Overview
The Company underwent a change in control effective September 4, 2020. From
October 1, 2020, through January 31, 2021, the Company's operations were limited
and focused on developing a new business operation involving investment in
commercial real estate in Arizona.
Effective September 4, 2020, Farm House Partners, LLC, an Arizona limited
liability company, purchased 4,500,000 shares of the Company's common stock from
Da Wei Jiang pursuant to a Stock Purchase Agreement, representing 78.8% of the
issued and outstanding shares of common stock of the Company. Farm House
Partners, LLC is owned 67% by Klusman Family Holdings, LLC, an Arizona limited
liability company, and 17% by Debbie Rasmussen, the wife of Michael Witherill.
The amount of consideration for the purchase of such shares of common stock was
a cash payment of $283,973, which was financed through short-term borrowings
from two unaffiliated third parties.
As a condition of closing of the transaction, Zhang Shufang, the sole director
and officer of the Company, resigned from all of his positions and Aaron Klusman
and Michael Witherill were appointed as directors of the Company. In addition,
Mr. Klusman was appointed as Chairman and Chief Executive Officer of the Company
and Michael Witherill was appointed Vice-Chairman, Secretary, and Treasurer of
the Company. The effective date of the resignation and appointments was
September 18, 2020. On March 2, 2021, Michael Witherill resigned as Chief
Financial Officer, Secretary, and Treasurer of the Company and Rick Gean was
appointed to such positions. On April 27, 2021, John Morgan was appointed as a
director of the Company.
Business and Related Risks and Uncertainties
As described above, the Company underwent a change in control transaction
effective September 4, 2020, as a result of which new management of the Company
terminated the Company's existing business operations and decided to reorient
the Company's business activities into commercial real estate.
On December 15, 2020, the Company entered into a binding Letter of Intent with
Klusman Family Holdings, LLC, and Aaron Klusman, pursuant to which the Company
agreed to purchase 100% of the membership interest in Klusman Family Holdings,
LLC from Aaron Klusman, who is also Chief Executive Officer, Chairman of the
Board, and a Director of the Company, for consideration consisting of payments
totaling $1,500,000 and the issuance of 10,945,250 shares of common stock of the
Company. Klusman Family Holdings, LLC is engaged in the business of acquiring,
leasing, and managing real property in Arizona. The transaction is currently
anticipated to close subsequent to July 31, 2021, although there can be no
assurances that the Company will be able to complete this transaction.
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The Company has suffered losses from operations and negative operating cash
flows since inception. As of January 31, 2021, the Company had not yet commenced
any business activities in commercial real estate. The Company's future business
activities will be subject to significant risks and uncertainties, including the
need for and availability of additional capital.
The Company's proposed business and operations are sensitive to general business
and economic conditions in the United States generally and in Arizona
specifically. These conditions include short-term and long-term interest rates,
inflation, fluctuations in debt and equity capital markets and the general
condition of the economy. A host of factors beyond the Company's control could
cause fluctuations in these conditions. Adverse developments in these general
business and economic conditions could have a material adverse effect on the
Company's financial condition and the results of its operations, both in the
short-term and the long-term, as well as on the Company's ability to complete
the transaction with Klusman Family Holdings, LLC as described above.
The Company has received significant financial support from a private investor,
Lawrence Silver, to allow the Company to fund its business operations in 2021.
From early January 2021 through May 8, 2021, the Company has raised working
capital from Lawrence Silver through the sale of shares and short-term
borrowings, which has provided an aggregate of $1,500,000 of equity capital and
$500,000 of debt capital. The working capital provided by Lawrence Silver has
provided the Company with the resources to fund the Company's advances to
Klusman Family Holdings, LLC to acquire commercial real estate in Arizona. As of
May 8, 2021, Lawrence Silver owned approximately 28.5% of the issued and
outstanding shares of the Company's common stock, and the Company has an
interest-bearing unsecured promissory note of $500,000 payable to Lawrence
Silver that matures on June 22, 2021.
Discontinued Operations and Reclassifications
Prior to the change in control transaction described above, the Company was in
the early stages of developing and financing a business plan to distribute 3D
goods and accessories in China. As a result of the change in control
transaction, the Company's former business operations (for the period from
October 1, 2020, through September 30, 2020) have been presented as discontinued
operations as of January 31, 2021, and for the year ended January 31, 2021.
Comparative amounts as of January 31, 2020, and for the year ended January 31,
2020, have been reclassified to conform to the current year's presentation.
These changes did not impact the Company's net loss, shareholders' equity
(deficiency) or operating cash flows for any reported period.
Going Concern
The Company's financial statements have been presented on the basis that the
Company is a going concern, which contemplates among other things the receipt of
receivables and satisfaction of liabilities in the normal course of business. As
reflected in the Company's financial statements, the Company has suffered losses
from operations and negative operating cash flows since inception. During the
year ended January 31, 2021, the Company incurred a net loss of $482,018. From
October 1, 2020, through January 31, 2021, the Company's operations were limited
and focused on developing a new business operation involving investment in
commercial real estate in Arizona. The Company has financed its working capital
requirements since October 1, 2020, through short-term borrowings, including
from its new control shareholder, and sales of common stock. At January 31,
2021, the Company did not have sufficient cash resources available to fund its
operations and therefore has ongoing needs to raise additional funds in the
short-term. However, there can be no assurances that the Company will be
successful in this regard.
As a result, management has concluded that there is substantial doubt about the
Company's ability to continue as a going concern. In addition, the Company's
independent registered public accounting firm, in their report on the Company's
financial statements for the year ended January 31, 2021, has also expressed
substantial doubt about the Company's ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon the
Company's ability to raise additional funds and implement its business plan, and
to ultimately achieve sustainable operating revenues and profitability. The
financial statements included elsewhere in this Form 10-K do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
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The development and expansion of the Company's business subsequent to January
31, 2021, will be dependent on many factors, including the capital resources
available to the Company. No assurances can be given that any future financing
will be available or, if available, that they will be on terms that are
satisfactory to the Company or adequate to fund the development and expansion of
the Company's business operations to a level that is commercially viable and
self-sustaining. There is also significant uncertainty as to the effect that the
coronavirus pandemic may have on the availability, amount, and type of financing
in the future.
If cash resources are insufficient to satisfy the Company's ongoing cash
requirements, the Company would be required to scale back or discontinue its
operations, obtain funds, if available, although there can be no certainty,
through strategic alliances that may require the Company to relinquish rights to
any assets, or to discontinue its operations entirely.
Concentrations
The Company may periodically contract with consultants and vendors to provide
services related to the Company's business activities. Agreements for these
services may be for a specific time period or for a specific project or task.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (the "FASB") issued ASU
2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13
significantly changes how entities measure credit losses for most financial
assets, including accounts and notes receivables. ASU 2016-13 will replace the
current "incurred loss" approach with an "expected loss" model, under which
companies will recognize allowances based on expected rather than incurred
losses. Entities will apply the provisions of ASU 2016-13 as a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting
period in which ASU 2016-13 is effective. ASU 2016-13 will be effective for the
Company for interim and annual reporting periods beginning after December 15,
2022. Management is currently in the process of assessing the impact of the
adoption of ASU-2016-13 on the Company's financial statement presentation and
disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12
simplifies the accounting for income taxes by removing certain exceptions and
enhances and simplifies various aspects of the income tax accounting guidance in
ASC 740. ASU 2019-12 is effective for interim and annual reporting periods
beginning after December 15, 2020. The adoption of ASU 2019-12 is not expected
to have any impact on the Company's financial statement presentation or
disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity ("ASU 2020-06). ASU 2020-06 simplifies
the accounting for convertible instruments by reducing the number of accounting
models for convertible debt instruments and convertible preferred stock.
Limiting the accounting models results in fewer embedded conversion features
being separately recognized from the host contract as compared with current
GAAP. Convertible instruments that continue to be subject to separation models
are (1) those with embedded conversion features that are not clearly and closely
related to the host contract, that meet the definition of a derivative, and that
do not qualify for a scope exception from derivative accounting and (2)
convertible debt instruments issued with substantial premiums for which the
premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance
for the derivatives scope exception for contracts in an entity's own equity to
reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be
effective for public companies for fiscal years beginning after December 15,
2023. Early adoption is permitted, but no earlier than fiscal years beginning
after December 15, 2020, and only if adopted as of the beginning of such fiscal
year. The adoption of ASU 2020-06 is not expected to have any impact on the
Company's financial statement presentation or disclosures subsequent to its
adoption, with any effect being largely dependent on the composition and terms
of outstanding financial instruments at the time of adoption.
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Management does not believe that any other recently issued, but not yet
effective, authoritative guidance, if currently adopted, would have a material
impact on the Company's financial statement presentation or disclosures.
Critical Accounting Policies and Estimates
The discussion and analysis of financial condition and results of operations
presented below is based on the Company's financial statements for the years
ended January 31, 2021 and 2020, presented elsewhere in this document, which
have been prepared in conformity with accounting principles generally accepted
in the United States of America ("GAAP"). Certain accounting policies and
estimates are particularly important to the understanding of the Company's
financial position and results of operations and require the application of
significant judgment by management or can be materially effected by changes from
period to period in economic factors or conditions that are outside of the
Company's control. As a result, these issues are subject to an inherent degree
of uncertainty. In applying these policies, management uses its judgment to
determine the appropriate assumptions to be used in the determination of certain
estimates. Those estimates are based on the Company's historical operations, the
future business plans and the projected financial results, the terms of existing
contracts, trends in the industry, and information available from other outside
sources. For a more complete description of the Company's significant accounting
policies, see Note 2 to the financial statements included elsewhere in this
document.
Results of Operations
At January 31, 2021, the Company had no revenue-generating operations and is
dependent on periodic infusions of debt and/or equity capital to fund its
operating requirements. As described above, the Company is attempting to enter
into the commercial real estate business but has not yet acquired any interests
in commercial real estate, and there can be no assurances that the Company will
be successful in this regard.
Operating Expenses
The Company generally recognizes operating costs and expenses as they are
incurred in the appropriate category in the Company's statement of operations.
The Company's operating costs and expenses may also include non-cash components
related to depreciation and amortization of property and equipment and
stock-based compensation.
General and administrative costs and expenses consist of accounting fees, audit
fees, legal fees, transfer agent fees, and other general corporate expenses.
Management expects general and administrative costs and expenses to increase in
future periods as the Company develops its business operations and adds
personnel, and incurs additional costs related to its increased operation as a
public company including higher legal, accounting, insurance, compliance,
compensation, and other costs.
The Company's statements of operations as discussed herein are presented below.
Years Ended
January 31,
2021 2020
Revenues $ - $ -
General and administrative costs and expenses:
Officers, directors, affiliates, and other related parties 342,500 -
Other 138,070 35,386
Total costs and expenses 480,570 35,386
Loss from operations (480,570 ) (35,386 )
Other income (expense):
Interest income, related party 745 -
Interest expense, related party (1,688 ) -
Total other income (expense), net (943 ) -
Loss from continuing operations (481,513 ) (35,386 )
Income (loss) from discontinued operations (505 ) 8,921
Net loss $ (482,018 ) $ (26,465 )Net income (loss) per common share - basic and diluted
Loss from continuing operations
$ (0.08 ) $ (0.01 )
Income (loss) from discontinued operations (0.00 ) 0.00
Net loss $ (0.08 ) $ (0.01 )
Weighted average common shares outstanding - basic and diluted 5,763,534 5,707,250
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Years Ended January 31, 2021 and 2020
Revenues. The Company did not have any operating revenues for the years ended
January 31, 2021 and 2020.
General and Administrative Costs. For the year ended January 31, 2021, general
and administrative costs and expenses were $480,570, which consisted of
director, consulting, and professional fees to officers, directors, affiliates,
and other related parties of $342,500, accounting and audit fees of $53,857,
legal fees of $45,319, compensation and related benefits of $7,049, and other
costs of $31,845.
For the year ended January 31, 2020, general and administrative costs were
$35,386, which consisted of accounting and audit fees of $16,600, other
professional fees of $8,090, rent expense of $3,600, depreciation expense of
$4,166, bank charges of $682, and other costs of $2,248.
General and administrative costs increased by $445,213 in 2021, as compared to
2020, primarily as a result of increased accounting, audit fees and legal fees.
Loss from Operations. For the year ended January 31, 2021, the Company had a
loss from operations of $480,570, as compared to a loss from operations of
$35,386 for the year ended January 31, 2020.
Interest Income. For the year ended January 31, 2021, the Company had interest
income of $745 related to the notes receivable from Klusman Family Holdings,
LLC, a related party. The Company had no interest income for the year ended
January 31, 2020.
Interest Expense. For the year ended January 31, 2021, the Company had interest
expense of $1,688 related to the unsecured promissory notes payable to Farm
House Partners, LLC, a related party. The Company had no interest expense for
the year ended January 31, 2020.
Loss from Continuing Operations. For the year ended January 31, 2021, the
Company had a loss from continuing operations of $481,513, as compared to a loss
from continuing operations of $35,386 for the year ended January 31, 2020.
Income (Loss) from Discontinued Operations. For the year ended January 31, 2021,
the Company had a loss from discontinued operations of $505. For the year ended
January 31, 2020, the Company had income from discontinued operations of $8,921.
Net Loss. For the year ended January 31, 2021, the Company had a net loss of
$482,018, as compared to a net loss of $26,465 for the year ended January 31,
2020. This significant increase in net loss was due to the significant increase
in General and Administrative Costs.
Liquidity and Capital Resources - January 31, 2021
At January 31, 2021, the Company had working capital of $822,681, as compared to
working capital deficiency of $22,672 at January 31, 2020, reflecting an
increase in working capital of $845,353 for the year ended January 31, 2021. The
increase in working capital during the year ended January 31, 2021, was the
result of cash proceeds of $1,500,000 from the sale of Company common stock,
which are being utilized to fund the Company's advances on real estate owned by
KFH and ongoing operating expenses. At January 31, 2021, the Company did not
have sufficient cash available to fund its investing and operating activities
and will need to raise additional funds in the short-term. However, there can be
no assurances that the Company will be successful in this regard.
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The Company has financed its working capital requirements since October 1, 2020,
through short-term borrowings, including from its new control shareholder, and
sales of common stock. The Company has also received significant financial
support from a private investor, Lawrence Silver, to allow the Company to fund
its business operations in 2021
The Company's future business activities will be subject to significant risks
and uncertainties, including the need for and availability of additional
capital, and the Company's business, financial condition, results of operations
and cash flows may be impacted by a number of factors, many of which will be
beyond the Company's control.
No assurances can be given that any future financing will be available or, if
available, that it will be on terms that are satisfactory to the Company or
adequate to fund the development and expansion of the Company's business
operations to a level that is commercially viable and self-sustaining. There is
also significant uncertainty as to the effect that the coronavirus pandemic may
have on the availability, amount and type of financing in the future.
If cash resources are insufficient to satisfy the Company's ongoing cash
requirements, the Company would be required to scale back or discontinue its
operations, obtain funds, if available, although there can be no certainty,
through strategic alliances that may require the Company to relinquish rights to
any assets, or to discontinue its operations entirely.
Operating Activities. For the year ended January 31, 2021, operating activities
utilized cash of $386,011, as compared to utilizing cash of $32,086 for the year
ended January 31, 2020, to fund the Company's ongoing operating expenses.
Investing Activities. For the year ended January 31, 2021, the Company's
investing activities consisted of providing an advance to, and the proceeds of
notes receivable, to a related party, of $210,000 with respect to a pending
transaction. For the year ended January 31, 2020, the Company had no investing
activities.
Financing Activities. For the year ended January 31, 2021, financing activities
consisted of the proceeds from the issuance of common stock of $1,500,000, and
of loans from related parties of $54,770. Additionally, the loans from related
parties of $54,770 were repaid during the year ended January 31, 2021. For the
year ended January 31, 2020, financing activities consisted of proceeds from a
related party loan of $13,700.
Discontinued Operating Activities. For the year ended January 31, 2021,
discontinued operating activities generated cash of $10,600, as compared to
generating cash of $14,662 for the year ended January 31, 2020.
Off-Balance Sheet Arrangements
At January 31, 2021, the Company did not have any transactions, obligations or
relationships that could be considered off-balance sheet arrangements.
Impact of COVID-19 on the Company
The global outbreak of COVID-19 has led to disruptions in general economic
activities, as businesses and governments have taken broad actions to mitigate
this public health crisis. Although the Company has not experienced any
significant disruption to its business to date, these conditions could
significantly negatively impact the Company's business in the future.
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The extent to which the COVID-19 outbreak ultimately impacts the Company's
business, future revenues, results of operations and financial condition will
depend on future developments, which are highly uncertain and cannot be
predicted, including, but not limited to, the duration and spread of the
outbreak, its severity and longevity, the actions to curtail the virus and treat
its impact (including an effective vaccine), and how quickly and to what extent
normal economic and operating conditions can resume. Even after the COVID-19
outbreak has subsided, the Company may be at risk of experiencing a significant
impact to its business as a result of the global economic impact, including any
economic downturn or recession that has occurred or may occur in the future.
There is also significant uncertainty as to the effect that COVID-19 may have on
the amount and type of financing available to the Company in the future.
The Company intends to continue to monitor the situation and may adjust its
current business plans as more information and guidance become available.
Trends, Events and Uncertainties
There can be no assurances that the Company will ever achieve sustainable
revenues sufficient to support its operations. Even if the Company is able to
generate revenues, there can be no assurances that the Company will be able to
achieve profitability or positive operating cash flows. There can be no
assurances that the Company will be able to secure additional financing on
acceptable terms or at all. If cash resources are insufficient to satisfy the
Company's ongoing cash requirements, the Company would be required to scale back
or discontinue its operations, or obtain funds, if available (although there can
be no certainty), through strategic alliances that may require the Company to
relinquish rights to certain of its programs, or to curtail or discontinue its
operations entirely.
Other than as discussed above and elsewhere in these financial statements, the
Company is not currently aware of any trends, events or uncertainties that are
likely to have a material effect on the Company's financial condition in the
near term, although it is possible that new trends or events may develop in the
future that could have a material effect on the Company's financial condition.
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