Attached files
| file | filename |
|---|---|
| EX-32.1 - Fuquan Financial Co | ex32-1.htm |
| EX-31.2 - Fuquan Financial Co | ex31-2.htm |
| EX-31.1 - Fuquan Financial Co | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 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: 000-55869
FUQUAN FINANCIAL COMPANY
(Exact name of registrant as specified in its charter)
| Nevada | 88-0126444 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) |
| 23 Corporate Plaza Drive, Suite 150, Newport Beach, California | 92660 | |
| (Address of principal executive offices) | (Zip Code) |
(949) 629-2534
(Registrant’s telephone number, including area code)
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 [X]
Indicate by check mark whether the registrant has submitted electronically 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 [X]
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 [X] |
| 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 [X] No [ ]
The outstanding number of shares of common stock as of January 30, 2019 was: 2,900,164,114.
Documents incorporated by reference: None
FUQUAN FINANCIAL COMPANY
FORM 10-Q
TABLE OF CONTENTS
| 2 |
FINANCIAL INFORMATION
BALANCE SHEETS
(Unaudited)
| December 31, 2018 | March 31, 2018 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | - | $ | - | ||||
| Total Current Assets | - | - | ||||||
| Total Assets | $ | - | $ | - | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accrued Interest Payable | $ | 9,408 | $ | - | ||||
| Shareholder Loan Payable | 324,033 | 324,033 | ||||||
| Derivative liabilities | 210,290 | - | ||||||
| Total Current Liabilities | 543,731 | 324,033 | ||||||
| Long Term Liabilities | ||||||||
| Convertible Note Payable, net of discount | 69,472 | - | ||||||
| Total Liabilities | 613,203 | 324,033 | ||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Shareholders’ Deficit | ||||||||
| Preferred Stock, $0.001 par value, 50,000,000 authorized none issued and outstanding | - | - | ||||||
| Common Stock, $0.001 par value, 3,000,000,000 and 200,000,000 authorized respectively, 2,900,164,114 and 122,164,114 issued and outstanding respectively | 2,900,164 | 122,164 | ||||||
| Additional Paid in Capital | 2,961,627 | 5,673,913 | ||||||
| Accumulated Deficit | (6,474,994 | ) | (6,120,110 | ) | ||||
| Total Shareholders’ Deficit | (613,203 | ) | (324,033 | ) | ||||
| Total Liabilities and Shareholders’ Deficit | $ | - | $ | - | ||||
See the accompanying Notes, which are an integral part of these unaudited Financial Statements
| 3 |
STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| REVENUE | $ | - | $ | - | - | $ | - | |||||||||
| COST OF REVENUE | - | - | - | - | ||||||||||||
| GROSS PROFIT | - | - | - | - | ||||||||||||
| EXPENSES | ||||||||||||||||
| General and administrative | 59,986 | 7,531 | 325,072 | 16,606 | ||||||||||||
| Total Expenses | 59,986 | 7,531 | 325,072 | 16,606 | ||||||||||||
| OPERATING LOSS | (59,986 | ) | (7,531 | ) | (325,072 | ) | (16,606 | ) | ||||||||
| OTHER INCOME / (EXPENSE) | ||||||||||||||||
| Interest expense | (40,587 | ) | - | (68,144 | ) | - | ||||||||||
| Change in fair value of derivative | 3,571 | 38,332 | ||||||||||||||
| Total other income (expense) | (37,016 | ) | - | (29,812 | ) | - | ||||||||||
| LOSS BEFORE TAXES | (97,002 | ) | (7,531 | ) | (354,884 | ) | (16,606 | ) | ||||||||
| TAXES | - | - | - | - | ||||||||||||
| NET LOSS | (97,002 | ) | (7,531 | ) | (354,884 | ) | (16,606 | ) | ||||||||
| Net Loss per Common Share: Basic and Diluted | $ | (0.00 | ) | $ | (0.00 | ) | (0.00 | ) | $ | (0.00 | ) | |||||
| Weighted Average Common Shares Outstanding: Basic and Diluted | 2,900,164,114 | 122,164,114 | 2,698,127,750 | 122,164,114 | ||||||||||||
See the accompanying Notes, which are an integral part of these unaudited Financial Statements
| 4 |
STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| Cash Flows (Used In) Operating Activities: | ||||||||
| Net Loss | $ | (354,884 | ) | $ | (16,606 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | - | - | ||||||
| Stock issued for compensation | 65,714 | - | ||||||
| Amoritzation of debt discount | 58,736 | |||||||
| Change in fair value of derivative liabilities | (38,332 | ) | ||||||
| Non-cash management fees | 259,358 | |||||||
| Changes in working capital items: | 9,408 | - | ||||||
| Shareholder loan payable - advances | - | 16,606 | ||||||
| Net Cash (Used In) Operating Activities | - | - | ||||||
| Net Cash Flows From (Used In) Investing Activities: | - | - | ||||||
| Net Cash From Financing Activities | - | - | ||||||
| Net Change in Cash: | - | - | ||||||
| Beginning Cash | - | - | ||||||
| Ending Cash | $ | - | $ | - | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid for interest: | $ | - | $ | - | ||||
| Cash paid for tax: | $ | - | $ | - | ||||
| Non Cash Investing and Financing Activities | ||||||||
| Convertible note payable – related party | $ | 259,358 | $ | - | ||||
See the accompanying Notes, which are an integral part of these unaudited Financial Statements
| 5 |
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018
(UNAUDITED)
NOTE 1. ORGANIZATION AND OPERATIONS
Nature of Business
Fuquan Financial Company, a Nevada corporation, (“Fuquan”, “We” or “Us”) is a publicly quoted shell company seeking to create value for our shareholders by merging with another entity with experienced management and opportunities for growth in return for shares of our common stock. No potential merger candidate has been identified at this time.
Our mailing address is 23 Corporate Plaza, Suite 150, Newport Beach, California 92660. We currently have no operations.
History
Southwestern Water, formerly Star Acquisitions Corporation, was incorporated in the State of Colorado on July 10, 1987.
On November 12, 1993, we changed our name to Southwestern Water Exploration Co.
On February 27, 2018, a change in control of Southwestern Water Exploration Co. occurred in which the sole officer and board member resigned and new officers and board members were appointed. On March 15, 2018, the Company filed Articles of Amendment with the Colorado Secretary of State whereby it changed its name to “Fuquan Financial Company.” On March 29, 2018, the Company filed Articles of Conversion to change its domicile from Colorado to Nevada. On March 29, 2018, the Company filed an Issuer Company-Related Action Notification with FINRA requesting that the aforementioned name change be effective in the market and that the Company’s ticker symbol be changed to “FQFC.”
On around September 26, 2018 the Company filed with the State of Nevada to effect a reverse stock split. The reverse stock split has not yet been implemented and effected. When implemented and effected, one (1) share of common stock will be issued for every four (4) shares of common stock issued and outstanding. The number of authorized shares of common stock will be reduced by the same 1:4 ratio, resulting in 750,000,000 shares of common stock being authorized.
NOTE 2. GOING CONCERN
Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We have no ongoing business or income and for the three and nine months ended December 31, 2018, we reported a net loss of $97,002 and $354,884, respectively, and an accumulated deficit of $613,203. These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties. Our ability to continue as a going concern is dependent upon our ability to raise additional debt or equity funding to meet our ongoing operating expenses and ultimately in merging with another entity with experienced management and profitable operations. No assurances can be given that we will be successful in achieving these objectives.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The summary of significant accounting policies is presented to assist in the understanding of the financial statements. These policies conform to accounting principles generally accepted in the United States of America and have been consistently applied.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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FUQUAN FINANCIAL COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
December 31, 2018
Cash and Cash Equivalents
As of December 31, 2018 and 2017, we did not maintain any cash or bank balances.
Financial Instruments
The estimated fair values for financial instruments were determined at discrete points in time based on relevant market information. These estimates involved uncertainties and could not be determined with precision. The carrying amounts of accounts payable, accrued liabilities and loans payable approximate fair value because of the short-term maturities of these instruments. The fair value of our shareholder loan payable approximates to its carrying value due to its short-term maturity.
Fair Value Measurements:
ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.
Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.
Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.
Our financial instruments consist of a single loan payable from one of our shareholders. The carrying values the loan payable - shareholder approximates its fair value due to its short maturity.
Related Party Transactions:
A related party is generally defined as (i) any person that holds 10% or more of our membership interests including such person’s immediate families, (ii) our management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with Aquarius, or (iv) anyone who can significantly influence the financial and operating decisions of Aquarius. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Fixed Assets:
As of December 31, 2018 and 2017, we did not maintain any fixed assets.
Impairment of Long-Lived and Intangible Assets:
We had no long-lived or intangible assets as of December 31, 2018 or 2017.
| 7 |
FUQUAN FINANCIAL COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
December 31, 2018
Deferred Costs and Other:
Offering costs with respect to issue of debt or equity by us are initially deferred and ultimately offset against the proceeds from these debt or equity transactions if successful or expensed if the proposed debt or equity transaction is unsuccessful.
Income Taxes:
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Uncertain Tax Positions:
We evaluate tax positions in a two-step process. Wee first determines whether it is more likely than not that a tax position will be sustained upon examination, based on the technical merits of the position. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. We classify gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as long-term liabilities in the financial statements.
Derivative Liability
The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At December 31, 2018 and December 31, 2017, the Company did not have any derivative instruments that were designated as hedges.
Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount is amortized to interest expense over the life of the debt.
Revenue Recognition:
Revenue is recognized when obligations under the terms of a contract with a customer are satisfied, generally this occurs with the transfer of control of our product. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
During the three and nine months ended December 31, 2018 and 2017, we did not recognize any revenue.
Advertising Costs:
No advertising costs were incurred during the three months and nine months ended December 31, 2018 and 2017.
Stock Based Compensation:
The cost of equity instruments issued to non-employees in return for goods and services is measured by the fair value of the goods or services received or the measurement date fair value of the equity instruments issued, whichever is the more readily determinable. Measurement date for non-employees is the earlier of performance commitment date or the completion of services. The cost of employee services received in exchange for equity instruments is based on the grant date fair value of the equity instruments issued.
Net Loss per Share Calculation:
Basic net loss per common share (“EPS”) is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.
| 8 |
FUQUAN FINANCIAL COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
December 31, 2018
As of December 31, 2017, we stated that throughout the three and nine-month periods ended of December 31, 2017 and 2016, 200,000 stock options with an exercise price of $0.001 and that did not expire were issued and fully vested. That authorization has been rescinded and as of December 31, 2018, no stock options were issued.
Subsequent Events:
We have evaluated all transactions from January 01, 2019 through January 30, 2019 for subsequent event disclosure consideration.
Recently Accounting Pronouncements:
We have reviewed all the recently issued, but not yet effective, accounting pronouncements and do not believe any of these pronouncements will have a material impact on our financial statements.
NOTE 4. SHAREHOLDER LOANS PAYABLE
During the three and nine months ended December 31, 2018 and 2017, we received $0 and $16,606, respectively, by way of loan from our principal shareholder, a former officer and director of ours, to fund our working capital requirements such as the compensation to the former officer and director, accounting, auditing, SEC filings, tax preparation, share transfer agent fees and certain legal fees.
The loan is interest free, unsecured and due on demand.
The balance due to our principal shareholder on this loan as of December 31, 2018 and 2017 was $324,033 and $313,883, respectively.
NOTE 5. CONVERTIBLE NOTES PAYABLE – RELATED PARTY
In or around April 2018 the Company entered into a Convertible Loan Agreement with its majority shareholder, Houyu Huang (the “Loan Agreement”). Under the terms of the Loan Agreement, Mr. Huang agreed to provide financing to the Company up to a maximum of $500,000. The Company will issue to Mr. Huang an advance request each time it requires funding under the Loan Agreement. All amounts so advanced will be covered under a Convertible Promissory Note (the “Note”). All amounts under the Note accrue interest at the rate of 10% per annum; are due and payable in 24-months; and, can be converted at the option of Mr. Huang into shares of our common stock at a 20% discount to the market price of our shares. The Note is convertible at any time following 90-days after the issue date.
During the nine months ended December 31, 2018, the Company issued a convertible note of $259,358.
The Company valued the conversion feature at the issue date at $333,819 using the Binomial valuation model. $248,622 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture and is being amortized over the life of the convertible note. The balance of $85,197 of the value assigned to the derivative liability was expensed on the issue date of the convertible note.
During the nine months ended December 31, 2018, the Company recorded interest expense of $9,408 and recognized amortization of debt discount, included in interest expense, of $58,736.
As of December 31, 2018, the outstanding principal balance of the note was $259,358, the note had accrued interest of $9,408 and an unamortized debt discount of $189,886.
| 9 |
NOTE 6. DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
Fair Value Assumptions Used in Accounting for Derivative Liabilities.
ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.
The Company determined that its derivative liabilities must be classified in Level 3 of the three-level hierarchy for measuring fair value and uses a Binomial model to calculate the fair value of these liabilities. The Binomial model requires six basic data inputs: (1) the exercise, conversion or strike price, (2) the expected life (in years), (3) the risk-free interest rate, (4) the current stock price, (5) the expected volatility for the Company’s common stock, and (6) the expected dividend yield. Changes to these inputs could result in a significantly higher or lower fair value measurement.
As of December 31, 2018, the estimated fair values of the liabilities measured on a recurring basis are as follows:
| Nine months ended | ||||
| December 31, 2018 | ||||
| Expected term | 1.28 - 1.76 years | |||
| Volatility | 137% - 166 | % | ||
| Risk free rate | 2.57% - 2.81 | % | ||
| Dividend | - |
The following table summarizes the changes in the derivative liabilities during the nine months ended December 31, 2018:
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||
| Balance – March 31, 2018 | $ | - | ||
| Addition of new derivatives recognized as debt discounts | 248,622 | |||
| Addition of new derivatives recognized as day-one loss | 85,197 | |||
| Change in derivative liabilities recognized as loss on derivative | (123,529 | ) | ||
| Balance - December 31, 2018 | $ | 210,290 | ||
The following table summarizes the gain on derivative liability included in our statement of operation for during the nine months ended December 31, 2018:
| Nine months ended | ||||
| December 31, 2018 | ||||
| Day-one loss due to derivative liabilities on convertible note payable | $ | 85,197 | ||
| Change in derivative liabilities recognized as gain on derivative | (123,529 | ) | ||
| Gain on change in fair value of derivative liabilities | $ | (38,332 | ) | |
| 10 |
FUQUAN FINANCIAL COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
December 31, 2018
NOTE 7. INCOME TAXES
We did not provide any current or deferred US federal income tax provision or benefit for any of the periods presented in these financial statements because we have experienced losses since Inception. When it is more likely than not, that a tax asset cannot be realized through future income, we must record an allowance against any future potential future tax benefit. We have provided a full valuation allowance against the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward periods.
The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the three months ended December 31, 2018 and 2017 as defined under ASC 740, “Accounting for Income Taxes.” We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of the accumulated deficit on the balance sheet.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes.
NOTE 8. COMMITMENTS & CONTINGENCIES
Legal Proceedings
We were not subject to any legal proceedings for the three months ended December 31, 2018 and 2017 and, to the best of our knowledge, no legal proceedings are pending or threatened.
NOTE 8. SHAREHOLDERS’ DEFICIT
Preferred Stock
As of December 31, 2017, we stated that we were authorized to issue 50,000,000 shares of preferred common stock with a par value of $0.001. That authorization has been rescinded and as of December 31, 2018, no shares of preferred stock were authorized to be issued.
No shares of preferred stock were issued and outstanding during the three months ended June 20, 2018 and 2017.
Common Stock
On or around April 20, 2018, the Company issued 2,778,000,000 shares of its common stock to Houyu Huang as compensation for services rendered as president and director of the Company. The issuance was exempt under Section 4(a)(2) of the Securities Act.
On or around April 23, 2018 the Company increased its number of authorized shares of common stock to 3,000,000,000 shares, $0.001 par value.
As of December 31, 2018 and December 31, 2017, 2,900,164,114 and 122,164,144 shares of common stock were issued and outstanding, respectively.
Warrants
No warrants were issued or outstanding during the three months ended December 31, 2018 and 2017.
Stock Options
The Company has an incentive stock option plan, which provides for the granting by the Board of Directors of stock options to directors and officers for the purchase of authorized but unissued common shares.
As of December 31, 2017, we stated that throughout the three and nine-month periods ended of December 31, 2017 and 2016, 200,000 stock options with an exercise price of $0.001 and that did not expire were issued and fully vested. That authorization has been rescinded and as of December 31, 2018, no stock options were issued.
NOTE 9. SUBSEQUENT EVENTS
On January 29, 2019, the Company and Houyu Huang entered into a Forbearance Agreement (the “Forbearance Agreement”). The Company was potentially in breach of the Loan Agreement and the Note as of December 31, 2018 as the Company was not in compliance with its SEC filing obligations. The Forbearance Agreement served to waive all such breaches and gave the Company until March 31, 2019 to be current in its SEC filing obligations.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, include forward-looking statements. Information in this report contains “forward looking statements” which may be identified by the use of forward-looking terminology, such as “may”, “shall”, “will”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, “believes”, “estimates”, “projects”, “targets”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. Statements in this report concerning the following, without limitation, are forward looking statements:
| ● | future financial and operating results; | |
| ● | our ability to fund operations and business plans, and the timing of any funding or corporate development transactions we may pursue; | |
| ● | our ability to either (i) enter into a new business; or, (ii) merge with, or otherwise acquire, an active business which would benefit from operating as a public entity; | |
| ● | current and future economic and political conditions; | |
| ● | overall industry and market trends; | |
| ● | management’s goals and plans for future operations; and | |
| ● | other assumptions described in this report underlying or relating to any forward-looking statements. |
All references to “Fuquan”, “we”, “our,” “us” and the “Company” in this Item 2 refer to Fuquan Financial Company.
The discussion in this section contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “would” or “will” or the negative of these terms or other comparable terminology, but their absence does not mean that a statement is not forward-looking. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which could cause our actual results to differ from those projected in any forward-looking statements we make. You should understand that it is not possible to predict or identify all risks and uncertainties and you should not consider the risks and uncertainties identified by us to be a complete set of all potential risks or uncertainties that could materially affect us. You should not place undue reliance on the forward-looking statements we make herein because some or all of them may turn out to be wrong. We undertake no obligation to update any of the forward-looking statements contained herein to reflect future events and developments, except as required by law.
The following discussion of the results of operations for the three and nine months ended December 31, 2018 and 2017, respectively, should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements because of a number of factors. An investment in our common stock involves a high degree of risk. Readers of this Quarterly Report on Form 10-Q should carefully consider the risks set forth in the Risk Factors and Business sections of our Annual Report on Form 10-K for the year ended March 31, 2018, filed with the SEC on January 25, 2018. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
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The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
Plan of Operation
Our plan of operation is to raise debt and/or equity to meet our ongoing operating expenses and attempt to merge with another entity with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders. There can be no assurance that we will successfully complete this series of transactions. In particular, there is no assurance that any such business will be located or that any stockholder will realize any return on their shares after such a transaction. Any merger or acquisition completed by us can be expected to have a significant dilutive effect on the percentage of shares held by our current stockholders.
At this time, we have no cash on hand or committed resources of debt or equity to fund these losses and will reliant, potentially, on advances from our principal shareholder or our directors and officers. There can be no guarantee that we will be able to obtain sufficient funding these sources.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2017
Revenue
We recognized no revenue during the three months ended December 31, 2018 and 2017. We currently have no business from which to generate revenues.
Cost of Revenue
We recognized no cost of revenue during the three months ended December 31, 2018 and 2017.
Gross Profit / (Loss)
We recognized no gross profit / (loss) during the three months ended December 31, 2018 and 2017.
General and Administrative Expenses
During the three months ended December 31, 2018, we incurred $59,986 in general and administrative expenses compared to $7,531 during the three months ended December 31, 2017. The increase was due largely to $59,986 management fee.
Operating Loss
During the three months ended December 31, 2018, we incurred an operating loss of $59,986 compared to an operating loss of $7,531 for the three months ended December 31, 2017, an increase of $52,455 due to the factors discussed above.
Interest and Other Income / (Expenses) Net
During the three months ended December 31, 2018 and 2017, we recognized $40,587 and $0 interest expense, respectively.
During the three months ended December 31, 2018 and 2017, we recognized $3,571 and $0 change in fair value of derivative liabilities, respectively.
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Loss before Income Tax
During the three months ended December 31, 2018, we incurred a loss before taxes of $97,002 compared to a loss before taxes of $7,531 for the three months ended December 31, 2017, an increase of $89,471 due to the factors discussed above.
Provision for Income Tax
No provision for income taxes was recorded in either the three months ended December 31, 2018 or 2017, as we have incurred taxable losses in both periods.
Net Loss
During the three months ended December 31, 2018, we incurred a net loss of $97,002 compared to a net loss of $7,531 for the three months ended December 31, 2017, an increase of $89,471 due to the factors discussed above.
CASH FLOW FOR THE NINE MONTHS ENDED DECEMBER 31, 2018 COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 2017
At December 31, 2018, we did not have any cash or cash equivalents, no assets, no operating business or other source of income, outstanding liabilities of $613,203 and a stockholders’ deficit of $613,203. Consequently, we are now dependent on raising additional equity and/or debt to meet our ongoing operating expenses. There is no assurance that we will be able to raise the necessary equity and/or debt that we will need to fund our ongoing operating expenses.
It is our current intention to seek to raise debt and/or equity financing to meet ongoing operating expenses and attempt to merge with another entity with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders. There is no assurance that this series of events will be satisfactorily completed.
Future losses are likely to occur as, until we are able to merge with another entity with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders as we have no sources of income to meet our operating expenses. As a result of these, among other factors, we received from our registered independent public accountants in their report for the financial statements for the year ended March 31, 2018, an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.
We are now focused raising debt and/or equity financing to meet ongoing operating expenses and attempting to merge with another entity with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders. There is no assurance that this series of events will be satisfactorily completed.
| Nine Months | Nine Months | |||||||
| Ended | Ended | |||||||
| December 31, 2018 | December 31, 2017 | |||||||
| Net Cash Used in Operating Activities | $ | - | $ | - | ||||
| Net Cash Provided (Used In) by Investing Activities | - | - | ||||||
| Net Cash Provided by Financing Activities | - | - | ||||||
| Net Movement in Cash and Cash Equivalents | $ | - | $ | - | ||||
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Operating Activities
During the nine months ended December 31, 2018, we incurred a net loss of $354,884 which included $65,714 non-cash officer compensation in the form of a stock grant and non-cash management fees of $259,358, amortization of debt discount of $58,736 and change in fair value of derivative liabilities of ($38,332) and accrued interest of $9,408. The net cash used in operating activities during the period was $0. By comparison, during the nine months ended December 31, 2017, we incurred a net loss of $16,606 and received $16,606 advance of a shareholder loan payable, for net cash of $0 used in operating activities during the period.
Investing Activities
We neither generated nor used funds in investing activities during the nine months ended December 31, 2018 and 2017.
Financing Activities
We had no financing activities during the nine months ended December 31, 2018 and 2017
We are dependent upon the receipt of capital investment or other financing to fund our ongoing operations and to execute our business plan of seeking a combination with a private operating company. In addition, we are dependent upon our controlling shareholder to provide continued funding and capital resources. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our plan of operations.
COMPARISON OF THE NINE MONTHS ENDED DECEMBER 31, 2017 AND 2016
During the nine months ended December 31, 2018 and December 31, 2017, respectively, the Company did not have any operations and therefore there were no revenues. Expenses during the nine months ended December 31, 2018 December 31, 2017 were limited to the Company maintaining its good standing and becoming current in its filing obligations with the SEC.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information regarding this Item.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management conducted an evaluation, with the participation of our Chief Executive Officer, who is our principal executive officer and our principal financial and accounting officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period by this Form 10-Q. Based on that evaluation, we concluded that because of the material weakness and significant deficiencies in our internal control over financial reporting described below, our disclosure controls and procedures were not sufficient as of December 31, 2018.
Management’s Report of Internal Control over Financial Reporting
The Company is responsible for establishing and maintaining adequate internal control over financial reporting in accordance with the Rule 13a-15 of the Securities Exchange Act of 1934. The Company’s officer, its president, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 based on the criteria establish in Internal Control Integrated Framework issued by the 2013 Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2018, based on those criteria. A control system can provide only reasonably, not absolute, assurance that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues have been detected.
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Material Weaknesses:
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.
The material weaknesses identified are:
| ● | We did not have controls designed to validate the completeness and accuracy of underlying data used in the determination of accounting transactions. Accordingly, we believe we have a material weakness because there is a reasonable possibility that a material misstatement to the interim or annual financial statements would not be prevented or detected on a timely basis. | |
| ● | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. | |
| ● | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. | |
| ● | We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting. | |
| ● | We do not have a functioning audit committee or outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. |
Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting
Management of the Company is committed to improving its internal controls and will (i) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities; (ii) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel; and, (iii) may consider appointing outside directors and audit committee members in the future.
Management has discussed the material weaknesses noted above with our independent registered public accounting firm. Due to the nature of these material weaknesses, it is reasonably possible that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected during our financial close and reporting process.
This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during its current fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect our financial condition, results of operations and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome (including any for the actions described above), whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure you that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against us in the future, and these matters could relate to prior, current or future transactions or events.
We are not currently a party to any other material legal proceedings. We are not aware of any pending or threatened litigation against us that in our view would have a material adverse effect on our business, financial condition, liquidity, or operating results. However, legal claims are inherently uncertain, and we cannot assure you that we will not be adversely affected in the future by legal proceedings.
| ITEM 1A. | RISK FACTORS |
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
On or around April 20, 2018, the Company issued 2,778,000,000 shares of its common stock to Houyu Huang as compensation for services rendered as president and director of the Company. The issuance was exempt under Section 4(a)(2) of the Securities Act.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
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| ITEM 6. | EXHIBITS |
| (*) | Filed herewith. |
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In accordance with Section 13 or 15(d) of the Exchange Act, our Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: January 31, 2019 | FUQUAN FINANCIAL COMPANY | |
| By: | /s/ Meihua Lia | |
| Name: | MEIHUA LI | |
| Title: | Chief Executive Officer, (Principal Executive Officer) | |
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