REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Capstone Systems Inc.
Results of Review of Interim Financial Information
We have reviewed the condensed balance sheet of Capstone Systems Inc. (the “Company”) as of August 31, 2018, and the related condensed statements of operations for the three-month periods ended August 31, 2018, and condensed statements of cash flows for the three-month periods then ended, and the related notes (collectively referred to as the interim financial statements). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the balance sheet of the Company as of May 31, 2018, and the related statements of operations, stockholders’ deficiency, and cash flows for the year then ended (not presented herein); and in our report dated August 24, 2018, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of May 31, 2018, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had incurred substantial losses in previous years, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Review Results
These interim financial statements are the responsibility of the Company’s management. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. 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.
San Mateo, CA
|
WWC, Professional Corporation
|
October 15, 2018
|
Certified Public Accountants
|
CAPSTONE SYSTEMS, INC.
UNAUDITED CONDENSED BALANCE SHEET
S
AS OF AUGUST 31, 2018 AND MAY 31, 2018
|
|
August 31,
|
|
|
May 31,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Prepaid expense
|
|
$
|
-
|
|
|
$
|
209
|
|
Total current assets
|
|
|
-
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable & accrued liabilities
|
|
$
|
24,798
|
|
|
$
|
11,400
|
|
Due to related party
|
|
|
37,571
|
|
|
|
35,432
|
|
Total liabilities
|
|
|
62,369
|
|
|
|
46,832
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficiency
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 2,000,000,000 shares authorized, 5,085,000 shares issued and outstanding, respectively
|
|
|
5,085
|
|
|
|
5,085
|
|
Additional paid-in capital
|
|
|
35,781
|
|
|
|
35,781
|
|
Accumulated deficit
|
|
|
(103,235
|
)
|
|
|
(87,489
|
)
|
Total stockholders’ deficiency
|
|
|
(62,369
|
)
|
|
|
(46,623
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficiency
|
|
$
|
-
|
|
|
$
|
209
|
|
See accompanying notes to financial statements.
CAPSTONE SYSTEMS, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED AUGUST 31, 2018 AND 2017
|
|
For the three-month
periods ended August 31,
|
|
|
|
2018
|
|
|
2017
|
|
REVENUES
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
Sales
|
|
$
|
-
|
|
|
$
|
30,258
|
|
Total Income
|
|
|
-
|
|
|
|
30,258
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold:
|
|
|
|
|
|
|
|
|
Purchases
|
|
$
|
-
|
|
|
$
|
29,549
|
|
Total Cost of Goods Sold
|
|
|
-
|
|
|
|
29,549
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
-
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
15,746
|
|
|
$
|
2,146
|
|
Total Expenses
|
|
|
15,746
|
|
|
|
2,146
|
|
|
|
|
|
|
|
|
|
|
Other Income/(Expense):
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Tax
|
|
$
|
(15,746
|
)
|
|
$
|
(1,437
|
)
|
|
|
|
|
|
|
|
|
|
Provision for Income Tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss for the period
|
|
|
(15,746
|
)
|
|
|
(1,437
|
)
|
|
|
|
|
|
|
|
|
|
Net gain (loss) per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.0030
|
)
|
|
$
|
(0.0003
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
5,085,000
|
|
|
|
5,085,000
|
|
See accompanying notes to financial statements.
CAPSTONE SYSTEMS, INC.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED AUGUST 31, 2018 AND 2017
|
|
2018
|
|
|
2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(15,746
|
)
|
|
$
|
(1,437
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
-
|
|
|
|
134
|
|
Decrease in prepaid expenses
|
|
|
209
|
|
|
|
-
|
|
Increase in accrued liabilities
|
|
|
13,398
|
|
|
|
-
|
|
NET CASH (USED IN) OPERATING ACTIVITIES
|
|
$
|
(2,139
|
)
|
|
$
|
(1,303
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) INVESTING ACTIVITIES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Due to related party
|
|
|
2,139
|
|
|
|
-
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
2,139
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
$
|
-
|
|
|
$
|
(1,303
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD
|
|
$
|
-
|
|
|
$
|
4,294
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS – ENDING OF PERIOD
|
|
$
|
-
|
|
|
$
|
2,991
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
|
-
|
|
|
|
-
|
|
Cash received for interest income
|
|
|
-
|
|
|
|
-
|
|
Cash paid for interest expense
|
|
|
-
|
|
|
|
-
|
|
See accompanying notes to financial statements.
CAPSTONE SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE-MONTH PERIODS ENDED AUGUST 31, 2018 AND 2017
NOTE 1 – Organization and Basis of Presentation
Capstone Systems Inc. (the “Company”) is a for profit corporation established under the Corporation Laws of the State of Nevada on April 1, 2015. The address of our business office is Yun Gu Hui, International Financial Center, 42nd Fl, Hanzhong Str 1, Qinhuai District, Nanjing, Jiangsu Province, China 210005. We maintain our statutory registered agent’s office at 525 Swallow Cove, Boulder City, NV 89005. We plan to expand our business in the wholesale distribution of kitchen cabinets in the USA. The Company is subject to all risks inherent to the establishment of a start-up business enterprise.
Our financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. All transactions including purchases, sales and current financing is in U.S. dollars. The Company’s fiscal year-end is May 31
st
.
NOTE 2 – Significant Accounting Policies and Recent Accounting Pronouncements
Interim Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with Regulation S-X and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period(s), and to make the financial statements not misleading, have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim period(s) are not necessarily indicative of operations for a full year.
Condensed Financial Statements
Certain information and footnote disclosures normally included in the condensed financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s May 31, 2018 audited financial statements as filed in the most recent Form 10-K. The results of operations for the period ended August 31, 2018 are not necessarily indicative of the operating results for the full year.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles 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 period. Actual results could differ from those estimates.
Due to the limited level of operations, the Company has not had to make material assumptions or estimates other than the assumption that the Company is a going concern.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Fair Value of Financial Instruments
ASC 825, “Disclosures about Fair Value of Financial Instruments”, requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of August 31, 2018.
The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash, accrued liabilities and notes payable. Fair values were assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair value.
CAPSTONE SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE-MONTH PERIODS ENDED AUGUST 31, 2018 AND 2017
Basic and Diluted Loss Per Share
The Company computes earnings (loss) per share in accordance with ASC 260-10-45 “Earnings per Share”, which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings (loss) per share excludes all potential common shares if their effect is anti-dilutive. The Company has no potential dilutive instruments, and therefore, basic and diluted earnings (loss) per share are equal.
Revenue Recognition
The Company’s office is currently based in Nanjing, PRC, but we utilize the U.S. dollar as our functional currency.
The company follows the guidelines of ASC 605-15 for revenue recognition. Revenue is recognized when all the following conditions have been met:
|
1.
|
Pervasive evidence of an arrangement exists: an order has been placed and the customer has prepaid for the product;
|
|
|
|
|
2.
|
Delivery has occurred or services have been rendered: the product has been shipped from either the Company or one of our suppliers; the product has been delivered and signed for by the customer as evidenced by the shipping company.
|
|
|
|
|
3.
|
Seller’s price to the buyer is fixed or determinable: the price is fixed at the time of the order and the customer has prepaid prior to shipping; and
|
|
|
|
|
4.
|
Collectability is reasonable assured: the customer has prepaid for the product prior to shipping.
|
Customers are allowed to return the products within 30 days for exchange or refund if defects in manufacturing are identified. Prior to the expiration of the 30 day exchange or refund period the cash received is recorded as unrecognized revenue.
Deferred revenue and deferred cost of goods sold result from transactions where the Company has accepted prepayment for the product but all revenue recognition criteria have not yet been met, such as shipped product from the supplier has not arrived at the client for delivery. Deferred cost of goods sold related to deferred product revenues includes direct product costs. Once all revenue recognition criteria have been met, the deferred revenues and associated cost of goods sold are recognized.
Advertising
Advertising expenses for the three-month periods ended August 31, 2018 and 2017 were $0 and $0, respectively.
Recent Accounting Pronouncements
There were various accounting standards and interpretations issued recently. As of August 31, 2018, none of these pronouncements is expected to have a material effect on the financial position, results of operations or cash flows of the Company.
CAPSTONE SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE-MONTH PERIODS ENDED AUGUST 31, 2018 AND 2017
NOTE 3 – Going Concern
The accompanying financial statements and notes have been prepared assuming that the Company will continue as a going concern.
For the period from inception to August 31, 2018, the Company had accumulated deficit of $ 103,235. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to generate sufficient revenues to operate profitably or raise additional capital through debt financing and/or through sales of common stock.
Management has funded operations from sales and through the proceeds from an offering pursuant to a Registration Statement on Form S-1 or private placements of restricted securities or the issuance of stock in lieu of cash for payment of services until such a time as profitable operations are achieved. Directors and related parties may from time to lend funds to the Company to fund operations. There are no written agreements in place for such funding or issuance of securities and there can be no assurance that such will be available in the future. Management believes that this plan provides an opportunity for the Company to continue as a going concern.
The failure to achieve the necessary levels of profitability or obtain the additional funding would be detrimental to the Company.
NOTE 4 – Capital Stock
The Company has 2,000,000,000 shares of common stock authorized with a par value of $0.001 per share.
On May 11, 2015, the Company issued 4,000,000 shares of common stock for a purchase price of $0.001 per share to its sole director. The Company received aggregate gross proceeds of $4,000.
In May 2016, the Company, pursuant to a Registration Statement on Form S-1, sold 1,085,000 shares to 31 independent shareholders for total proceeds of $43,400.
On January 10, 2018, the Company amended its articles of incorporation increasing the authorized common stock from 75,000,000 shares to 2,000,000,000 shares.
As of August 31, 2018, there were no outstanding stock options or warrants.
NOTE 5 – 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.
CAPSTONE SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE-MONTH PERIODS ENDED AUGUST 31, 2018 AND 2017
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 2018 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.
NOTE 6 – Related Party Transactions
The Company underwent a change of control in September 2017. As of August 31, 2018, there were advances of $37,571 from the current shareholder for the purpose of operating the Company. The advances bear no interest and are due upon demand.
NOTE 7 – Concentration Risk
We currently have only one customer and have ordered from only one vendor. As we grow we expect to increase the number of customers and vendors we have, however; at this time there is a risk to the company if we lose either our customer or vendor.
NOTE 8 – Research and Development
All expenses related to our brand are recorded as Research and Development expenses in accordance with GAAP and are expensed as incurred.
NOTE 9 – Subsequent Events
The Company has evaluated events subsequent through the date these financial statements have been issued, October 15, 2018, to assess the need for potential recognition or disclosure in this report. Based upon this evaluation, it was determined that no subsequent events occurred, other than that noted above, that require recognition or disclosure in the financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward
-
looking
statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature,
refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward
-
looking
states are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or out predictions.
General
Our financial statements are stated in United States dollars ($US) and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this report, unless otherwise specified, all references to “common stock” refer to the common shares in our capital stock.
As used in this quarterly report, the terms “we,” “us,” “our,” “Company,” “Capstone” and “Capstone Systems” mean Capstone Systems Inc., unless the context clearly requires otherwise.
Results of Operations
Following the consummation of the stock purchase agreement with its former sole director and executive officer Jure Perko, and a group of individual purchasers on October 19, 2017, the Company became a shell company without any significant assets or operations.
Three months ended
August
31
, 2018 and
August
31
, 2017
We had no revenue for the three months ended August 31, 2018. We incurred $15,746 in general and administrative expenses for the same period. We generated a net loss of $15,746 for the three months ended August 31, 2018.
In comparison, we generated $30,258 in revenue for the three months ended August 31, 2017. We incurred $29,549 in cost of goods sold and $2,146 in general and administrative expenses resulting in a net loss of $1,437 for the three months ended August 31, 2017.
Cash Flows from Operating Activities
For the three months ended August 31, 2018, net cash flows used in operating activities was $2,139 compared to $1,303 for August 31, 2017.
Cash Flows from Investing Activities
We neither used nor generated any cash from investing activities for the three months ended August 31, 2018 and August 31, 2017.
Cash Flows from Financing Activities
We generated $2,139 in cash from financing activities of for the three months ended August 31, 2018 compared to nil as of August 31, 2017.
Liquidity and Capital Resources
On August 31, 2018, the Company had nil in cash, total assets of nil and outstanding liabilities of $62,369. Our director has agreed, verbally, to continue to loan the company funds for operating expenses in a limited scenario, but he has no legal obligation to do so.
Off-Balance Sheet Arrangements
We do not have any 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 is material to investors.
Contractual Obligations
We do not have any contractual obligations as of the filing of this report.