NOTES
TO THE FINANCIAL STATEMENTS
Note
1 – Summary of Significant Accounting Policies
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 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.
On
April 11, 2018, Luckwel Pharmaceuticals Inc. filed a Certificate of Amendment to the Articles of Incorporation 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.
Basis
of Presentation
The
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
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 $25,754 and $18,503 of cash as of March 31, 2019 and 2018, respectively.
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE FINANCIAL STATEMENTS
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 has filed tax return for the 2017 fiscal
year and was in process of tax filings for the 2018 fiscal year up until 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 if the underpayment of taxes is due to fraud or willful evasion. There were no uncertain tax positions as of March
31, 2019 and 2018 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.
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, 2019 and 2018, respectively.
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Stated
in US Dollars)
Note
1 – Summary of Significant Accounting Policies (Continued)
Recent
Accounting Pronouncements
The
Company does not believe any recently issued but not yet effective accounting standards, if currently adopted, would have a material
effect on the financial position, statements of operations and cash flows.
Note
2 – Going Concern
We
have no source of revenues and need additional cash resources to maintain the operations. We have $25,754 in cash and a working
capital deficit of $791,823, have incurred losses since inception of $2,691,341, and have not yet received any revenue
from sales of products or services. These factors raise substantial doubt about our ability to continue as a going concern. Our
ability to continue as a going concern is dependent on our ability to raise additional capital or obtain necessary debt financing.
We are presently dependent on our Chief Executive Officer, Mr. Kingrich Lee to either 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, or to spearhead
financing efforts with third parties.
We
currently do not have any arrangements in place to complete any financings and there is no assurance that we will be successful
in completing any such financings on terms that will be acceptable.
Our
priority, should we receive such additional funds is 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 its other accounts payable generated in
the ordinary course of our business.
The
financial statements have been prepared on a going concern basis which assumes we will be able to realize its assets and discharge
our liabilities in the normal course of business for the foreseeable future. We have incurred losses and further losses are anticipated
as a result of the development of business which raises substantial doubt about our ability to continue as a going concern within
the next twelve months from the issuance date of the financial statements. The ability to continue as a going concern is dependent
upon our generating profitable operations in the future and/or obtaining financing necessary to meet our obligations and repay
our 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 our common stock.
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Stated
in US Dollars)
Note
3 – Related Party Transactions
The
Company’s sole officer and director, and a shareholder, Mr. Kingrich Lee, loaned an aggregate of $669,493 in cash
during the year ended March 31, 2019. During the comparable year of 2018, Mr. Kingrich Lee loaned an aggregate of $81,757.
Accordingly,
Mr. Kingrich Lee is owed an aggregate amount of $751,250 and $81,757 as of March 31, 2019 and March 31, 2018, respectively.
The
amounts are unsecured, non-interest bearing and due on demand.
On
May 3, 2018, the Company entered into an Intellectual Property Sale and Purchase Agreement (the “Agreement”) with
Luckwel Asia Limited (the “Seller”, formerly known as Essential Choice Ventures Ltd), an entity under common control
of Mr. Kingrich Lee 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) $40,000 and (ii) issue an aggregate 125,000,000
restricted shares of its common stock, par value $0.01. The Transaction closed on May 3, 2018. The Company recorded the carrying
value of the intellectual property as nil in the Seller’s record, $40,000 as capital distribution to the Seller and recorded
the par value of the common stock as additional paid-in capital, which was due to the Transaction being regarded as an equity
transaction because both parties were under common control.
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
November 1, 2017, the Company entered into an 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. On November 1, 2018, the Company renewed the employment agreement with Mr. Kingrich Lee for
another one-year term. 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.
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE FINANCIAL STATEMENTS
(Stated
in US Dollars)
Note
4 – Capital Stock
As
of March 31, 2019, the Company had 143,376,000 shares of common stock issued and outstanding. During the year ended March 31,
2019, the Company issued in aggregate of 125,000,000 restricted shares of its common stock to Luckwel Asia Limited.
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.
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 year ended March 31, 2018:
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, 2019, the Company had US net
operating loss carryforwards of approximately $1,471,898 that may be offset against future taxable income. Of the $1,471,898,
$312,284 will begin to expire in 2033. The net losses of $622,526 from the year ended March 31, 2019 and $537,088 from the year
ended March 31, 2018 do not have an expiration date. The Company maintains a full valuation allowance on its net deferred
tax asset. The net valuation allowance increased by $126,963 and decreased by $298,510 during the years ended March 31,
2019 and 2018, respectively.
The
approximate cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax asset amount
is as follows as of March 31, 2019 and 2018:
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
309,099
|
|
|
$
|
182,135
|
|
Less: valuation allowance
|
|
|
(309,099
|
)
|
|
|
(182,135
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
LUCKWEL
PHARMACEUTICALS INC.
NOTES
TO THE 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, 2019 and 2018 were as follows:
|
|
For the years ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Loss before tax
|
|
$
|
(622,526
|
)
|
|
$
|
(537,088
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit at U.S. statutory rates
|
|
|
(130,730
|
)
|
|
|
(165,423
|
)
|
Impact of different tax rates in other jurisdictions
|
|
|
-
|
|
|
|
23,596
|
|
Other non-deductible expenses
|
|
|
3,767
|
|
|
|
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
|
|
|
126,963
|
|
|
|
(298,510
|
)
|
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 for the year ended March 31, 2018 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 1, 2019, the date of issuance of the financial statements, and no subsequent
events were identified that would have required adjustment or disclosure in the financial statements.