Notes to the Consolidated Financial Statements
NOTE 1 – ORGANIZATION, DESCRIPTION OF BUSINESS AND GOING CONCERN
Fellazo Corp. (“the Company”, “we”, “us” or “our”) was incorporated in the State of Nevada on May 28, 2014.
During the year ended August 31, 2020, the Company had continued its transformation process into an IT based company specialized in Mobile Application Developments with worldwide clientele and a portfolio investment company in primary industries such as healthcare, energy, development and capital market. The Company had commenced to be engaged in the industry of “Healthcare and Personal Wellness” products and related products. Activities include but not limited to sourcing raw materials or partly or fully finished products, manufacturing, wholesale and trading of these products.
Our office is located at 8th Floor, Wisma Huazong, Lot 15285, 0.7km Lebuhraya SungeiBesi, 43300 Seri Kembangan, Selangor Darul Ehsan, Malaysia.
Going Concern Uncertainties
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of August 31, 2020, the Company had an accumulated deficit of $1,143,619, and net loss of $309,062 for the year ended August 31, 2020. Losses have principally occurred as a result of the substantial resources required for general and administrative expenses associated with our operations. The continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders or external financing. Management believes the existing stockholders will provide the additional cash to meet with the Company’s obligations as they become due. However, there is no assurance that the Company will be successful in securing sufficient funds to sustain the operations.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Principles of Consolidation
The accompanying consolidated financial statements include the financial statements of the Company and its 49% owned subsidiary Fellazo Berhad, an entity under common control. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
Variable Interest Entities
The Company holds both the power to direct the most significant activities of FB, as well as an economic interest in FB and, as such, is deemed to be the primary beneficiary or consolidator of FB. The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity, an estimate of the entity’s expected losses and expected residual returns and the allocation of such estimates to each party involved in the entity.
Use of Estimates
In preparing these financial statements, in conformity with GAAP requires management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the years reported. Actual results may differ from these estimates. Making estimates requires management to exercise significant judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Foreign Currency Translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
The reporting currency of the Company is the United States Dollar (“USD”). The Company’s subsidiary in Malaysia maintains their books and records in their local currency, the Malaysia Ringgit (“RM”), which is the functional currency as being the primary currency of the economic environment in which these entities operate.
In general, for consolidation purposes, assets and liabilities of its subsidiary whose functional currency is not the USD are translated into USD, in accordance with ASC 830, “Translation of Financial Statements”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
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Exchange Rates
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August 31,
2020
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|
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August 31,
2019
|
|
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Spot rate RM : USD exchange rate
|
|
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0.2401
|
|
|
|
0.2378
|
|
|
Average period RM : USD exchange rate
|
|
|
0.2357
|
|
|
|
0.2415
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|
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments. As of August 31, 2020 and 2019, the Company had $6,665 and $54,467 in cash and cash equivalents, respectively.
Fair value of financial instruments
The carrying value of the Company’s financial instruments (excluding short-term bank borrowing and note payable): cash and cash equivalents, accounts payable and accrued liabilities and amount due to a related party at their fair values because of the short-term nature of these financial instruments.
The Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
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·
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Level 1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
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·
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Level 2 : Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and
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·
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Level 3 : Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
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Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Revenue recognition
The Company commenced its operation in mid-October 2019. At this initial stage revenue is earned from the trading of raw bird-nest only.
The Company’s revenue recognition procedures consist of the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations pursuant to each of its sales transactions:
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·
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identify the contract with a customer;
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·
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identify the performance obligations in the contract;
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·
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determine the transaction price;
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·
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allocate the transaction price to performance obligations in the contract; and
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·
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recognize revenue as the performance obligation is satisfied.
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However at this initial stage of our operations which started with trading of raw bird-nest, the management is using this initial stage as exposure of the management to the bird-nest business in order to learn and experience with our suppliers whom are bird-nest farmers or their agents, determination of quality of the raw material, the process of raw bird-nest cleaning of the different class of the raw material and market for these clean bird-nest.
Thus at this initial stage we have not entered into any formal contract with our suppliers and purchasers, most of the suppliers and purchasers are known to our management or introduced to the management by closed business friends.
Cost of Goods Sold – Trading of Raw Bird-Nest
At this initial stage of business operations which the management considered as exposure, gaining of knowledge and experience of the overall bird-nest business, our Cost of goods sold only include the actual cost of the raw bird-nest.
Commitments and contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Income taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company’s management determined that the Hong Kong is the Company’s major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of August 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company conducts businesses in Malaysia and is subject to tax in this jurisdiction. As a result of its business activities, the Company will file tax returns that are subject to examination by the foreign tax authority.
Net loss per share
The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive. As of August 31, 2020 and 2019, the Company has no dilutive securities.
Related Parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
NOTE 3 – RELATED PARTY TRANSACTIONS
Our Management Agent, Swipypay Berhad (a company established in Malaysia) is 80% owned by our Director – Mr Yap Kit Chuan. Total outstanding amount due to our Management Agent was $1,073,252 and $824,699 as of August 31, 2020 and 2019 respectively. The additional amount of $248,553 incurred in the year ended August 31, 2020 consisted of operating expenses paid on behalf of the Company of $303,380 and advances from a related party of $309,249, repayment to related party of $4,368 and expenses paid on behalf of related party of $362,099. The difference of amount was a result of change of exchange rate.
During the year ended August 31, 2020 and 2019, we had purchased $9,290 (RM38,790.51) and $0 worth of raw bird-nest from Swipypay Berhad (also an agent for bird-nest farmers), respectively.
Our Company does not own or lease any real property, and our registered office in Malaysia is provided by our Management Agent.
NOTE 4 – PREPAID EXPENSES AND DEPOSIT
Prepaid expense and deposit consist of the following:
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August 31,
|
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August 31,
|
|
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|
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2020
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|
|
2019
|
|
|
|
|
|
|
|
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Prepaid expenses
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$
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1,133
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|
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$
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19,105
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Deposit
|
|
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6,595
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|
|
|
-
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|
|
|
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$
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7,728
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|
|
$
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19,105
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|
During the year ended August 31, 2020, the Company recorded deposit of $6,595 (RM 27,467), which is an initial deposit for OEM personal cleansing and nourishing facial products, these initial batches of the products would generally be used for marketing purpose ie. as trial samples for potential customers.
NOTE 5 - STOCKHOLDERS’ DEFICIT
The Company is authorized to issue 1,000,000,000 shares of common stock at a par value $0.001.
During the year ended August 31, 2020, there were no issuances of common stock.
On January 2, 2019, the Company issued 11,264,000 shares of common stock of the Company to our officer and majority shareholder for the acquisition of FB.
As of August 31, 2020 and 2019, 86,264,000 shares of common stock were issued and outstanding, respectively.
NOTE 6 – INCOME TAXES
Fellazo Corp. was formed in 2014. Prior to the acquisition of FB in January 2019, the Company only had operations in the United States. In January 2019, the Company became the parent of FB, a Malaysia subsidiary, which files tax returns in Malaysia.
For the year ended August 31, 2020 and 2019, the local (“United States of America”) and foreign components of loss before income taxes were comprised of the following:
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Year Ended
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|
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August 31,
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|
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|
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2020
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|
|
2019
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Tax jurisdiction from:
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- Local
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$
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(200,605
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)
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$
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(229,531
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)
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- Foreign
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(108,456
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)
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(42,249
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)
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Loss before income taxes
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$
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(309,061
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)
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$
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(271,780
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)
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United States of America
Fellazo Corp operates in the United States and files tax returns in these jurisdictions.
The reconciliation of income tax rate to the effective income tax rate for the year ended August 31, 2020 and 2019 is as follows:
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Year Ended
|
|
|
|
|
August 31,
|
|
|
|
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2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes from US operation
|
|
$
|
(200,605
|
)
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|
$
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(229,531
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)
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|
Statutory income tax rate
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|
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21.00
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%
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|
|
21.00
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%
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Income tax expense at statutory rate
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|
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(42,127
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)
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|
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(48,200
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)
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Valuation allowance
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|
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42,127
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|
|
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48,200
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|
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Income tax expense
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|
$
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-
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|
|
$
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-
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|
As of August 31, 2020, the operations in the United States recognized a deferred tax assets in the amount of $224,570 as a result of accumulated net operating losses. This asset is available to be carried forward to offset future income taxes payable. Management assessed the likelihood of realizing these deferred tax assets, and determined that at August 31, 2020, it was not able to reliably estimate future taxable profits, accordingly, Management has provided for a full valuation allowance against the deferred tax assets of $224,570.
Malaysia
The Company’s subsidiary FB operating in Malaysia is subject to the Malaysia Profits Tax at a standard income tax rate range of 24% on the assessable income arising in Malaysia during its tax year. The reconciliation of income tax rate to the effective income tax rate for the year ended August 31, 2020 and 2019 is as follows:
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Year Ended
|
|
|
|
|
August 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes from Malaysia operation
|
|
$
|
(108,456
|
)
|
|
$
|
(42,249
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)
|
|
Statutory income tax rate
|
|
|
24.00
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%
|
|
|
24.00
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%
|
|
Income tax expense at statutory rate
|
|
|
(26,029
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)
|
|
|
(10,139
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)
|
|
Valuation allowance
|
|
|
26,029
|
|
|
|
10,139
|
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
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-
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|
As of August 31, 2020, the operations in Malaysia recognized a deferred tax assets in the amount of $36,357 as a result of accumulated net operating losses. This asset is available to be carried forward to offset future income taxes payable. Management assessed the likelihood of realizing these deferred tax assets, and determined that at August 31, 2020, it was not able to reliably estimate future taxable profits, accordingly, Management has provided for a full valuation allowance against the deferred tax assets of $36,357.
The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of August 31, 2020 and 2019:
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August 31,
|
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August 31,
|
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2020
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|
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2019
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Deferred tax assets:
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|
|
|
|
|
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Net operating losses carried forward
|
|
|
|
|
|
|
|
United States
|
|
$
|
224,570
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|
|
$
|
182,443
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|
|
Malaysia
|
|
|
36,357
|
|
|
|
10,328
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|
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Total
|
|
|
260,927
|
|
|
|
192,771
|
|
|
Less: valuation allowance
|
|
|
(260,927
|
)
|
|
|
(192,771
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Management believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly, the Company provided for a full valuation allowance against its deferred tax assets of $260,927 as of August 31, 2020. In the period, the valuation allowance increased by $68,156.