NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
Note
1 – Summary of Significant Accounting Policies
Organization
and Description of Business
Luckwel
Pharmaceuticals Inc. (“we”, “our”, the “Company” and formerly known as “Luckycom Pharmaceuticals
Inc.” and “Luckycom Inc.”) plans to acquire, develop, manufacture and market pharmaceutical medication.
Luckycom
Limited, a wholly-owned subsidiary of Luckwel Pharmaceuticals Inc, was incorporated in Hong Kong as Goldsans Capital (Hong Kong)
Limited (“Goldsans”) on November 08, 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
April 11, 2017, the Company filed a Certificate of Amendment to the Articles of Incorporation to change its name from Luckycom
Pharmaceuticals Inc. to Luckwel Pharmaceuticals Inc.
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 Luckwel 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.
Basis
of Presentation
The
consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles
in the United States of America (“U.S. GAAP”) and are presented in US dollars (“USD”).
Principles
of Consolidation
These
consolidated financial statements include the accounts of Luckwel Pharmaceuticals Inc., and its formerly-owned subsidiary Luckycom
Limited. All intercompany balances and transactions have been eliminated in consolidation. On December 13, 2017, the Company disposed
Luckycom Limited (See Note 6).
Cash
Cash
include all cash in bank with no restrictions. The Company had $18,503 and $29,413 of cash as of March 31, 2018 and 2017, respectively.
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
Note
1 – Summary of Significant Accounting Policies (Continued)
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash, other payable and accrued liabilities and loans payable to an officer.
The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates
that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Income
Taxes
Income
taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and
are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be realized. The Company recognizes interest as income tax, and
recognizes penalties as other expenses. There are $nil and $60,000 tax penalties recorded for the years ended March 31, 2018 and
2017, respectively. The Company has filed tax return for the 2016 fiscal year and was in process of tax filings for the 2017 fiscal
year up till the issuance of this report.
Uncertain
tax positions
The
Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions.
The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that
it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized
upon settlement. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision
for income taxes. Tax years from 2013 forward remain open to examination by the U.S. federal tax authority due to the carryover
of net operating losses or tax credits. According to Hong Kong Inland Revenue Department, the statute of limitation is six years
if any company chargeable with tax has not been assessed at less-than the proper amount, the statute of limitation is extended
to 10 years of the underpayment of taxes is due to fraud or willful evasion. There were no uncertain tax positions as of March
31, 2018 and 2017 and the Company does not believe that its unrecognized tax benefits will change over the next twelve months.
Use
of Estimates
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 the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue
Recognition
The
Company recognizes revenue when products are fully delivered or services have been provided and collection is reasonably assured.
Stock-Based
Compensation
Stock-based
compensation is accounted for at fair value in accordance with ASC Topic 718. The Company issued 6,000 shares as stock based compensation
for services rendered for the year ended March 31, 2017. The Company did not have any stock based compensation for the year ended
March 31, 2018.
Loss
Per Share
Basic
loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average
number of common shares during the period. Diluted loss per share is calculated by dividing the Company’s net loss available
to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average
number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There
were no potentially dilutive debt or equity outstanding as of March 31, 2018 and 2017, respectively.
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
Note
1 – Summary of Significant Accounting Policies (Continued)
Comprehensive
Income
The
Company has standards for reporting and display of comprehensive income, its components and accumulated balances. When applicable,
the Company would disclose this information on its Statement of Stockholders’ (Deficit) Equity. Comprehensive income comprises
equity except those resulting from investments by owners and distributions to owners. The Company has not had any significant
transactions that are required to be reported in other comprehensive income.
Foreign
Currency Translation
The
Company is based in Texas although it is incorporated in Nevada. The functional currency of the Company is U.S. Dollar, while
the functional currency of Luckycom Ltd., (the formerly-owned subsidiary of the Company) is Hong Kong Dollar and is translated
to U.S. dollars using the exchange rate effective for the date for assets and liabilities and the average exchange rate for the
period reported for revenues and expenses.
Recent
Accounting Pronouncements
In
February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The amendments
in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax
Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments
only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires
that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments
in this Update also require certain disclosures about stranded tax effects. Public business entities should apply the amendments
in ASU 2018-02 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 Company is currently evaluating the impact of
adopting ASU 2018-02 on its consolidated financial statements.
In
March 2018, the FASB issued ASU No. 2018-05, Income Tax (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118. This update adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view
of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date
on which the Tax Act was signed into law.
The Company
does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material
effect on the consolidated financial position, statements of operations and cash flows.
Note
2 – Going Concern
The Company has no
source of revenues and need additional cash resources to maintain the operations. The Company has a working capital deficit
of $129,297, has incurred losses since inception of $2,028,815, and have not yet received any revenue from sales of products or
services. These factors raise substantial doubt about its ability to continue as a going concern. The Company’s
ability to continue as a going concern is dependent on its ability to raise additional capital or obtain necessary debt financing.
The Company is presently dependent on its controlling shareholder to provide us funding for its daily operation and expenses,
including professional fee and fees charged by regulators, although he is under no obligation to do so.
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
The
Company has $18,503 in cash as of March 31, 2018 and believes that the expenses over the next 12 months from the issuance
date of this report will be approximately $300,000. This estimate may change significantly depending on the nature of the
future business activities and the ability to raise capital from shareholders or other sources.
The
Company intends to meet the 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. The Company currently
did not have any arrangements in place to complete any private placement financings and there is no assurance that the Company
will be successful in completing any such financings on terms that will be acceptable to it. The Company anticipates that Mr. Kingrich
Lee, the Chief Executive Office, will spearhead the financing efforts.
If we do not have
sufficient working capital to pay our operating costs for the next 12 months, we will require additional funds to pay our legal,
accounting and other fees associated with our Company and our filing obligations under United States federal securities laws,
as well as to pay our other accounts payable generated in the ordinary course of our business. Once these costs are accounted
for, we will focus on the following activities:
|
1.
|
Establish
a management team to work on the pharmaceutical operations
in
US and Asia. In particular, our goal is to submit an abbreviated new drug application (“ANDA”) with the US
Food and Drug Administration for our generic drugs.
|
|
2.
|
Implement
manufacturing and sales of the newly-acquired hypertension and cholesterol drugs, namely WELVASC, WELTOR and WEDUET.
|
Any failure
to raise money will have the effect of delaying the timeframes in the business plan as set forth above, and the Company may have
to push back the dates of such activities.
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
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.
Note
3 – Related Party Transactions
The
Company’s sole officer and director, and a shareholder, Mr. Kingrich Lee, loaned an aggregate of $81,757 and $
291,695
to the Company for the years ended March 31, 2018 and 2017, respectively.
Mr.
Kingrich Lee is owed an aggregate amount of $81,757 and $
327,054
as of March 31,
2018 and 2017, respectively.
The
amounts are unsecured, non-interest bearing and due on demand.
For
the year ended March 31, 2018, 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, on behalf of the Company, sold to Ms. Lijian Li, his sister, 10,000 shares representing 100%
equity interest, 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.
On
October 2, 2016, we entered into a one-year employment agreement with Mr.
Kingrich
Lee to continue serving as our Chief Executive Officer. For his services, we agreed to pay
him an annual salary of $180,000. Later, on November 1, 2017, we entered into another new one-year employment agreement with Mr.
Kingrich
Lee to continue his employment as our Chief Executive Officer through October
31, 2018. His salary remains unchanged at $180,000 a year.
Additionally
, he shall
be entitled to an education allowance for his children who are attending full-time local education from kindergarten to senior
secondary levels in any type of school and a housing allowance of $3,000 a month.
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
Note
4 – Capital Stock
As
of March 31, 2018, the Company had 18,376,000 shares of common stock issued and outstanding. For the year ended March 31, 2018,
the Company issued in aggregate of 750,000 shares of common stock to Mr. Kingrich Lee.
As
of March 31, 2017, the Company had 17,626,000 shares of common stock issued and outstanding. For year ended March 31, 2017, the
Company issued 120,000 shares of common stock for $120,000 of cash and the Company received cash for $112,508 after deduction
of stock issuance cost. Additionally, for year ended March 31, 2017, 6,000 shares of common stock were issued for services with
fair value of $6,000.
Note
5 – Income Taxes
On
December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into legislation. The 2017 Tax Act significantly
revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 34% to 21%, imposing
a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign
earnings are subject to U.S. tax.
On
December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”),
which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not
extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In
accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting
under ASC 740 is complete. As of March 31, 2018, the Company has completed its accounting for certain tax effects of enactment
of the Tax Act. There is no impact to current or deferred taxes related to the one-time deemed repatriation, as the formerly owned
foreign subsidiary does not have cumulative positive earnings and profits.
The
Internal Revenue Code 15 requires that if the taxable year includes the effective date of any rate changes (unless the effective
date is the first day of the taxable year), taxes should be calculated by applying a blended rate to the year’s taxable
income. To compute the blended rate, a company calculates the weighted average tax rate based on the ratio of days in the fiscal
year prior to and after the effective date. Below is the calculation of blended rate for the Company:
Period
|
|
Days
|
|
|
Proportion
|
|
|
Tax
Rate
|
|
|
Proportional
Rate
|
|
April
1 – December, 2017
|
|
|
275
|
|
|
|
75.34
|
%
|
|
|
34
|
%
|
|
|
25.62
|
%
|
January
1 – March 31, 2018
|
|
|
90
|
|
|
|
24.66
|
%
|
|
|
21
|
%
|
|
|
5.18
|
%
|
Estimated
Annual Effective Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.8
|
%
|
At March 31, 2018, the Company had US net
operating loss carryforwards of approximately $867,310 that may be offset against future taxable income. The net operating loss
carryforwards will begin to expire in 2033. The Company maintains a full valuation allowance on its net deferred tax asset. The
net valuation allowance decreased by $298,510 and increased by $173,641 during the years ended March 31, 2018 and 2017,
respectively.
The
approximate cumulative tax effect at the expected rate of 21% and 34% of significant items comprising our net deferred tax asset
amount is as follows as of March 31, 2018 and 2017:
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
182,135
|
|
|
$
|
480,645
|
|
Less:
valuation allowance
|
|
|
(182,135
|
)
|
|
|
(480,645
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
The
items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for
the years ended March 31, 2018 and 2017 were as follows:
|
|
For
the years ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Income
before tax
|
|
$
|
(537,088
|
)
|
|
$
|
(510,708
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax benefit at U.S. statutory rates
|
|
|
(165,423
|
)
|
|
|
(173,641
|
)
|
Impact
of different tax rates in other jurisdictions
|
|
|
23,596
|
|
|
|
-
|
|
Other
non-deductible expenses
|
|
|
1,614
|
|
|
|
-
|
|
True
up related to prior year’s NOL
|
|
|
210,318
|
|
|
|
-
|
|
Reduction
of NOL due to the disposal of a subsidiary
|
|
|
127,394
|
|
|
|
|
|
Re-measurement
of deferred income tax (a)
|
|
|
101,011
|
|
|
|
-
|
|
Change
in valuation allowance
|
|
|
(298,510
|
)
|
|
|
173,641
|
|
Provision
for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
(a)
|
As
a result of the 2017 Tax Act enacted on December 22, 2017, the United States corporate income tax rate is 21% effective January
1, 2018. The blended tax rate calculated above is 30.8%.
|
Note
6 – 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 of $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
7 – Subsequent Events
The
Company has evaluated subsequent events through July 13, 2018, the date of issuance of the consolidated financial statements,
and except for the following events with material financial impact on the Company’s consolidated financial statements, no
other subsequent event is identified that would have required adjustment or disclosure in the consolidated financial statements.
On
April 11, 2018, Luckwel Pharmaceuticals Inc. filed a Certificate of Amendment to the Articles of Incorporation (the “Amendment”)
to change its name from Luckycom Pharmaceuticals Inc. to Luckwel Pharmaceuticals Inc. and to increase the number of its authorized
shares of common stock from 100,000,000 to 200,000,000 with an effective date of April 13, 2018. It then amended and restated
its by-laws to reflect the new corporate name.
On
May 3, 2018, Luckwel Pharmaceuticals Inc. entered into an Intellectual Property Sale and Purchase Agreement (the “Agreement”)
with Luckwel Asia Limited (the “Seller”, formerly known as Essential Choice Ventures Ltd) to purchase from the Seller
the intellectual property rights to five drugs, comprising three generic medicines used to treat hypertension and high cholesterol
and two advanced drug candidates - KL008 for treatment of hypertension and KL009 for treatment of high cholesterol in various
stages of being developed and manufactured (the “Transaction”). Pursuant to the terms of the Agreement, the Company
would pay the Seller on closing (i) US$40,000 and (ii) issue an aggregate 125,000,000 newly issued restricted shares of its common
stock, par value $0.01. The Transaction closed on May 3, 2018.