. 

 

 

PART IV

 

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) (1)    FINANCIAL STATEMENTS:

 

The following financial statements, including notes thereto and the independent auditors’ report with respect thereto, are filed as part of this Annual Report on Form 10-K, starting on page F-1 hereof:

 

1.

Management’s Report on Internal Control over Financial Reporting

2.

Report of Independent Public Registered Accounting Firm

3.

Consolidated Balance Sheets

4.

Consolidated Statements of Income and Comprehensive Income

5.

Consolidated Statements of Shareholders’ Equity

6.

Consolidated Statements of Cash Flows

7.

Notes to Consolidated Financial Statements

 

(b)          EXHIBITS:

 

Exhibit Index

 

Exhibit Number

Description

3.1

Articles of Incorporation. Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on March 24, 2015.

3.2

Certificate of Change, dated May 19, 2017.  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2017.

3.3

Bylaws. Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on March 24, 2015.

10.1

Amended and Restated Promissory Note Purchase Agreement, dated March 20, 2017, by and among the Company, Fuse Trading Limited and Landbond Home Limited.  Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on March 24, 2017.

10.2

Promissory Note, dated March 20, 2017, by and between Fuse Trading Limited and Landbond Home Limited.  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on March 24, 2017.

10.3

Consulting and Strategist Agreement, by and between the Fuse Processing, Inc. and Brilliant Star Investment Inc., dated January 4, 2017. Incorporated by reference to the Company’s Form 10-Q filed on May 11, 2017.

10.4†

Employment Agreement by and between the Company and Mr. Michael Viotto, dated August 20, 2018. Incorporated by reference to the Company Form 8-K filed on August 22, 2018.

10.5

Sublease Agreement, by and between Fuse Processing, Inc. and Wantonga Group, dated January 1, 2017. Incorporated by reference to the Company Form 10-K filed on December 29, 2017.

10.6*

Consulting and Strategist Agreement, by and between the Company and Benefit Pointers Trading Limited Hong Kong, dated April 15, 2018.

10.7*

Consulting and Strategist Agreement, by and between the Company and Risun Intelligent Technology Co., Limited, dated August 1, 2018.

31.1

Rule 13a-14(a) Certification of Principal Executive Officer of Registrant*

31.2

Rule 13a-14(a) Certification of Principal Financial Officer of Registrant*

32.1

Section 1350 Certification of Principal Executive Officer of Registrant. *

32.2

Section 1350 Certification of Principal Financial Officer of Registrant.*

 

*Filed herewith

† Management agreement.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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)

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Umesh Patel their attorneys-in-fact and agents, each with the power of substitution, for them in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or substitutes, may do or cause to be done by virtue hereof.

 

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.

 

Signature

 

Name and Title

 

Date

 

 

 

/s/ Umesh Patel

 

 

Umesh Patel

 

December 31, 2018

Chief Executive Officer and

Director

(principal executive officer)

 

 

 

 

 

/s/ Michael Viotto

 

 

Michael Viotto

 

December 31, 2018

Chief Financial Officer and Director

 

 

(principal financial officer and accounting officer)

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

December 31, 2018

Board of Directors and Management

Fuse Enterprises, Inc.

 

REPORT OF INDEPENDENT PUBLIC ACCOUNTANT

 

Board of Directors and Management

Fuse Enterprises, Inc.

 

Opinion on the financial statements

 

We audited the accompanying balance sheets of Fuse Enterprises, Inc. (“the Company”) as of September 30, 2018 and 2017, and the related statements of operations, stockholders’ deficit, and cash flows for each of the two years in the period ended September 30, 2018 and the related notes (collectively referred to as “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2018 and 2017, and the results of its operations and cash flows for each of the two years in the period ended September 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis of 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 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 were prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, as of September 30, 2018 the Company had a working capital deficit, an accumulated deficit, and currently has no revenue generating operations. These conditions, among others, raise substantial doubt about its ability to continue as a going concern. 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 2017.

 

Los Angeles, California

December 31, 2018

 

 

FUSE ENTERPRISES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   

AS OF SEPTEMBER 30,

 
   

2018

   

2017

 

ASSETS

               
                 

CURRENT ASSETS

               

      Cash

  $ 103,364     $ 419,093  

      Notes receivable

    -       3,925,000  

      Prepaid expenses

    75,263       1,000,000  
                 

         Total current assets

    178,627       5,344,093  
                 

NON-CURRENT ASSETS

               

      Prepaid expenses

    1,000,000       -  

      Property and equipment, net

    10,764       12,955  
                 

         Total non-current assets

    1,010,764       12,955  
                 

TOTAL ASSETS

  $ 1,189,391     $ 5,357,048  
                 

LIABILITIES AND STOCKHOLDERS' DEFICIT

               
                 

CURRENT LIABILITIES

               

      Other payables

  $ 9,633     $ 9,465  

      Note payable

    -       6,869,818  
                 

          Total current liabilities

    9,633       6,879,283  
                 

CONTINGENCIES AND COMMITMENTS

               
                 

STOCKHOLDERS' EQUITY (DEFICIT)

               

      Common stock, par value $0.001 per share, 375,000,000 shares

authorized; 64,778,050 and 45,150,000 shares issued and outstanding 

as of September 30, 2018 and 2017

    64,778       45,150  

      Additional paid in capital

    6,949,717       47,432  

      Accumulated deficit

    (5,834,737 )     (1,614,817 )
                 

          Total stockholders' equity (deficit)

    1,179,758       (1,522,235 )
                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

  $ 1,189,391     $ 5,357,048  

 

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

 

 

FUSE ENTERPRISES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   

FOR THE YEARS ENDED

SEPTEMBER 30,

 
   

2018

   

2017

 
                 

Operating expenses

               

      General and administrative

  $ 632,647     $ 861,366  

      Software development costs

    1,500,000       -  

      Consulting expenses

    1,968,923       657,929  
                 

      Total operating expenses

    4,101,570       1,519,295  
                 

Loss from operations

    (4,101,570 )     (1,519,295 )
                 

Non-operating expenses

               

      Interest income

    41,413       105,686  

      Interest expense

    (157,433 )     (162,586 )

      Consulting income

    -       20,000  

      Other income

    -       170  

      Financial expense

    (1,530 )     (1,800 )
                 

      Total non-operating income, net

    (117,550 )     (38,530 )
                 

Loss before income tax

    (4,219,120 )     (1,557,825 )

Income tax

    800       -  
                 

Net loss

  $ (4,219,920 )   $ (1,557,825 )
                 

Basic and diluted weighted average shares outstanding

    49,828,467       45,150,000  
                 

Basic and diluted net loss per share

  $ (0.08 )   $ (0.03 )

 

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

 

 

FUSE ENTERPRISES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

 

   

Common Stock

                         
   

Shares

   

Amount

   

Addition Paid-in Capital

   

Accumulated Deficit

   

Total

 
                                         

Balance at October 1, 2016

    45,150,000     $ 45,150     $ (4,350 )   $ (56,992 )   $ (16,192 )
                                         

Capital contribution

    -       -       51,782       -       51,782  
                                         

Net loss

    -       -       -       (1,557,825 )     (1,557,825 )
                                         

Balance at September 30, 2017

    45,150,000       45,150       47,432       (1,614,817 )     (1,522,235 )
                                         

Conversion of note payable

    19,628,050       19,628       6,850,190       -       6,869,818  
                                         

Interest waived by shareholder as capital contribution

    -       -       52,095       -       52,095  
                                         

Net loss

    -       -       -       (4,219,920 )     (4,219,920 )
                                         

Balance at September 30, 2018

    64,778,050     $ 64,778     $ 6,949,717     $ (5,834,737 )   $ 1,179,758  

 

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

 

 

FUSE ENTERPRISES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

YEARS ENDED SEPTEMBER 30,

 
   

2018

   

2017

 
                 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (4,219,920 )   $ (1,557,825 )

Adjustments to reconcile loss including noncontrolling

interest to net cash used in operating activities:

               

Depreciation

    2,191       1,832  

Amortization of prepaid expenses

    49,701       333,532  

Interest expense waived by shareholder as capital contribution

    52,095       -  

Capital contribution from officer's salary

    -       16,667  

Changes in assets and liabilities:

               

Prepaid expenses

    (124,964 )     (1,325,000 )

Other payables and interest payable

    168       11,502  
                 

Net cash used in operating activities

    (4,240,729 )     (2,519,292 )
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Collection (investment) in note receivable

    3,925,000       (3,925,000 )

Acquisition of fixed assets

    -       (14,598 )
                 

Net cash provided by (used in) investing activities

    3,925,000       (3,939,598 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from note

    -       6,869,818  
                 

Net cash provided by financing activities

    -       6,869,818  
                 

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

    (315,729 )     410,928  
                 

CASH, BEGINNING OF YEAR

    419,093       8,165  
                 

CASH, END OF YEAR

  $ 103,364     $ 419,093  
                 

Supplemental cash flow data:

               

Income tax paid

  $ 800     $ -  

Interest paid

  $ 105,338     $ 162,586  
                 

Supplemental disclosure of non-cash financing Activities

               

Interest waived by related party as capital contribution

  $ 52,095     $ -  

Note payable converted into shares

  $ 6,869,818     $ -  

 

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

 

 

FUSE ENTERPRISES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 and 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 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 is engaged in seeking mining-related business opportunities in Asia.

 

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.

 

On May 3, 2018, the Company incorporated Fuse Technology Inc. (“Technology”) in the State of Nevada.  Enterprises is the sole shareholder of Technology, which currently has no operations.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The Company’s consolidated financial statements (“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.

 

Basis of Consolidation 

 

The CFS include the accounts of Enterprises and its subsidiaries, Processing, Trading and Technology. All significant inter-company accounts and transactions were eliminated in consolidation.

 

Cash

 

For purposes of the statement of cash flows, the Company considers cash, money market funds, investments in interest bearing demand deposit accounts, time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents. 

 

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 unobservable 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.

 

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 September 30, 2018 and 2017.

 

Property and Equipment 

 

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:

 

Computer and office equipment

5 years

Office furniture

7 years 

Leasehold decoration and renovation

10 years

Production machinery

10 years

Autos

5 years

 

Depreciation of 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

 

In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).

 

The new revenue standards become effective for the Company on October 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of October 1, 2018 will not change the Company’s revenue recognition as the Company does not have any revenue yet. As the Company will not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings will be required upon adoption.

 

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

 

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 September 30, 2018 and 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.

 

Software Development Costs

 

The Company incurs software development costs to develop software programs to be used primarily to meet its internal needs and to market to others. In accordance with ASC 350-40, Internal-Use Software, the Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed, the software will be used to perform the function intended, and the value will be recoverable. In accordance with ASC 985-20-25, costs incurred before product feasibility is established and all design and coding is completed are expensed. Reengineering costs and minor modifications and enhancements that do not significantly improve the overall functionality of the software are expensed as incurred. As of September 30, 2018, the Company has not completed the preliminary project stage or the design stage, accordingly, the Company has not capitalized any costs.

 

●         Management’s Evaluation of Subsequent Events

o     The Company evaluates events that have occurred after the balance sheet date of September 30, 2018, through the date which the consolidated financial statements were issued. Based upon the review, other than described in Note 12 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

 

Recently Issued Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of adoption of this ASU on the consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

 

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The amendments are an improvement to U.S. GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company has adopted the guidance retrospectively to each period presented. The adoption does not have any material effect on the presentation of its consolidated statements of cash flows.

 

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

 

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period within those fiscal years. The Company has adopted the guidance retrospectively to each period presented. The adoption did not have any material effect on the presentation of its consolidated statements of cash flows.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company has adopted the guidance effective January 1, 2018. The Company will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.

 

SEC Disclosure Update and Simplification

 

In August 2018, the SEC issued Securities Act Release No. 33-10532 that amends certain disclosure requirements, including extending to interim periods the annual requirement to disclose changes in stockholders’ equity. Under the new requirements, registrants must now analyze changes in stockholders’ equity, in the form of a reconciliation, for the current and comparative year-to-date interim periods, with subtotals for each interim period. The final rule was effective in November 2018. The Company will adopted the final rule and will include a reconciliation of the changes in stockholders' equity in its Form 10-Q for the quarter ending December 31, 2018.

 

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 $5,834,737 at September 30, 2018, and net loss of $4,219,920 for the year ended September 30, 2018, 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 September 30, 2018 and 2017 consisted of the following:

 

   

2018

   

2017

 
                 

Computer equipment

  $ 1,852     $ 1,825  

       Less accumulated depreciation

    (648

)

    (278

)

  Computer equipment, net

    1,204       1,547  
                 

Office furniture

    12,746       12,746  

         Less accumulated depreciation

    (3,186

)

    (1,365

)

  Office furniture, net

    9,560       11,381  

Total property and equipment, net

  $ 10,764     $ 12,955  

 

 

Depreciation for the years ended September 30, 2018 and 2017 was $2,191 and $1,832, respectively. 

 

Note 5 – Prepaid expenses (current and noncurrent)

 

As of September 30, 2018, the Company had current prepaid D&O insurance of $6,258, and current prepaid consulting expenses to Risun Intelligent Technology Co., Limited (“Risun”) of $69,005. 

 

On August 1, 2018, the Company entered into a Consultant Agreement Service Contract with Risun. Pursuant to the terms of the Contract, Risun shall provide services to the Company relating to market research, business strategy, business development and other business advisory services related to the iMetal project. The Company paid Risun the full service fee of $103,508 in August 2018. The service term began on August 1, 2018 and will remain in full force and effect for six months unless it is renewed by the parties. As of September 30, 2018, the Company recorded the consulting expense to Risun of $34,503, and had $69,005 remaining in prepaid consulting fees.

 

In addition, as of September 30, 2018 and 2017, the Company had another prepaid expense 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, and the Agreement was subsequently further extended to July 3, 2018. The consultant provides Processing with 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, of which, $325,000 was expensed as a consulting fee based on the agreement, and the remaining $1,000,000 of which would have been refunded to the Company if the Company had not made an investment and/or entered into a business relationship in Mexico. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a Memorandum of Understanding (“MOU”) with a seller for the purchase of five mines located in different areas of Mexico for an aggregate purchase price of $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller until September 30, 2018. The Company subsequently entered into an oral agreement to purchase the mines.. As of the date of this report, the Company is waiting for appropriate authority to approve the transfer of the mines into the Company’s name.  Following the signing of the MOU, this prepaid item which relates to the acquisition of assets will be part of the asset acquisition cost and, now that an agreement to purchase the mines has been entered into, has been classified as a non-current asset.

 

Note 6 – Notes 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 (up to the payment collection date) of $41,413.

 

Note 7 – Other payables 

 

As of September 30, 2018 and September 30, 2017, the Company had other payables of $9,633 and $9,465, respectively. Other payables mainly consisted of salary and payroll tax payables.

 

Note 8 – Notes 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 December 18, 2018, 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.  The Original Note was not converted due to the conversion price being higher than the market price of the Company’s common stock 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 amended and restated 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 a 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. The Amended Agreement was renewed on March 20, 2018 with a new maturity date of July 2, 2018. 

 

 

On June 28, 2018, the Company entered into a Share Purchase Agreement with Trading and the Purchaser, pursuant to which the Company agreed to sell to the Purchaser in a private placement 19,628,050 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.35 per Share for an aggregate offering price of $6,869,818 (the “Purchase Price”). The Purchaser paid the Purchase Price through the cancellation of the New Note. There is no gain or loss arising from the note conversion due to the conversion price being the same as the market price and there is no substantial change in the cash flows. The Private Placement will be completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended, and the Company issued the shares to the Purchaser on July 6, 2018.

 

As of September 30, 2018 and 2017, the Company had an outstanding balance of $0 and $6,869,818 on the New Note.  During the years ended September 30, 2018 and 2017, the Company incurred interest expense of $157,433 and $162,586, respectively, and had interest payable of $0 as of September 30, 2018 and 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. 

 

On July 6, 2018, the Company issued 19,628,050 shares for repayment of the note payable of $6,869,818 (“Note 8”).

 

Note 10 – Income Tax

 

The President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduces the federal corporate tax rate from 34% to 21% effective October 1, 2018 for the Company. The Company will continue to analyze the provisions of the Tax Reform Law to assess the impact on the Company’s consolidated financial statements.

 

At September 30, 2018 and September 30, 2017, the Company had net operating loss (“NOL”) carry–forwards for Federal and California income tax purposes of $5,631,644 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 for both federal and California State of approximately $1,481,269 as of September 30, 2018, 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 as of December 31, 2018 and 2017 are as follows:

 

   

2018

   

2017

 

Net deferred tax assets – Non-current:

               

Expected income tax benefit from NOL carry-forwards

  $ 1,481,269     $ 315,280  

Less valuation allowance

    (1,481,269

)

    (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 years ended September 30, 2018 and 2017 is as follows:

 

   

2018

   

2017

 
                 

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

 

Lease 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 was $1,897, and increased to $1,949 starting in January 2018. The lease will be terminated on December 31, 2018.

 

Effective April 16, 2018, the Company entered a one-year lease agreement to lease another office in the City of Diamond Bar, California. The monthly rent is approximately $1,500.

 

The Company recorded rental expense of $35,178 and $17,073 for the years ended September 30, 2018 and 2017, respectively.  As of September 30, 2018, the future annual minimum lease payments were $16,347 for the year ending September 30, 2019.

 

Consulting and Service Agreements

 

 

1)

On April 1, 2017, the Company entered into a strategist consulting agreement with a consulting company with a service term of one year. The compensation to the consulting company is $50,000 per year, payable in equal installments at the end of each month. The agreement was extended to March 31, 2019.

 

 

2)

On May 4, 2018, the Company entered into a Mineral Mining Interactive Technology and Related Application Software Development Service Contract with Prime King Investment Limited (“Prime King”

 

Pursuant to the terms of the Contract, Prime King will provide services to the Company relating to the development, installation and debugging of a software system called IMETAL. The IMETAL software will allow the Company to operate a platform which we plans for the use of investment in raw metals subject to compliance with applicable laws and regulations, which are often considered to be a stable investment vehicle. 

 

IMETAL is committed to building a platform which plans to provide not only institutional clients, but also individual investors, a chance to invest in raw metals, find specialized minerals, and exploit these opportunities, subject to compliance with applicable laws and regulations. Prime King shall also provide training to the Company’s staff per the Company’s request as well as maintenance for the Project for one year after the completion of the Project, in each case free of charge.

 

 

Under the Contract, the Company shall pay Prime King aggregate consideration of $3,000,000, of which 50% was paid within 10 days of the execution of the Contract, and the remaining 50% will be paid within 10 days of the completion of the Project after inspection and approval by the Company. The service was required to be completed in three months, however, on July 17, 2018, the deadline was extended until October 17, 2018. Up to September 30, 2018, the Company paid Prime King $1.50 million and was recorded as software development costs. The Company expects the project to be completed by March 31, 2019.

 

 

3)

Effective on April 1, 2018, the Company entered another Consulting & Strategist Agreement with a consulting company in Hong Kong for a term of one year. The consulting services mainly include business strategy and business development advisory for the Company’s potential new ventures in the Far East, mainly in Hong Kong and Russia. The consulting fee is $40,000 per month, payable monthly on or about the 1st of each month.

 

Exploratory Drilling Agreement and Related Costs. On April 1, 2018, the Company entered in to a contract with an individual owner of a mining concession in Mexico.  The mine is located Mexico, in the state of Sinaloa, Badiraguato municipality, Nocoriba village.  The latitude is 25.2520000 and the longitude is -107.225500. The Company has started drilling in a small area within the concession 10HAAS. For the year ended September 30, 2018, the Company spent $727,819 and is expected to spend $1.8 million on this project. If the project is successful, the Company will get 3% of the net profit from the mining operation.

 

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 20, 2018, 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

 

Management has evaluated subsequent events to determine if events or transactions occurring through the date on which the financial statements were issued require adjustment or disclosure in the Company’s financial statements.

 

Commencing December 1, 2018, the Company leased an office in the City of Arcadia for a term of three years, with base rent of $2,115 per month payable on the 1st of each month.

 

 

F-16