NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Global Seed Corporation (the “Company”)
was incorporated on July 13, 2010 in the State of Texas. A substantial portion of the Company’s initial business activities
had involved developing a business plan and establishing contacts and visibility in the Asian communities in Houston, Texas. The
Company had a change in control on June 2, 2018.
On October 1, 2019, the Company entered into
a share exchange agreement (the “Share Exchange Agreement”) with Well Benefit International Limited (“Well Benefit”)
and all of its shareholders (the “Shareholders”), whereby the Company agreed to newly issue 252,874,025 shares of its
common stock to the Shareholders in exchange for all of the outstanding ordinary shares of Well Benefit (such transaction, the
“Reverse Merger”). On October 30, 2019, the Reverse Merger contemplated under the Share Exchange Agreement was closed.
This transaction has been accounted for a reverse takeover transaction and a recapitalization of the Company whereby the Company,
the legal acquirer, is the accounting acquiree, and Well Benefit, the legal acquiree, is the accounting acquirer. As a result,
the Company elects to consolidate the financial statements of Well Benefit, including those of Zhenghao, into the Company as if
the Reverse Merger were consummated from the beginning of the periods covered by this report.
Well Benefit is a company formed in the
British Virgin Islands on September 3, 2018. Well Benefit is a holding company. Its primary business activities are conducted through
its wholly owned subsidiaries in Guangdong province in the People’s Republic of China (“PRC”). Well Benefit primarily
sells coffee capsules, capsules for healthy drinks and coffee brewing machines through wholesale and retail.
Agility International Holding Limited (“Agility”)
was incorporated on July 8, 2018 in Hong Kong with limited liability. It is a wholly owned subsidiary of Well Benefit.
On September 25, 2018 Shangshang (Guangzhou)
Industrial Investment Company Limited (“Shangshang”) was incorporated as wholly owned foreign entity in the PRC. It
is a wholly owned subsidiary of Agility.
Dongguan Zhenghao Industrial Investment
Company Limited (“Zhenghao”) was incorporated on January 26, 2017. Zhenghao was acquired by Shangshang on or about
December 27, 2018; accordingly, Zhenghao became a wholly owned subsidiary of Shangshang.
On September 7, 2018, Zhenghao registered
Dongguan Kasule Food and Drink Company Limited with the local industrial and commercial bureau (“Dongguan Kasule”)
as its wholly owned subsidiary. On February 19, 2019, Zhenghao acquired Shenzhen Kasule Food and Drink Company Limited (“Shenzhen
Kasule”).
Liquidity and Going Concern
The accompanying financial
statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of
the Company as a going-concern basis. The going-concern basis assumes that assets are realized, and liabilities are
extinguished in the ordinary course of business at amounts disclosed in the financial statements. The Company’s ability
to continue as a going concern depends upon the liquidation of current assets. For the nine months ended September 30, 2019
and 2018, the Company reported net loss of $683,454 and $295,813, respectively. The Company had working capital deficit of
approximately $973,817 and $306,220 as of September 30, 2019 and December 31, 2018, respectively. The Company had net cash
outflow of $797,177 and $279,993 from its operating activities during the period ended September 30, 2019 and December 31,
2018. The Company had recurring loss from operation of $682,908 for the period ended September 30, 2019. The Company’s
management intends to raise working capital through the sale of securities via private placements.
Basis of Presentation
The accompanying condensed
consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that
used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC
(“PRC GAAP”). The differences between US GAAP and PRC GAAP have been adjusted in these financial statements. The
Company’s functional currency is the Chinese Renminbi (“RMB”); however, the accompanying financial
statements have been translated and presented in United States Dollars (“USD”).
GLOBAL SEED CORPORATION
NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements
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 periods. Management makes these estimates using the best information available at the time the estimates are
made; however, actual results could differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid
investments purchased with original maturities of three months or less, and unencumbered bank deposits to be cash equivalents.
Accounts Receivable
Trade receivables are recognized and carried
at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection
of the full amount is no longer probable. Bad debts are written off against allowances.
Inventories
Inventories consist of raw materials and
finished goods are stated at the lower of cost or market value. Finished goods costs include: materials, direct labor, inbound
shipping costs, and allocated overhead. The Company applies the weighted average cost method to its inventory.
Advances and prepayments to suppliers
The Company makes advance payment to suppliers
and vendors for the procurement of raw materials. Upon physical receipt and inspection of the raw materials from suppliers the
applicable amount is reclassified from advances and prepayments to suppliers to inventory.
Property, Plant and Equipment
Plant and equipment are carried at cost
less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. The
Company’s typically applies a salvage value of 0% to 10%. The estimated useful lives of the plant and equipment are as follows:
Machinery and equipment
|
5-10 years
|
The cost and related accumulated depreciation
of assets sold or otherwise retired are eliminated from the accounts, and any gain or loss are included in the Company’s
results of operations. The costs of maintenance and repairs are recognized to expenses as incurred; significant renewals and betterments
are capitalized.
GLOBAL SEED CORPORATION
NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Accounting for the impairment of long-lived
assets
The Company annually reviews
its long-lived assets for impairment or whenever events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry, introduction of new technologies,
or if the Company has inadequate working capital to utilize the long-lived assets to generate the adequate profits. Impairment
is present if the carrying amount of an asset is less than its expected future undiscounted cash flows.
If an asset is considered impaired,
a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be
disposed are reported at the lower of the carrying amount or fair value less costs to sell.
Statutory reserves
Statutory reserves are referring to the
amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase
capital, as approved, and are to be used to expand production or operations. PRC laws prescribe that an enterprise operating at
a profit must appropriate and reserve, on an annual basis, an amount equal to 10% of its profit. Such an appropriation is necessary
until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered capital.
Foreign currency translation
The accompanying financial statements
are presented in United States dollars. The functional currencies of the Company are in Renminbi (RMB) and Hong Kong Dollar (HKD).
The Company’s assets and liabilities are translated into United States dollars from RMB and HKD at year-end exchange rates,
and its revenues and expenses are translated at the average exchange rate during the year. Capital accounts are translated at their
historical exchange rates when the capital transactions occurred.
|
|
2019
|
|
|
2018
|
|
Year end RMB: US$ exchange rate
|
|
|
7.1360
|
|
|
|
6.8665
|
|
Annual average RMB: US$ exchange rate
|
|
|
6.8618
|
|
|
|
6.5137
|
|
Year end HKD: US$ exchange rate
|
|
|
7.8396
|
|
|
|
7.8277
|
|
Annual average HKD: US$ exchange rate
|
|
|
7.8380
|
|
|
|
7.8398
|
|
The RMB and HKD are not freely
convertible into foreign currencies and all foreign exchange transactions must be conducted through authorized financial institutions.
Advances from customers
Advances from customers consist of prepayments
from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take
delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition
policy.
Revenue recognition
The Company recognizes revenue when all
the following criteria have been met: it has negotiated the terms of the transaction with the customer which includes setting a
fixed sales price, it has transferred of possession of the product to the customer, the customer does not have the right to return
the product, the customer is able to further sell or transfer the product onto others for economic benefit without any other obligation
to be fulfilled by the Company, and the Company is reasonably assured that funds have been or will be collected from the customer.
The Company’s the amount of revenue recognized to the books reflects the value of goods invoiced, net of any value-added tax (VAT)
or excise tax.
GLOBAL SEED CORPORATION
NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Income taxes
The Company accounts for income tax using
an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability
approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits,
or that future realization is uncertain.
Related parties
Parties are considered to be related to
the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under
common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and 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. The Company discloses all related party transactions.
Accumulated other comprehensive income
(loss)
Comprehensive income (loss) comprised of
net income (loss) and all changes to the statements of stockholders’ equity, except those due to investments by stockholders,
changes in paid-in capital and distributions to stockholders. The Company’s comprehensive income (loss) consists of net income
(loss) and unrealized gains from foreign currency translation adjustments.
Financial instruments
The Company’s financial instruments,
including cash and equivalents, accounts and other receivables, accounts and other payables, accrued liabilities and short-term
debt, have carrying amounts that approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value
Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic
825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures
of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated
balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their
fair values because of the short period of time between the origination of such instruments and their expected realization and
their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
|
●
|
Level 1 - inputs to the valuation methodology used quoted prices for identical assets or liabilities in active markets.
|
|
|
|
|
●
|
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
|
|
●
|
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The Company analyzes all financial instruments with features
of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
GLOBAL SEED CORPORATION
NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Commitments and contingencies
Liabilities for loss contingencies arising
from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has
been incurred and the amount of the assessment can be reasonably estimated.
Recent accounting pronouncements
In February 2018, the FASB issued ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement
– Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented
in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update
is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial
statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not
yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively
to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and
Jobs Act is recognized. The Company does not believe the adoption of this ASU would have a material effect on the Company’s
consolidated financial statements.
Revenue recognition
The Company recognizes revenue
when all the following criteria have been met: it has negotiated the terms of the transaction with the customer which includes
setting a fixed sales price, it has transferred of possession of the product to the customer, the customer does not have the right
to return the product, the customer is able to further sell or transfer the product onto others for economic benefit without any
other obligation to be fulfilled by the Company, and the Company is reasonably assured that funds have been or will be collected
from the customer. The Company’s amount of revenue recognized to the books reflects the value of goods invoiced, net of any
VAT or excise tax.
Advertising
All advertising costs are expensed
as incurred.
Shipping and handling
All outbound shipping and handling
costs are expensed as incurred.
Research and development
All research and development
costs are expensed as incurred.
Retirement benefits
Retirement benefits in the form
of mandatory government sponsored defined contribution plans are charged to the either expenses as incurred or allocated to inventory
as part of overhead.
GLOBAL SEED CORPORATION
NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Comprehensive income
The Company uses FASB ASC Topic
220, “Reporting Comprehensive Income”. Comprehensive income is comprised of net income and all changes to the statements
of stockholders’ equity, except the changes in paid-in capital and distributions to stockholders due to investments by stockholders.
Earnings per share
The Company computes earnings
per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share”. Basic EPS is measured as the
income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted
EPS presents the dilutive effect on a per share basis from the potential conversion of convertible securities or the exercise of
options and or warrants; the dilutive effects of potentially convertible securities are calculated using the as-if method; the
potentially dilutive effect of options or warrants are calculated using the treasury stock method. Securities that are potentially
an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation
of diluted EPS.
Commitments and contingencies
Liabilities for loss contingencies
arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment can be reasonably estimated.
NOTE 3 – INVENTORY
The Company inventory was completely
comprised of finished goods. No impairment was recorded.
GLOBAL SEED CORPORATION
NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 4 –
PLANT AND EQUIPMENT
|
|
2019
|
|
|
2018
|
|
At Cost:
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
52,987
|
|
|
$
|
25,155
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(8,845
|
)
|
|
|
(2,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,142
|
|
|
$
|
22,185
|
|
Depreciation expense was $6,222
and $3,088 for the period ended September 30, 2019 and the year ended December 2018, respectively.
NOTE 5 – ACCOUNTS RECEIVABLE
The Company reviews the accounts receivable
on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances.
NOTE 6 – PREPAYMENT
The prepayment balance of $130,108 as of
September 30, 2019 mainly represents the advanced payment to the suppliers for business purpose.
NOTE
7 – RELATED PARTY TRANSACTIONS
At September 30, 2019 and December
31, 2018, the Company owed funds to the following related parties; these advances were unsecured and non-interest bearing and due
on demand:
Entity
|
|
2019
|
|
|
2018
|
|
|
Relationship
|
Leung Kwok Hei
|
|
$
|
55,077
|
|
|
|
7,589
|
|
|
Shareholder of Global Seed Corporation
|
Mo Qingtao
|
|
$
|
6,790
|
|
|
|
1,309
|
|
|
Director of Well Benefit
|
Liang Guoxi
|
|
$
|
12,094
|
|
|
|
285
|
|
|
Director of Agility
|
Chen Yuexiang
|
|
$
|
959,541
|
|
|
|
254,645
|
|
|
Authorized Representative of Zhenghao
|
Liang Guoxi
|
|
$
|
3,854
|
|
|
|
2,036
|
|
|
Authorized Representative of Shangshang
|
Chenyuexiang
|
|
$
|
13,990
|
|
|
|
-
|
|
|
Director of Dongguan Kasule
|
|
|
$
|
1,051,346
|
|
|
$
|
265,864
|
|
|
|
GLOBAL SEED CORPORATION
NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 8 – INCOME TAXES
We use the asset and liability method
of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense
is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary
differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. 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 results of operations in the period that includes the enactment date. A valuation allowance is provided
to reduce the deferred tax assets reported if based on the weight
of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will
not be realized.
ASC Topic 740.10.30 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Our effective tax rate for fiscal
year 2019 will be 21%, which we expect to be fairly consistent in the near term. Our tax rate may also be affected by discrete
items that may occur in any given year, but are not consistent from year to year. Income taxes are calculated and accrued for U.S.
taxes only.
The Company’s subsidiaries
formed in the British Virgin Islands is not subject to tax on its income or capital gains. In addition, upon payments of dividends
by the Company to its shareholders, no withholding tax is imposed.
The Company’s subsidiary
formed in Hong Kong is subject to the profits tax rate at 16.5% for income generated and operation in the special administrative
region.
The Company’s subsidiaries
incorporated in the PRC are subject to profits tax rate at 25% for income generated and operation in the country.
The full realization of the
tax benefit associated with the carry forward depends predominantly upon the Company’s ability to generate taxable income
during the carry forward period.
The
Company’s subsidiaries incorporated in the PRC has unused net operating losses (“NOLs”) available for carry forward
to future years for PRC income tax reporting purposes up to five years. The Company recorded a deferred tax asset in the amount
of $0 at September 30, 2019.
In assessing the realization
of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets
will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance is provided
for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their
benefits, or that future deductibility is uncertain.
The following table
reconciles the statutory rates to the Company’s effective tax rate:
|
|
9/30/2019
|
|
|
9/30/2018
|
|
Statutory rates in the State of Texas
|
|
|
-
|
|
|
|
-
|
|
Statutory rates in the British Virgin Islands
|
|
|
-
|
|
|
|
-
|
|
Statutory rates in Hong Kong
|
|
|
16.50
|
%
|
|
|
16.50
|
%
|
Statutory rates in PRC
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
Non-deductible items in the PRC
|
|
|
-0.03
|
%
|
|
|
-0.03
|
%
|
Foreign earned income not subject to taxes in the British Virgin Islands
|
|
|
(41.50
|
)%
|
|
|
(41.50
|
)%
|
Effective income tax rate
|
|
|
-0.03
|
%
|
|
|
-0.03
|
%
|
|
|
|
|
|
|
|
|
|
Loss before taxes:
|
|
|
|
|
|
|
|
|
State of Texas
|
|
|
(56,331
|
)
|
|
|
(11,630
|
)
|
British Virgin Islands
|
|
|
-
|
|
|
|
-
|
|
Hong Kong
|
|
|
(9,283
|
)
|
|
|
-
|
|
PRC
|
|
|
(617,607
|
)
|
|
|
(284,073
|
)
|
|
|
$
|
(683,221
|
)
|
|
|
(295,703
|
)
|
GLOBAL SEED CORPORATION
NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
9 – RISKS
|
A.
|
Credit risk
|
|
|
|
|
|
The Company’s
deposits are made with banks located in the PRC. They do not carry federal deposit insurance and may be subject to loss if the
banks become insolvent.
|
|
|
|
|
|
Since the Company’s inception, the age of account receivables has been less than one year indicating that the Company is subject to minimal risk borne from credit extended to customers.
|
|
|
|
|
B.
|
Interest risk
|
|
|
|
|
|
The Company is subject to interest rate risk when short term loans become due and require refinancing.
|
|
|
|
|
C.
|
Economic and political risks
|
|
|
|
|
|
The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in the PRC.
|
|
|
|
|
|
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
|
|
|
|
|
D.
|
Environmental risks
|
|
|
|
|
|
The Company has procured environmental licenses required by the PRC government. The Company has both a water treatment facility for water used in its production process and secure transportation to remove waste off site. In the event of an accident, the Company has purchased insurance to cover potential damage to employees, equipment, and local environment.
|
|
|
|
|
E.
|
Inflation Risk
|
|
|
|
|
|
Management monitors changes in prices levels. Historically inflation has not materially impacted the Company’s financial statements; however, significant increases in the price of raw materials and labor that cannot be passed to the Company’s customers could adversely impact the Company’s results of operations.
|
NOTE 10 - SUBSEQUENT EVENTS
On October 29, 2019, in
connection with the Reverse Merger, the board of directors of the Company approved a change in the Company’s fiscal year
end from June 30 to December 31, effective immediately.