The accompanying notes are an integral
part of these consolidated condensed financial statements.
The accompanying notes are an integral
part of these consolidated condensed financial statements.
The accompanying notes are an integral
part of these consolidated condensed financial statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
JUNE 30, 2017 and 2016
(UNAUDITED)
NOTE 1 – ORGANIZATION
Current Operations and Background
Smartag International, Inc., a Nevada
corporation (“Smartag,” “Company,” “we,” “us,” or “our”), was formed
as Theca Corporation on March 24, 1999 in Colorado. The Company is in the development stage as defined in Financial
Accounting Standards Board Statement No. 7. On November 29, 2004, we merged with Art4Love, Inc., a Delaware corporation, into Art4Love,
Inc. a Nevada corporation. On February 9, 2009, Art4Love changed its name to Smartag International, Inc.
In November 2015, Smartag signed an
agreement with Bobby Tang Siu Ki and Yang Ye Cai, the co-owners and founders of Shenzhen Shen Nan Shun Technology Co. Ltd (“SSNST”),
a company based in Shenzhen, China which is involved in e-commerce trading on e-Bay, Amazon and Alipay platforms. Using the expertise
of SSNST, Smartag will develop the business of e-Commerce trading, procurement, collection and distribution through a new joint
venture company in Hong Kong.
On March 23, 2017, various related parties
relieved the Company of loans totaling $1,227,457 in exchange for the issuance of 61,372,850 shares of the Company’s common
stock.
NOTE 2 – Basis of Presentation
and Significant of Accounting Policies
Basis of Presentation
and Principles of Consolidation
— The unaudited consolidated condensed interim financial statements have been
prepared have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of Smartag
International, Inc. and its subsidiary, Essential Beverage Corporation. The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present
the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial
statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted
pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements
and notes for the year ended September 30, 2016 included in our Annual Report on Form 10-K. The results of the three and nine month
periods ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending September 30,
2017.
Going Concern
-
The accompanying
consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate
continuation of the company as a going concern. However, we have an accumulated deficit of $3,115,546 as of June 30, 2017. In view
of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon our continued operations, which in turn is dependent upon our ability to raise additional capital, and
obtain financing. The consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue
as a going concern.
Use of Estimates
—
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United
States of America 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 of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
— The Company considers investments with original maturities of 90 days or less to be cash equivalents. As of June 30,
2017 and September 30, 2016, we have no cash equivalents.
Accounts Receivable -
Accounts
receivable are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability
based on past credit history with customers and their current financial condition. The Company has no allowance for doubtful accounts
as of June 30, 2017 and September 30, 2016.
Revenue Recognition
-
The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria must
be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery of product has met the
criteria established in the arrangement or services rendered; (3) the fee is fixed and determinable; and (4) collectability is
reasonably assured. This occurs when the products or services are completed in accordance with the contracts we have with clients.
In connection with our products and services arrangements, when we are paid in advance, these amounts are classified as deferred
revenue and amortized over the term of the agreement. The Company currently receives its revenue from 5% commissions on payment
processing for Vander, a related party.
The Company evaluates the Emerging Issue Task Force (EITF) number 99-19,
"Reporting Revenue Gross as a Principal Versus Net as an Agent,” which sets forth a number of guidelines for the correct
treatment of revenue. We currently treat the related party revenue on a net basis.
Income Taxes
— The
Company records income taxes in accordance with the provisions of the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” The standard requires,
among other provisions, an asset and liability approach to recognize deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities. Valuation
allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
Stock-Based Compensation
— The Company records transactions under share based payment arrangements in accordance with the provisions of the FASB ASC
Topic 718, “Share Based Payment Arrangements”. The standard requires recognition of the cost of employee
services received in exchange for an award of equity instruments in the consolidated financial statements over the period the employee
is required to perform the services in exchange for the award. The standard also requires measurement of the cost of employee services
received in exchange for an award. The Company is using the modified prospective method allowed under this standard. Accordingly,
upon adoption, prior period amounts have not been restated. Under this application, the Company recorded the cumulative effect
of compensation expense for the unvested portion of previously granted awards that remain outstanding at the date of adoption and
recorded compensation expense for all awards granted after the date of adoption.
The standard provides that income tax
effects of share-based payments are recognized in the consolidated financial statements for those awards that will normally result
in tax deduction under existing law. Under current U.S. federal tax law, the Company would receive a compensation expense deduction
related to non-qualified stock options only when those options are exercised and vested shares are received. Accordingly, the financial
statement recognition of compensation cost for non-qualified stock options creates a deductible temporary difference which results
in a deferred tax asset and a corresponding deferred tax benefit in the income statement. The Company does not recognize a tax
benefit for compensation expense related to incentive stock options unless the underlying shares are disposed in a disqualifying
disposition.
Net Loss Per Share
—
The Company computes net loss per share in accordance with FASB ASC Topic 260, “Earnings per Share,” Under the provisions
of the standard, basic and diluted net loss per share is computed by dividing the net loss available to common stockholders for
the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares
related to stock options and warrants have been excluded from the computation of basic and diluted earnings per share because their
effect is anti-dilutive.
Concentration of Credit Risk
— Financial instruments that potentially subject the Company to a concentration of credit risk consists of cash. The
Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution
may exceed FDIC insured limits.
Financial Instruments
— Our financial instruments consist of cash, accounts payable, and notes payable. The carrying values of cash,
accounts payable, and notes payable are representative of their fair values due to their short-term maturities.
Marketable Securities
—
The Company classifies its marketable equity securities as available-for-sale and carries them at fair market value, with the unrealized
gains and losses included in the determination of comprehensive income and reported in stockholders’ equity. Losses that
the Company believes are other-than-temporary are realized in the period that the determination is made. As of June 30, 2017 and
September 30, 2016, the Company had $25,000 in unrealized losses. None of the investments have been hedged in any manner.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending revenue recognition guidance
and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers. In August 2015, the FASB deferred the effective date of the revenue
recognition guidance to reporting periods beginning after December 15, 2017. Early adoption is permitted for reporting periods
beginning after December 15, 2016. We have adopted guidance and believe it has not had a material impact on the Company’s
financial statements.
In August 2014, the FASB issued
ASU No. 2014-15, “Presentation of Financial Statements— Going Concern (Subtopic 205-40), Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern”. Continuation of a reporting entity as a going concern is
presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation
of financial statements under this presumption is commonly referred to as the going concern basis of accounting. Currently, there
is no guidance under U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update
provide that guidance. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The
amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding
upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of
the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles
for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated
as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial
doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are
issued (or available to be issued). For the period ended June 30, 2016, management evaluated the Company’s ability to continue
as a going concern and concluded that substantial doubt has not been alleviated about the Company’s ability to continue as
a going concern. While the Company continues to explore further significant sources of financing, management’s assessment
was based on the uncertainty related to the amount and nature of such financing over the next twelve months. We have adopted guidance
and believe it has not had a material impact on the Company’s financial statements.
In November 2015, the FASB issued
an ASU amending the accounting for income taxes and requiring all deferred tax assets and liabilities to be classified as non-current
on the consolidated balance sheet. The ASU is effective for reporting periods beginning after December 15, 2016, with early adoption
permitted. The ASU may be adopted either prospectively or retrospectively. We have adopted guidance and believe it has not had
a material impact on the Company’s financial statements.
In January 2016, the FASB issued
a new standard to amend certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most
prominent among the amendments is the requirement for changes in the fair value of our equity investments, with certain exceptions,
to be recognized through net income rather than other comprehensive income (“OCI”). The new standard will be effective
for us beginning July 1, 2018. The application of the amendments will result in a cumulative-effect adjustment to our consolidated
balance sheets as of the effective date. We are currently evaluating the impact of this standard on our consolidated financial
statements.
In February 2016, the FASB issued
a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of
lease assets and lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities
by lessees for those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required
to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising
from leases. We will be required to recognize and measure leases at the beginning of the earliest period presented using a modified
retrospective approach. The new standard will be effective for us beginning July 1, 2019, with early adoption permitted. We
are currently evaluating the impact of this standard on our consolidated financial statements.
In February 2016, the FASB issued
ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires
lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU
are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application
is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into
after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently evaluating
the impact of this new standard on its consolidated financial statements.
In June 2016, the Financial Accounting
Standards Board (“FASB”) issued a new standard to replace the incurred loss impairment methodology in current U.S.
GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable
information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, we will be
required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects
losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance
for credit losses rather than as a reduction in the amortized cost basis of the securities. The new standard will be effective
for us beginning July 1, 2020, with early adoption permitted beginning July 1, 2019. Application of the amendments is
through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of
this standard on our consolidated financial statements.
NOTE 3 –Related Party
During the year ended September
30, 2015, the Company received $810,000 advances from related. $730,000 was from a related entity to a former director and $80,000
was received from Chee Song Yap, the Director of the Company. The two parties entered into 0% interest notes which are to be repaid
by September 30, 2017. On March 23, 2017, the Company issued 40,500,000 shares of common stock in exchange for the cancelation
of this notes.
The Company received $75,000
from Lock Sen Yow under a 0% interest notes which are to be repaid by September 30, 2017.On March 23, 2017, the Company issued
3,750,000 shares of common stock in exchange for the cancelation of this note.
As of June 30, 2017 and September
30, 2016, the Company has $67,145 and $3,900 owed from SSNST, a related party, which was a temporary overpayment and expected to
be repaid as soon as practical.
Secured Note
On March 17, 2009, we entered into a
Secured Revolving Promissory Note (the “Secured Note”) with Smartag Solutions Bhd, a Malaysian corporation, the majority
stockholder of the Company. Under the terms of the Note, Smartag Solutions Bhd, agreed to advance to the Company, from
time to time and at the request of the Company, amounts up to an aggregate of $200,000 until September 30, 2014. All
advances shall be paid on or before September 30, 2017 and this advance has an interest rate of 0% per annum. On August 19, 2016,
Smartag Solutions Bhd transferred the balance of the Secured Note to Lock Sen Yow as severance employment package from Smartag
Solutions Bhd. As of June 30, 2017, the balance was $0. On March 23, 2017, the Company issued 9,622,850 shares of common stock
in exchange for the cancelation of this note.
Loan Agreement
On September 19, 2013, we entered
into a Loan Agreement (“Loan Agreement”) with SSB. Under the terms of the agreement, SSB loaned the Company $200,000
(“Loan”). On August 15, 2014, the SSB increased the Loan to $300,000. The Loan shall be repaid on or before September
30, 2017 and this loan has an interest rate of 0% interest per annum. During the nine months ended June 30, 2015, the Company repaid
$100,000 of the Loan. During the year ended September 30, 2016, the Company repaid $50,000 of the Loan. On August 19, 2016, Smartag
Solutions Bhd transferred the balance of the Loan to Lock Sen Yow. On March 23, 2017, the Company issued 7,500,000 shares of common
stock in exchange for the cancelation of this note.
The total amount owed as of June
30, 2017 was $0. We recorded imputed interest of $37,560 for the year ended September 30, 2016 from all the aforementioned related
party debt. During the nine months ended June 30, 2017, we recorded imputed interest of $16,035 from all the aforementioned related
party debt.
NOTE 4 – Stockholder’s Equity
/ Deficit
As of September 30, 2016, there were
authorized 500,000,000 shares of common stock, par value $0.001 per share and 25,000,000 shares of preferred stock, par value $0.001
per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the
stockholder of the corporation is sought.
On March 23, 2017, various related parties
relieved the Company of loans totaling $1,227,457 in exchange for the issuance of 61,372,850 shares of the Company’s common
stock.
There are currently 93,010,001 shares
of common stock issued and outstanding and zero shares of preferred stock issued and outstanding as of June 30, 2017, and 31,637,151
share of common stock issued and outstanding and zero shares of preferred stock issued and outstanding as of September 30, 2016.