ZARTEX INC The following discussion should be read in conjunction with our audited
financial statements for the annual period ended
Our audited and unaudited financial statements are stated in
Overview
We conduct our operations through our consolidated subsidiary, Cannisapp. The
subsidiary was incorporated under the corporation laws in
Cannisapp has two distinct, business segments. One is developing proprietary
mobile applications and the other is acting as an offline sales distributor for
nutritional supplements manufactured by third parties. We began selling
nutritional supplements in
Our offices are located at 20, Jalan 51A/225A, Section 51A, Zone Perindustrian
PTJC, 46100 Petaling Jaya,
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On
Recent Developments Acquisition of Cannisapp
On
Translation of amounts from the local currency of Cannisapp into
As of and for As of and for
year ended the year ended
August 31, August 31,
2019 2018
Year-end MYR: US$1 exchange rate 4.2318 4.1075
Yearly average MYR: US$1 exchange rate 4.0891 4.0379
RESULTS OF OPERATIONS
Results of Operations (Unaudited) for the Year Period Ended
The following table sets forth key components of the Company's results of
operations for the year ended
For year ended For year ended
August 31, August 31,
2019 2018
Revenue $ 3,529,064 $ -
Cost of revenue 2,504,972 -
Gross margin 1,024,092 -
Operating expenses
Selling expenses 455,175 205,412
Research & development 2,062,817 1,045,238
General and administrative expenses 2,191,194 79,530
Total operating expenses 4,709,186 1,330,180
Loss from operations (3,685,094 ) (1,330,180 )
Total other income/(expense) 72,552 7,240
Net loss $ (3,612,542 ) $ (1,322,940 )
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Revenues. For the year ended
We began developing our proprietary mobile applications in
Cost of Revenue. For the year ended
Operating expenses. Operating expenses consist of selling expenses, general and administrative expenses, and research and development expense.
For the year ended
For the year ended
For the year ended
Loss from Operations. For the year ended
Other income/(expense). For the year ended
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Liquidity and Capital Resources
Working Capital Deficit.
As of
Cash Flows. The following is a summary of the Company's cash flows from operating, investing and financing activities for the year endedAugust 31, 2019 and 2018, respectively: Year ended Year endedAugust 31 ,August 31, 2019 2018
Net cash used in operating activities
(611,759 ) (178,678 )
Net cash provided by financing activities 2,595,870 1,099,806
Net change in cash and cash equivalents
Operating Activities
Net cash used in operating activities was
Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was
Going Concern
The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Our monthly expenses are estimated to be
- office rental at$100,000 , - employee accommodations at$50,000 , - salaries at$500,000 , - research and development at$1,000,000 - other overheads, including legal and professional fees, travel expenses, maintenance and marketing cost at$120,000 , and - consulting fees at$530,000 . 31 Table of Contents
The Company has not yet established an ongoing source of revenues and cash flows
sufficient to cover the operating costs and allow it to continue as a going
concern. The Company has a accumulated net loss of
In order to continue as a going concern, The Company will need, among other things, additional capital resources. Management's plan is to obtain such resources by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking third party equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Material commitments
As of the date of this Annual Report, we do not have any material commitments.
Off-balance sheet arrangements
As of the date of this Annual Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in
The accompanying consolidated financial statements include the accounts of the Company and its subsidiary. Significant inter-company transactions have been eliminated in consolidation.
In accordance with ASC 805-50-45-5, for transactions between entities under
common control, financial statements and financial information presented for
prior periods have been be retroactively adjusted to furnish comparative
information. The accompanying consolidated financial statements are presented
retrospectively as though the share exchange agreement between the
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in
Functional and presentation currency
The accompanying consolidated financial statements are presented in
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The functional currency of
The functional currency of the Connisapp is the currency of the primary economic environment in which Cannisapp operates, which is Malaysia Ringgit ("MYR").
Transactions in currencies other than the entity's functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at the end of the reporting periods. Exchange differences arising on the settlement of monetary items and on translation of monetary items at period-end are included in income statement of the period.
For the purpose of presenting these financial statements, the Company's assets and liabilities are expressed in US$ at the exchange rate on the balance sheet date, stockholder's equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rate during the period. The resulting translation adjustments are reported under accumulated other comprehensive income in the stockholder's equity section of the balance sheets.
Fair Values of Financial Instruments
The Company adopted ASC 820 "Fair Value Measurements," which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. Current assets and current liabilities qualified as financial instruments and management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their current interest rate is equivalent to interest rates currently available. The three levels are defined as follow:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are
observable for the assets or liability, either directly or indirectly, for
substantially the full term of the financial instruments.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value.
As of the balance sheet date, the estimated fair values of the financial instruments approximated their fair values due to the short-term nature of these instruments. Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates the hierarchy disclosures each year.
Related Parties
The Company adopted ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Cash and Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable is recorded at the net value of less estimates for doubtful accounts. Management regularly reviews outstanding accounts and provides an allowance for doubtful accounts. When collection of the original invoice amounts is no longer probable, the Company will either partially or fully write-off the balance against the allowance for doubtful accounts.
Bad debt expenses were $nil and $nil for the year ended
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Revenue Recognition
In 2014, the FASB issued guidance on revenue recognition ("ASC 606"), with final amendments issued in 2016. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients. The Company has concluded that the new guidance did not require any significant change to its revenue recognition processes.
The Company's revenues mainly consist of offline products sales. The Company
generally recognizes product sales revenue when the performance obligation have
been satisfied pursuant to
The Company estimates potential returns and records such estimates against its gross revenue to arrive at its reported net sales revenue. The Company has not experienced any sales returns.
Inventory
Inventories, which are primarily comprised of finished goods for sale, are stated at the lower of cost or net realizable value, using the first-in first-out (FIFO) method. The Company evaluates the need for reserves associated with obsolete, slow-moving and non-salable inventory by reviewing net realizable values on a periodic basis. Only defects products can be return to our suppliers.
Customer Deposits
The Company charges deposits when customers rent the power bank. The deposits will be fully refunded after the power bank is returned.
Advertising
The Company expenses advertising costs as incurred and includes it in selling
expenses. The Company recorded
Income Taxes
Income taxes are provided in accordance with ASC No. 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry-forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that the relevant taxing authority that has full knowledge of all relevant information will examine each uncertain tax position. Although the Company believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.
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Property and Equipment & Depreciation
Property and equipment consist of computer, cellphone, office furniture and equipment, and leasehold improvement. All property and equipment are stated at historical cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Property and equipment is depreciated on a straight-line basis over the following periods:
Computer and Electronics 5 years Furniture and Fixture 10 years Equipment 10 years Leasehold Improvement 10 years Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, operating lease liabilities - current, and operating lease liabilities - noncurrent on the balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
We do not have any lease agreements with lease and non-lease components which should generally accounted separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Impairment of Long-lived Assets
The Company accounts for impairment of property and equipment and amortizable intangible assets in accordance with ASC 360, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of", which requires the Company to evaluate a long-lived asset for recoverability when there is event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset's (or asset group's) fair value.
Segment Information
The Company follows ASC-280, Disclosures about Segments of an Enterprise and
Related Information, which requires certain financial and supplementary
information to be disclosed on an annual and interim basis for each reportable
segment of an enterprise. The Company believes that it operates in two business
segments and in one geographical segment
Sales, cost of goods sold, and profit margin of each business segment as follows: Business Segment Offline Online Sales$ 3,529,064 - Cost of Goods Sold$ 2,504,972 - Profit Margin 29.02 % -
Research & Development Expenses
Product development expenses consist primarily of third-party development and programming costs and other expenses that are directly attributable to the development of mobile applications, databases, software for the businesses of the Company.
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The Company expenses all costs that are incurred in connection with the planning and implementation phases of development and costs that are associated with repair or maintenance of the existing mobile applications or the development of software and content.
Costs incurred in the development phase can be capitalized and amortized over
the estimated product life when technological feasibility is reached. However,
since the inception of
New Accounting Pronouncements
In February, 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU
2016-02) "Leases (Topic 842)". ASU 2016-02 requires a lessee to recognize in the
statement of financial position a liability to make lease payments (the lease
liability) and a right-of-use asset representing its right to use the underlying
asset for the lease term. ASU 2016-02 is effective for interim and annual
reporting periods beginning after
For finance leases, a lessee is required to do the following:
· Recognize a right-of-use asset and a lease liability, initially measured at
the present value of the lease payments, in the statement of financial
position
· Recognize interest on the lease liability separately from amortization of the
right-of-use asset in the statement of comprehensive income · Classify repayments of the principal portion of the lease liability within
financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows.
For operating leases, a lessee is required to do the following:
· Recognize a right-of-use asset and a lease liability, initially measured at
the present value of the lease payments, in the statement of financial
position
· Recognize a single lease cost, calculated so that the cost of the lease is
allocated over the lease term on a generally straight-line basis · Classify all cash payments within operating activities in the statement of
cash flows.
In July, 2018, the FASB issued Accounting Standards Update No. 2018-11 (ASU 2018-11), which amends ASC 842 so that entities may elect not to recast their comparative periods in transition (the "Comparatives Under 840 Option"). ASU 2018-11 allows entities to change their date of initial application to the beginning of the period of adoption. In doing so, entities would:
· Apply ASC 840 in the comparative periods. · Provide the disclosures required by ASC 840 for all periods that continue to be presented in accordance with ASC 840. · Recognize the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings for the period of adoption.
In addition, the FASB also issued a series of amendments to ASU 2016-02 that address the transition methods available and clarify the guidance for lessor costs and other aspects of the new lease standard.
The management has reviewed the accounting pronouncements and adopted the new
standard on
Contractual Obligations
As a "smaller reporting company" as defined by Rule 12b-2 of the Exchange Act, the Company is not required to provide this information.
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