Item
1. Financial Statements (Unaudited)
Our
condensed consolidated financial statements included in this Form 10-Q are as follows:
These
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and the Securities and Exchange Commission instructions to Form
10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating
results for the interim period ended December 31, 2017 are not necessarily indicative of the results that can be expected for
the full year.
LUCKYCOM
PHARMACEUTICALS INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
December
31, 2017
|
|
|
March
31, 2017
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
129,843
|
|
|
$
|
29,413
|
|
Prepaid
expense and other current assets
|
|
|
15,125
|
|
|
|
17,568
|
|
Total
Current Assets
|
|
|
144,968
|
|
|
|
46,981
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
-
|
|
|
|
5,405
|
|
Total
Other Assets
|
|
|
-
|
|
|
|
5,405
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
144,968
|
|
|
$
|
52,386
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Other
payable and accrued liabilities
|
|
$
|
67,728
|
|
|
$
|
67,541
|
|
Due
to officer
|
|
|
62,105
|
|
|
|
327,054
|
|
Total
Liabilities
|
|
|
129,833
|
|
|
|
394,595
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
Common
stock, $0.01 par value; 100,000,000 shares authorized; 18,376,000 and 17,626,000 shares issued and outstanding as of December
31, 2017 and March 31, 2017, respectively.
|
|
|
183,760
|
|
|
|
176,260
|
|
Additional
paid-in capital
|
|
|
1,715,748
|
|
|
|
973,248
|
|
Accumulated
other comprehensive income
|
|
|
10
|
|
|
|
10
|
|
Accumulated
deficit
|
|
|
(1,884,383
|
)
|
|
|
(1,491,727
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
15,135
|
|
|
|
(342,209
|
)
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
144,968
|
|
|
$
|
52,386
|
|
See
accompanying notes to condensed consolidated financial statements.
LUCKYCOM
PHARMACEUTICALS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For
the three months ended
|
|
|
For
the nine months ended
|
|
|
|
December
31
|
|
|
December
31
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
General
and administrative expenses
|
|
$
|
(122,806
|
)
|
|
$
|
(128,749
|
)
|
|
$
|
(388,820
|
)
|
|
$
|
(351,677
|
)
|
Other
Income (expense)
|
|
|
95
|
|
|
|
12
|
|
|
|
287
|
|
|
|
(278
|
)
|
Loss
on disposal of a subsidiary
|
|
|
(4,123
|
)
|
|
|
-
|
|
|
|
(4,123
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(126,834
|
)
|
|
$
|
(128,737
|
)
|
|
$
|
(392,656
|
)
|
|
$
|
(351,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares – basic and diluted
|
|
|
18,376,000
|
|
|
|
17,626,000
|
|
|
|
18,280,545
|
|
|
|
17,555,898
|
|
See
accompanying notes to condensed consolidated financial statements
.
LUCKYCOM
PHARMACEUTICALS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For
the nine months ended
|
|
|
|
December
31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(392,656
|
)
|
|
$
|
(351,955
|
)
|
Adjustment
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Disposal
loss from a subsidiary
|
|
|
4,123
|
|
|
|
-
|
|
Common
stock issued for service
|
|
|
-
|
|
|
|
5,940
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid
expense and other current assets
|
|
|
(1,224
|
)
|
|
|
-
|
|
Other
assets
|
|
|
4,944
|
|
|
|
-
|
|
Other
payable and accrued liabilities
|
|
|
187
|
|
|
|
38,222
|
|
Net
cash flow used in operating activities
|
|
|
(384,626
|
)
|
|
|
(307,793
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from disposal of
a subsidiary, net of cash balance at disposed entity
|
|
|
5
|
|
|
|
-
|
|
Net
cash flow provided by investing activities
|
|
|
5
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
422,946
|
|
|
|
112,508
|
|
Proceeds
from officer loans
|
|
|
62,105
|
|
|
|
190,282
|
|
Net
cash flow provided by financing activities
|
|
|
485,051
|
|
|
|
302,790
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
100,430
|
|
|
|
(5,003
|
)
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
29,413
|
|
|
|
86,262
|
|
|
|
|
|
|
|
|
|
|
Cash,
End of Period
|
|
$
|
129,843
|
|
|
$
|
81,259
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Noncash
financing activities
|
|
|
|
|
|
|
|
|
Shares
issued to officer for debt repayment
|
|
$
|
327,054
|
|
|
$
|
-
|
|
Expenses
paid by officer
|
|
$
|
-
|
|
|
|
28,823
|
|
See
accompanying notes to condensed consolidated financial statements.
LUCKYCOM
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note
1 – Organization and Basis of Presentation
The
accompanying condensed consolidated unaudited interim financial statements of Luckycom Pharmaceuticals Inc. (the “Company”,
“Luckycom”, “we” or “our”) have been prepared in accordance with accounting principles generally
accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should
be read in conjunction with the audited financial statements and notes thereto of the Company contained in the Company’s
Form 10-K filed with the SEC on June 27, 2017.
In
the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim periods presented have been reflected herein. The results of operations
for the interim periods are not necessarily indicative of the results to be expected for the full year.
Organization
and Description of Business
The
Company plans to acquire, develop, manufacture and market pharmaceutical medication.
Luckycom
Limited, a wholly-owned subsidiary of the Company, was incorporated in Hong Kong as Goldsans Capital (Hong Kong) Limited (“Goldsans”)
on November 8, 2011. Goldsans name was changed to Wudor Capital Hong Kong Limited on May 22, 2012 and subsequently to Luckycom
Limited on June 28, 2013.
On
December 13, 2017, the Company’s sole officer and director, and a shareholder, Mr. Kingrich Lee executed a Sold Note
and Instrument of Transfer on behalf of Luckycom Pharmaceuticals Inc., pursuant to which the Company would sell to Ms. Lijian
Li, Mr. Kingrich Lee’s sister, 10,000 shares of stock of the Company’s wholly-owned Hong Kong subsidiary, Luckycom
Limited at a purchase price of HKD 1 (approximately $0.13) per share aggregating to HKD 10,000 (approximately $1,281). On the
same date, the transaction was consummated with the payment of stamp duty to the Hong Kong tax department.
Accounting
Policies on Disposal of Subsidiary
The
results of disposal of subsidiary, less applicable income taxes (benefit), is reported as a separate component of income. A gain
or loss recognized on the disposal is presented separately on the face of the statement where net income is reported or disclosed
in the notes to financial statements.
Recent
Accounting Pronouncements
The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash flows.
Note
2 – Going Concern
The
financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since
inception resulting in an accumulated deficit of $1,844,383 as of December 31, 2017, and further losses are anticipated as a result
of the development of business which raises substantial doubt about the Company’s ability to continue as a going concern
within the next twelve months from the issuance date of this report. The ability to continue as a going concern is dependent upon
the Company generating profitable operations in the future and/or obtaining financing necessary to meet the Company’s obligations
and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating
costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of the Company’s
common stock. However, there will be no assurance that management plan would work. We do not have any formal commitments or arrangements
for the sale of stock or the advancement of loans of funds at this time. There can be no assurance that such additional financing
will be available to us on acceptable terms, or at all.
Note
3 – Related Party Transactions
The
Company’s sole officer and director, and a shareholder, Mr. Kingrich Lee, loaned an aggregate of $24,365 and $39,388 to
the Company during the three months ended December 31, 2017 and 2016, respectively, and loaned an aggregate of $62,105 and $190,282
to the Company during the nine months ended December 31, 2017 and 2016, respectively.
Mr.
Kingrich Lee is owed an aggregate amount of $62,105 and $327,054 as of December 31, 2017 and March 31, 2017, respectively.
The
amounts are unsecured, non-interest bearing and due on demand.
During
the nine months ended December 31, 2017, the Company issued an aggregate of 750,000 shares of common stock to Mr. Kingrich Lee
in the settlement of the debt owed to Mr. Kingrich Lee in the amount of $327,054 and in exchange of Mr. Kingrich Lee’s investment
of $422,946 of cash.
On
December 13, 2017, Mr. Kingrich Lee sold to Ms. Lijian Li, his sister, 10,000 shares of stock of the Company’s wholly-owned
Hong Kong subsidiary, Luckycom Limited at a purchase price of HKD 1 (approximately $0.13) per share aggregating to HKD 10,000
(approximately $1,281). The disposal loss recorded from the sale was $4,123.
Note
4 – Capital Stock
As
of December 31, 2017, the Company had 18,376,000 shares of common stock issued and outstanding. During the nine months ended December
31, 2017, the Company issued in aggregate of 750,000 shares of common stock to Mr. Kingrich Lee.
Note
5 – Disposal of a Subsidiary
On
December 13, 2017, Mr. Kingrich Lee, on behalf of the Company, sold 100% of the ownership of Luckycom Limited, a wholly-owned
Hong Kong subsidiary, to Ms. Lijian Li for cash proceeds of $1,255 (net of expenses $26). The Company recognized a loss of $4,123,
net of Hong Kong subsidiary net assets of $5,378. Simultaneously the Hong Kong subsidiary forgave the $219,653 owed by the Company
and transferred the amount due from an officer totaled $17,015 to the Company to offset the aggregate amount due to the same officer.
Note
6 – Subsequent Event
The
Company has evaluated subsequent events through the issuance of the condensed consolidated financial statements and no subsequent
event is identified.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the
words “believes,” “project,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions. We intend such
forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.
Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which
may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations
and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory
changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties
should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. Further information concerning our business, including additional factors that could materially affect
our financial results, is included herein and in our other filings with the SEC.
Overview
We
are a shell company and have not begun operations.
As
reflected in the accompanying financial statements, we have no source of revenues and need additional cash resources to maintain
our operations. Our ability to continue as a going concern is dependent on our ability to raise additional capital or obtain necessary
debt financing. These factors raise substantial doubt about our ability to continue as a going concern. We are presently dependent
on our controlling shareholder to provide us funding for our daily operations and expenses, including professional fees and fees
charged by regulators, although he is under no obligation to do so.
We
have $129,843 in cash as of December 31, 2017. We believe that our expenses over the next 12 months from the issuance date of
this report will be approximately $2,000,000. This estimate may change significantly depending on the nature of our future business
activities and our ability to raise capital from shareholders or other sources.
We
intend to meet our cash requirements for the next 12 months from the issuance date of this report through a combination of debt
and equity financing by way of private placements, friends, family and business associates. As a reporting company, we are better
equipped to raise capital because of the transparency of our operations and development. We currently do not have any arrangements
in place to complete any private placement financings and there is no assurance that we will be successful in completing any such
financings on terms that will be acceptable to us.
We anticipate that Mr. Kingrich Lee,
our Chief Executive Office, will spearhead our financing efforts.
If
we are unable to raise $2,000,000 to implement our business plan as anticipated, we will need to scale our business development
in line with available capital. Our primary priority will be to retain our reporting status with the SEC, which means that we
will first ensure that we have sufficient capital to cover our expenses, which are estimated to be $300,000 over the next 12 months.
Once these costs are accounted for, we will focus on the following activities:
1.
|
Establish
a management team to work on our pharmaceutical operations in US and Malaysia.
|
|
|
2.
|
Identify
and locate a privately-owned company or companies involved in the pharmaceutical business, which is looking to become a publicly
listed company by combining their operation with us through a reverse merge.
|
|
|
3.
|
Implement
manufacturing and sales of products.
|
Any
failure to raise money will have the effect of delaying the time frames in our business plan as set forth above, and we may have
to push back the dates of such activities.
Results
of Operations
The
Three Months
and Nine Months Ended December 31, 2017 and 2016
Operating
Revenue
We
recorded no consolidated revenue and consolidated gross loss for the three-month and nine-month periods ended December
31, 2017 and the same for the corresponding periods in 2016 as we are a shell company without any operations to generate
revenue. We do not anticipate receiving further revenue for so long as we have no operations.
Operating
Expenses
We
had operating expenses of $122,806 and $128,749 for the three months ended December 31, 2017 and 2016, respectively, and $388,820
and $351,677 for the nine months ended December 31, 2017 and 2016, respectively.
Our
operating expenses for the three months ended December 31, 2017 consisted mainly of professional fees of $48,906, officer compensation
of $59,624, travel expenses of $8,213, and rent of $3,481.
Our
operating expenses for the three months ended
December
31
, 2016 consisted mainly of professional fees of $56,465 (which includes $5,940 stock-based
compensation), officer compensation of $44,663, travel expenses of $12,086, and rent of $9,396.
The
increase in officer compensation is mainly due to the additional benefits provided in our Chief Executive Officer’s new
employment contract; the decrease in travel expenses is mainly due to fewer business trips; the decrease in rent
is mainly due to the cancellation of our virtual office services.
Our
operating expenses for the nine months ended December 31, 2017 consisted mainly of professional fees of $175,177, officer compensation
of $155,623, travel expenses of $22,896, and rent of $21,677.
Our
operating expenses for the
nine months ended
December 31
, 2016 consisted mainly of professional fees of $152,644 (which includes $5,940
stock-based compensation), officer compensation of $134,659, travel expenses of $25,287, and rent of $25,506.
The
increase in professional fees is mainly due to the upgrading of our accounting and audit services; the increase in officer
compensation is mainly due to the increased compensation to our principal officer, Mr. Kingrich Lee.
We
anticipate our operating expenses will increase sharply as we proceed to implement our business plan described above and become
operational.
Net
Loss
We
incurred a net loss of $126,834 and $128,737 for the three months ended December 31, 2017 and 2016, respectively,
net
loss of $392,656 and $351,955 for the
nine months ended December 31
, 2017 and 2016,
respectively.
We anticipate that we will continue to incur losses unless we are able to achieve some of our goals above.
Liquidity
and Capital Resources
As
of December 31, 2017, we had total current assets of $144,968 consisting of $129,843 in cash and $15,125 in prepaid expenses and
other current assets. As of December 31, 2017, we had current liabilities in the amount of $129,833 consisting of other payable
and accrued liabilities of $67,728, and $62,105 due to an officer.
The
table below sets forth selected cash flow data for the periods presented:
|
|
Nine
Months Ended
|
|
|
|
December
31
|
|
|
|
2017
|
|
|
2016
|
|
Net
cash used in operating activities
|
|
$
|
(384,626
|
)
|
|
$
|
(307,793
|
)
|
Net
cash provided by investing activities
|
|
|
5
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
485,051
|
|
|
|
302,790
|
|
Net
increase (decrease) in cash
|
|
$
|
100,430
|
|
|
$
|
(5,003
|
)
|
Our
negative operating cash flows were mainly a result of operating expenses (See also Result of Operations)
Our
positive investing cash flows were mainly a result of disposal of a subsidiary.
Our
positive financing cash flows were a result of proceeds from issuance of common stock and officer loans.
For
the nine months ended December 31, 2017, the Company issued an aggregate of 750,000 shares of common stock to Mr. Kingrich Lee
in the settlement of the debt owed to Mr. Kingrich Lee in the amount of $327,054 and in exchange of Mr. Kingrich Lee’s investment
of $422,946 of cash.
On
October 2, 2016, our wholly owned subsidiary, Luckycom Limited, entered into an employment agreement with Mr. Kingrich Lee.
The agreement was for one year, renewable for successive one-year terms if not terminated, and provided for an
annual compensation of $180,000, and other benefits. On November 1, 2017, the Company entered into a new employment
agreement with Mr. Kingrich Lee. The agreement is for one year, renewable for successive one-year terms if not terminated,
and provides an annual compensation of $180,000, and other benefits, including housing and education allowances.
This agreement will materially impact our cash needs in the future, as any investment money we obtain will be used to pay Mr.
Kingrich Lee’s salary and other benefits, and will have the effect of diverting funds that may be used to pursue our
business plan.
Despite
having $129,843 in cash as of December 31, 2017, we have insufficient cash to operate our business at the current level for the
next 12 months from the issuance date of this report and insufficient cash to achieve our business goals. The success of our business
plan beyond the next 12 months from the issuance date of this report is contingent upon us obtaining additional financing. We
intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures,
working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sale of stock or the
advancement of loans of funds at this time. There can be no assurance that such additional financing will be available to us on
acceptable terms, or at all.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Item
4. Controls and Procedures
Disclosure
Controls and Procedures
We
conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) as of December 31, 2017, to ensure that information required to be disclosed
by us in the reports filed or submitted by us under the Exchange Act is (i) recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated
to our management, including our chief executive and chief financial officer, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer has concluded that as of December 31, 2017, our disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses identified below.
Our
principal executive officer and principal financial officer does not expect that our disclosure controls or internal controls
will prevent all error and all fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. There can
be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Remediation
Plan to Address the Material Weaknesses in Internal Control over Financial Reporting
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 our annual or interim financial statements will not be prevented or
detected on a timely basis. Management identified the following two material weaknesses that have caused management to conclude
that, as of December 31, 2017, our disclosure controls and procedures, and our internal control over financial reporting, were
not effective at the reasonable assurance level:
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We
do not have sufficient segregation of duties within accounting functions, which is a basic internal control. We only have
one officer and director. 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.
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Effective
controls over the control environment have not been maintained. Specifically, we do not have a formally adopted written code
of business conduct and ethics that governs our employees, officers and directors. Additionally, management has not developed
and effectively communicated to its employees its accounting policies and procedures. This has resulted in inconsistent practices.
Further, since these entity level programs have a pervasive effect across the organization, management has determined that
these circumstances constitute a material weakness.
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We
do not have sufficient levels of supervision and review of the accounting and financial reporting process. Our Board of Directors
does not currently have any independent members and no director qualifies as an audit committee financial expert as defined
in Item 407(d)(5)(ii) of Regulation S-K. Management evaluated the impact of insufficient levels of supervision and review
of the accounting and financial reporting process and has concluded that the control deficiency that resulted represented
a material weakness.
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To
address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial
statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows
for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all
material respects, our financial condition, results of operations and cash flows for the periods presented.
To
remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party
firm to assist us in remedying this material weakness once resources become available.
We
intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order
to segregate duties in a manner that establishes effective internal controls once resources become available.
Changes
in Internal Control over Financial Reporting
During
the quarter ended December 31, 2017, there have been no changes in our internal control over financial reporting that occurred
during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.