FWFW 8-K
Flywheel Advanced Technology, Inc. (FWFW)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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CURRENT REPORT ON FORM 8-K
FLYWHEEL ADVANCED TECHNOLOGY, INC.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K (this “Current Report”), contains forward-looking statements, including, without limitation, in the sections captioned “Description of Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Plan of Operations,” and elsewhere. Any and all statements contained in this Current Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Current Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, (ii) a projection of income, earnings per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and (iv) the assumptions underlying or relating thereto.
The forward-looking statements are neither historical facts nor assurances of future performance and not meant to predict or guarantee actual results, performance, events or circumstances. Instead, they are based upon the Company’s (as defined below) current projections, plans, objectives, beliefs, expectations, estimates and assumptions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. Actual results, the timing of certain events and circumstances, and financial condition may differ materially from those indicated by the forward-looking statements as a result of these risks and uncertainties. Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them. Any forward-looking statement made by the Company in this Current Report is based only on information currently available to the Company and speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
| SECTION 1 | REGISTRANT’S BUSINESS AND OPERATION |
| ITEM 1.01 | ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. |
The Acquisition
On March 22, 2023, Flywheel Advanced Technology, Inc., a Nevada corporation (the “Company”), consummated the share exchange transaction (the “Share Exchange”) contemplated by the Share Exchange Agreement, dated December 15, 2022 (the “Share Exchange Agreement”), by and among the Company, QBS System Limited, a limited company incorporated under the laws of Hong Kong (“QBS System”), and QBS Flywheel Limited, a company incorporated under the laws of Australia (the “Shareholder”). Pursuant to the terms and provisions of the Share Exchange Agreement, effective as of March 22, 2023 (the “Effective Time”), the Company acquired all of the issued and outstanding ordinary shares of QBS System in exchange for 8,939,600 newly issued shares of the Company’s common stock, par value $0.0001 per share (the “Exchange Shares”). As a result of the Share Exchange, QBS System continues its business as a wholly owned subsidiary of the Company.
QBS System provides Internet of Things (“IoT”) solutions and services to assist its clients to build applications using available IoT devices, sensors, frameworks, and platforms, integrate hardware and software solutions with clients existing landscape, or implement new IoT solutions for enterprises. With QBS System as its subsidiary, the Company will continue to provide a full range of IoT services comprising consulting, development and implementation, analytics, support, and evolution. QBS System has a business portfolio consisting of IoT integration solution services, IoT maintenance and support services, IoT projects and ventures, Business Process Outsourcing (“BPO”) services, and approximately twelve years of experience in Hong Kong providing IoT software and hardware engineering services. Its clientele ranges across various industries, such as logistics and supply chain management, food & beverage, automation, and smart buildings. The applications of QBS System’s IoT solutions include connected equipment in the enterprise (“Enterprise IoT”) and industrial assets such as machines and robots (“Industrial IoT”), the essential component of the fourth revolution of manufacturing or “Industry 4.0”.
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QBS System’s wholly owned subsidiary, QBS System Pty Limited, an Australia proprietary limited company, was established on May 8, 2020, and provides computer network systems design and integration services.
Pursuant to the terms of the Share Exchange Agreement, all of the issued and outstanding ordinary shares of QBS System, which were held by the Shareholder, were exchanged for the Exchange Shares.
As a result of the Share Exchange, the Shareholder owns approximately 33.5% of the issued and outstanding shares of Common Stock.
| ● | The stockholders of the Company prior to the Share Exchange held 17,751,564 shares of Common Stock issued and outstanding; and |
| ● | The Shareholder now holds 8,939,600 shares of Common Stock, approximately 33.5% of the issued and outstanding shares of the Common Stock. |
After the issuance of the Exchange Shares there are 26,691,164 issued and outstanding shares of Common Stock of the Company.
The Share Exchange Agreement contains representations, warranties, and covenants that are customary for transactions of this type.
In connection with the Share Exchange, the Company entered into a lock-up and leak-out agreement (“Lock-Up Agreement”) with the Shareholder. The Lock-Up Agreement covers the Exchange Shares and provides that the Exchange Shares are subject to a 12-month lock-up from the date of the Share Exchange Agreement (the “Lock-Up Period”). The Lock-Up Period is subject to early termination upon certain corporate events and transactions and allows for certain limited permitted transfers where the recipient takes shares subject to the restrictions in the Lock-Up Agreement.
For a period of one year after the end of the Lock-Up Period, the Exchange Shares are subject to a one-year leak-out restriction for public resales of five percent of the trailing ten (10) day average trading volume of the Common Stock. The Company may waive these restrictions.
The preceding summary of the Lock-Up Agreement does not purport to be complete and is qualified in its entirety by reference to the Form Lock-Up Agreement, a copy of which is filed as Exhibit 10.4 hereto and is incorporated herein by reference.
In connection with the Share Exchange, Wong Chi Fung and Kwan Ping Yuen entered into three-year confidentiality, non-competition and non-solicitation agreements with the Company (each a “Non-Disclosure and Non-Compete Agreement”), which contain standard provisions, including that Mr. Wong and Mr. Kwan do not engage in any business that supplies the same product or services as, that competes with, the Company or QBS System within the Hong Kong Special Administrative Region of the People’s Republic of China and the People’s Republic of China.
The preceding summary of the Non-Disclosure and Non-Compete Agreement does not purport to be complete and is qualified in its entirety by reference to the Form of Non-Disclosure and Non-Compete Agreement, a copy of which is filed as Exhibit 10.5 hereto and incorporated herein by reference.
From and after the Effective Time, the Shareholder, as the former sole shareholder of QBS System, became a shareholder of the Company and has no further rights or interest as a shareholder of QBS System. The directors and executive officers of QBS System prior to the Effective Time will continue to serve as the directors and the executive officers of QBS System until their successors are duly appointed and elected.
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The preceding summary of the Share Exchange Agreement does not purport to be complete and is qualified in its entirety by reference to the Share Exchange Agreement, a copy of which is filed as Exhibit 10.3 to the Form 8-K filed with the SEC on December 16, 2022.
At the closing of the Share Exchange on March 22, 2023 (the “Closing”), Tin Sze Wai, Ip Tsz Ying and Lai Chi Chuen, directors of the Company, resigned from the Board of Directors of the Company (the “Board”).
The Company continues to be a “smaller reporting company,” as defined under the Exchange Act of 1934, as amended (the “Exchange Act”). As a result of the Share Exchange, the Company has ceased to be a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act).
| SECTION 2 | FINANCIAL INFORMATION |
| ITEM 2.01 | COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS. |
The Exchange
On March 22, 2023, the Company consummated the Share Exchange. Pursuant to the terms and provisions of the Share Exchange Agreement, the Company acquired all of the issued and outstanding ordinary shares of QBS System in exchange for the Exchange Shares. As a result of the Share Exchange, QBS System continues its business as a wholly owned subsidiary of the Company, as described more fully in Item 1.01 above, which is incorporated herein by reference.
DESCRIPTION OF BUSINESS
QBS System’s Business
Prior to the Closing, the Company was a shell company (as defined in Rule 12b-2 of the Exchange Act) with no operations. At the Closing and as a result of the Share Exchange, the business of QBS System became the business of the Company.
QBS System launched in Hong Kong under the Company Ordinance on April 14, 2011. QBS System’s business service portfolio includes the provision of IoT integration solution services, IoT maintenance and support services, IoT projects and ventures, BPO services, and IoT software and hardware engineering services. It primarily operates in three reportable segments across industries:
| ● | IoT; | |
| ● | IoT related solution services - integration solutions services, IoT maintenance & support services and IoT business process outsourcing services; and | |
| ● | IoT products - location-based services, video analytics and asset management. |
QBS System’s Business Service Portfolio
IoT Integration Solution Services
QBS System’s IoT Integration Solution Service helps clients to build applications using available IoT devices, sensors, framework and platform, to integrate the available hardware and software solution with clients existing landscape or to implement a new IoT solution for enterprises.
The applications of the QBS System’s IoT Integration Solution Service includes Enterprise IoT and Industrial IoT, the essential component of Industry 4.0.
QBS System provides full-range of services under its IoT Integration Solution Service program such as consulting, development and implementation, analytics, support, and evolution.
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QBS System’s IoT Integration Solution Service focuses on researching and developing technologies to improve and enhance the quality of life for clients and find a faster, more economical, and easier ways to solve problems. The list below shows certain of the technologies developed and utilized by QBS System’s IoT Integration Solution Services in the following industries:
| ● | Low Carbon Property Management – carbon management involves understanding the carbon footprint of an entity or an individual by collecting and analyzing a massive volume of data. Carbon footprint benchmarking assesses and manages carbon emissions. This technology saves operating costs, reduces carbon emissions, slows climate change, improves air quality, and benefits human health. | |
| ● | Energy Management - energy management is the key to conserving energy and saving money. It provides an opportunity to optimize energy costs by understanding energy flow, procurement, and economics of energy and reducing its harmful impact on our environment. This technology monitors energy consumption resulting in savings and reduction in carbon emissions for greater corporate social responsibility; | |
| ● | Stock Management – stock management enables real-time stock information and facilitates warehouse and retail operation activities, a critical supply chain element. Stock management aims to have the right product in the right place at the right time without creating excess inventory. This technology offers a timely, efficient, and cost savings solution, especially for retail businesses; | |
| ● | GreenTech Management – GreenTech management monitors, for example, planting requirements based on dynamic environmental data captured. This technology helps those growing houseplants or vegetation to reduce sound level and carbon footprint in the house, improve indoor air quality, and use resources more efficiently; and | |
| ● | Enhanced Lifestyle Management – Enhanced Lifestyle Management facilitates the hospitality industry to be more efficient and reduce operating costs. This technology also improves the wellness, comfort, and safety of individuals. |
IoT Maintenance and Support Service
Following the completion of a QBS System’s IoT Integration Solution Service for a client, QBS System can provide ongoing maintenance and support services, as well as maintenance and support services on consumable hardware and software (license) purchased by the client. QBS System’s maintenance and support services are in high demand by their clients to facilitate long-term usage of QBS System’s products and help them be competitive in their respective fields, such as real estate, leisure, and entertainment industries.
Maintenance and support services entail ad-hoc technical services, IoT system administration, maintenance, secondment, and corrective services. QBS System also offers license renewal subscriptions for individual IoT systems, hardware, and software provided by the IoT products vendors.
IoT Business Process Outsourcing Service
QBS System provides BPO services to IoT projects, which is an end-to-end technology service, outsourcing services to assist enterprises in launching IoT projects or ventures, creating a new technology solution, upscaling an existing IoT application, or reliably and cost-effectively integrating any IoT solution with a legacy system while addressing business challenges.
IoT BPO service helps ensure:
| ● | New Product Launch Success | |
| ● | Product Transitions & Life Cycle Management | |
| ● | Roadmap & Technology Reviews | |
| ● | Business Planning | |
| ● | Target Operational Model | |
| ● | Forecast Management |
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In addition to the IoT BPO services, QBS System offers technical consultants on flexible client assignments. This service assists clients in recruiting, training, and managing teams of consultants and related administrative staff. It is also involved with all technical aspects of clients’ IoT by deeply analyzing clients’ vision and creating IoT technology solutions enabling clients to build new IoT-based products and establish a new business model. The IoT BPO service helps with hardware and software that can adequately address the complexity and fragmentation in clients’ IoT projects, including hardware integration, software integration, system architecture, sensor monitoring, device management and connectivity, data analysis, etc.
QBS System Product Portfolio
Location Based Services
Smart Buildings
Smart buildings are equipped with energy-saving equipment for the efficient functioning of all the components and systems of a building, including lighting; monitoring; safety and security; emergency systems; heating, ventilation, and air conditioning systems; and car parking. The concept of smart buildings has gained pace due to the increasing adoption of IoT solutions and services, and the growing deployment of IoT sensors.
With the growing numbers of IoT network devices, the critical need for reliable IoT integration services, such as system design and architecture services, advisory services, and testing services, has emerged for the smooth integration, interconnectivity, and functioning of connected devices. IoT-enabled smart buildings have enhanced features, such as personalization of operations, device mobility inside buildings, comfort to occupants, enhanced productivity, and automation of indoor activities. IoT home automation systems utilize control systems and smart devices to automatically control and manage the basic home functions over the Internet, irrespective of the user location.
During 2020, one of the leading utility service companies in Hong Kong collaborated with QBS System to build an IoT factory in order to cross-integrate multiple brands of IoT Gateway as a single management platform, catering to different user scenarios in office or campus energy management in a more innovative way, such as sensory data of room occupancy capturing for electricity control purpose.
In 2016, QBS System collaborated with the Hong Kong government is to design and build the Waste Electrical and Electronic Equipment Treatment and Recycling Facility (WEEE·PARK), which provides a collection service and operates the facility. The facility uses state-of-the-art technology to process refrigerators, TVs, computers, washing machines, and air conditioners into valuable secondary raw materials while controlling the management of the hazardous materials that are contained in this equipment.
In 2012, QBS System delivered a smart building application for the first zero-carbon building in Hong Kong developed by the Construction Industry Council in collaboration with the HKSAR Government. Our application utilizes the Building Automation and Controls Network (BACnet), a communication protocol standard explicitly designed to provide a way to integrate building control products made by different manufacturers. The BACnet enables a vast volume of data to be analyzed automatically and visualizes carbon footprint benchmarking data to the Low Carbon property management dashboard.
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IoT Home Growing Device
QBS System’s IoT home growing device is a technology solution designed to enable individuals to grow plants and crops in their homes using IoT technology. The device is typically equipped with sensors, cameras, and other tools that allow for remote monitoring and management of the plant growth process.
A home growing device enables sensing technologies, such as humidity, temperature, etc., to monitor dynamic planting requirements for plans and crops. For example, as an intelligent virtual assistant the growing device can propose watering schedules based on the dynamic environmental data captured and a plant’s specific characteristics and needs.
The IoT growing device can be used to grow a variety of plants, including herbs, vegetables, and flowers, and can be configured to meet the specific needs of each plant. The device is typically connected to a mobile app or web platform, allowing users to monitor the progress of their plants, receive alerts and notifications, and adjust settings as needed.
The IoT home growing device can be used to grow a variety of plants, including herbs, vegetables, and flowers, and can be configured to meet the specific needs of each plant. The device is typically connected to a mobile app or web platform, allowing users to monitor the progress of their plants, receive alerts and notifications, and adjust settings as needed
The use of IoT technology in home growing devices allows for greater precision and control over the plant growth process. Sensors can monitor factors such as temperature, humidity, and light levels, and automatically adjust settings to ensure optimal growing conditions. This can result in faster growth, higher yields, and healthier plants.
IoT home growing devices are gaining popularity among consumers who are interested in sustainable and healthy living, as well as those who have limited outdoor space or live in areas with harsh climates. They are also used in commercial settings such as restaurants and grocery stores to provide fresh produce on site.
Overall, IoT home growing devices offer a convenient and efficient way for individuals to grow plants and crops in their homes, while leveraging the benefits of IoT technology to optimize the plant growth process.
Smart Bench
QBS System has co-developed with another innovator the Smart Bench, a modern, multifunctional bench designed for use in outdoor spaces. It has various features, such as wireless charging for mobile devices, WiFi connectivity, and sensors that track environmental data like temperature, air quality, and noise levels. While powered by solar panels, the Smart Bench stores energy with a built-in battery for use at night. QBS System led the team in IoT Device Integration and System Implementation of the Smart Bench. The Smart Bench aims to enhance the user experience of public spaces by providing a convenient and comfortable place to sit while offering helpful technology features. Additionally, environmental sensors can help city planners gather data on how people use outdoor spaces and make informed decisions about improving urban infrastructure. QBS System’s believes that the Smart Bench is an innovative and practical solution for modern urban living.
Location Based Services
Ultra-wideband (UWB) is a wireless communication technology that uses low-energy, short-range radio waves to transmit large amounts of data over short distances. Unlike other wireless communication technologies that use narrowband signals, UWB signals use a very wide frequency range, typically spanning several gigahertz, which enables them to transmit data at extremely high speeds.
UWB technology is used in a variety of applications, including high-speed data transfer, location tracking, and sensing. In the context of data transfer, UWB can be used to transfer large files, such as high-definition videos, between devices at speeds of up to several gigabits per second. In location tracking, UWB can be used to accurately determine the location of objects or people within a confined space, such as a building or a room, with a high degree of precision. In sensing applications, UWB can detect objects’ presence, measure distance, and even detect motion.
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One of the advantages of UWB technology is its ability to operate in crowded radio frequency environments without interfering with other wireless communication technologies. This is because UWB signals are spread out over a wide frequency range and are designed to coexist with other wireless technologies.
During 2019, one of the largest theme parks in Hong Kong introduced the first UWB adoption into game environment in Hong Kong. QBS System was responsible for digital communication among devices for tracking the children playing a 3D projection game scene with centimeters-level of accuracy.
QBS System also utilizes location-based service driven products equipped with the readiness and the reliability of indoor and outdoor positioning system. In 2019, an NGO worked with QBS System for location-based service adaptations on their existing mobile application to enable extra technology to substantiate location-awareness assist visual impaired persons in a technology park in Hong Kong. Wireless fingerprinting and magnetic fields are captured for indoor positioning estimation to provide a coordinate on an app, speak-to-navigate approach is used for visual impaired app users.
QBS System’s Prospect in IoT Market
Forecast by Market Research
According to a report published by Grand View Research in 2020, the global Internet of Things (IoT) market is expected to continue its growth trajectory in 2023, driven by technological advancements and increasing adoption across various industries. The IoT market size is projected to reach $1.5 trillion by 2027, growing at a CAGR of 24.7% from 2020 to 2027. Several factors are driving the market expansion of the IoT industry:
| ● | Increasing adoption of smart devices: The increasing adoption of smart devices, such as smartphones, smartwatches, and smart home devices, drives the demand for IoT solutions because these devices rely on IoT technology to connect and communicate. | |
| ● | Growing demand for automation and digitization: Companies are increasingly adopting automation and digitization to improve efficiency, reduce costs, and provide better customer experiences. IoT technology can enable automation and digitization by providing real-time data and insights. | |
| ● | Increasing focus on sustainability: Companies increasingly focus on sustainability and environmental responsibility, driving demand for IoT solutions that can help reduce energy consumption, minimize waste, and optimize resource utilization. | |
| ● | Advancements in technology: Advancements in technology, such as 5G networks, artificial intelligence, and machine learning, enable the development of more sophisticated IoT solutions that can provide more value to customers.
The emergence of new use cases and applications: IoT technology is being applied to new use cases and applications, such as smart cities, connected cars, and industrial IoT, which drive demand for IoT solutions. |
Future Prospects of IoT Market
QBS System believes that the promise of IoT will be realized through the development of cloud-enabled intelligent devices and systems that contribute critical data, facilitate distributed control and decision-making, and operate securely at scale.
The opportunity to help clients transform their businesses and operations through these intelligent systems is enormous. QBS System offers a combination of expertise in device-level solutions, embedded operating systems, and IoT software and services. Since our founding in 2011, QBS System has been at the intersection of hardware and software. Today that intersection is the “edge” where cloud-enabled devices connect to create intelligent systems that share data, facilitate distributed control and machine learning, and operate securely at scale.
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In addition, QBS System believes environmental, social, and governance (“ESG”) considerations have become increasingly important in recent years, as companies are expected to focus on financial performance and their impact on society and the environment. QBS System can provide solutions that are particularly relevant to ESG:
| ● | Environmental Sustainability: QBS System can contribute to environmental sustainability by developing products and services that reduce energy consumption and minimize waste. For example, IoT sensors optimize energy usage in buildings, reducing the carbon footprint and improving efficiency. | |
| ● | Social Responsibility: QBS System demonstrates social responsibility by ensuring its products and services are accessible to all, including marginalized communities. Additionally, they can address issues such as data privacy, security, and ethical concerns related to the use of customer data. | |
| ● | Governance: Good governance practices are crucial for QBS System to build trust with customers, investors, and regulators. Governance includes transparent reporting on ESG performance, accountability for actions, and responsible management of risks. |
Furthermore, the convergence of IoT and Artificial Intelligence (“AI”) is a significant trend that can potentially transform many industries. Combining these two technologies can enable more intelligent and autonomous systems, leading to greater efficiencies and improved decision-making. Below are some examples of QBS System’s performance history:
| ● | Predictive maintenance: IoT sensors can collect data from machines and equipment, which can be analyzed using AI algorithms to predict when maintenance is required. Predictive maintenance help prevents equipment failures and reduces downtime. | |
| ● | Smart buildings: IoT devices such as lighting systems, lift systems, and security cameras can be integrated with AI algorithms to create more intelligent and automated systems that can learn and adapt to user behavior and preferences. | |
| ● | Agriculture: IoT sensors can collect data from crops and soil, which can be analyzed using AI algorithms to optimize irrigation, fertilization, and other agricultural practices, leading to more efficient and sustainable farming. |
QBS System believes that the convergence of IoT and AI has the potential to drive innovation and transform many industries, enabling more intelligent and connected systems that can learn and adapt to changing environments and user behavior.
Key Business Drivers of QBS System’s IoT Services
Increased efficiency and productivity - QBS System enables companies to optimize operations and automate processes to increase efficiency and productivity. For example, we use IoT sensors to monitor equipment performance, predict maintenance needs, and reduce downtime.
Cost savings - QBS System helps companies save costs by improving operational efficiency, reducing waste, and optimizing resource utilization. For example, IoT sensors monitor energy consumption and optimize usage, leading to cost savings.
Competitive advantage - Companies that adopt IoT can gain a competitive advantage by differentiating themselves from competitors, improving their products and services, and providing better customer experiences. For example, IoT can enable companies to offer personalized services, such as customized product recommendations and targeted marketing.
New revenue streams - QBS System can enable companies to create new revenue streams by developing innovative products and services that leverage IoT technology. For example, IoT can enable companies to offer subscription-based services, such as predictive maintenance and remote monitoring.
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Improved Customer Experiences - QBS System can enable companies to improve customer experiences by providing personalized, real-time services and support. For example, IoT sensors monitor customer usage patterns and provide customized recommendations.
IoT has become commonplace in all walks of life, from homes and industries to enterprises. IoT connects everything, making the world smarter and better than ever. IoT encompasses a set of advanced equipment (sensors and meters), network connectivity architecture, smart devices, and software that helps to interchange information between machines and devices. IoT technology holds significant potential in developing countries’ overall IT and communication industry.
Small and medium enterprises are adopting IoT solutions to maintain cost efficiency, productivity, and operation enhancements. Also, the rapid adoption of cloud-based solutions in the IT industry is the critical driver for the growth of the IoT market during the forecast period.
In conclusion, the impact that IoT has had, and will increasingly continue to have, upon all facets of modern society: (i) in the public sector in applications as varied as healthcare delivery, public safety, traffic management, and the eventual construction of smart cities; (ii) in the consumer space for lifestyle enhancement, entertainment, connected cars, smart homes; and, possibly most valuable; and (iii) in the industrial space for location tracking, demand and supply synchronization, dynamic routing and scheduling, predictive maintenance, inspection technology and so on.
This Current Report contains summaries of the material terms of various agreements executed in connection with the transactions described herein. The summaries of these agreements are subject to, and are qualified in their entirety by, reference to these agreements, which are filed as exhibits hereto and incorporated herein by reference.
On April 1, 2022, QBS System entered into engagement letters for the provision of IoT Business Processing Outsourcing Services, such as hardware integration, device management and device connectivity. The term of the agreement is for a period of one (1) year but will automatically renew at the end of each term for an additional term of one (1) year, unless either party gives notice of termination at least 30 days prior to the end of each term. The preceding summary does not purport to be complete and is qualified in its entirety by reference to the Engagement Letters, dated April 1, 2022, copies of which are filed as Exhibit 10.6 hereto and incorporated herein by reference.
On December 11, 2020, QBS System entered into an engagement letter with a governmental organization for the provision of Security and Monitoring Services. The term of the contract is for a period of five (5) years. The preceding summary does not purport to be complete and is qualified in its entirety by reference to the Engagement Letter, dated December 11, 2020, a copy of which is filed as Exhibit 10.7 hereto and incorporated herein by reference.
On April 27, 2020, QBS System entered into a non-revolving credit facility consisting of up to HKD3,550,000 term loan (the “April 27th Facility”) with the Bank of China (Hong Kong) Limited (the “Lender”). Substantially, all the proceeds from the April 27th Facility were used to pay wages, rents and working capital. Drawdowns under the April 27th Facility bear interest at a rate, from time to time, equal to 2.5% per annum below Hong Kong Dollar Prime Rate (“HKD Prime Rate”) quoted by the Hong Kong Mortgage Corporation Limited (the “HKMC”). Pursuant to the terms of the April 27th Facility, QBS System may on any business day during the availability period make a drawing under the April 27th Facility by giving the Lender at least three (3) business day’s prior written notice. The accrued interest is payable on a monthly basis commencing one month from the date of the drawdown. The outstanding principal and interest accrued after a drawdown shall be repaid in twenty-four (24) equal monthly installments, commencing thirteen (13) months after the date of a drawdown (each a “Repayment Date”). Upon thirty (30) days prior written notice to the Lender, QBS System may prepay all or any part of the April 27th Facility on the Repayment Date in a minimum amount of HKD50,000 and in multiples of HKD10,000. Any payments required to be made on the April 27th Facility that is not made when due shall bear default interest on the overdue amount at the rate of 6% per annum over the HKD Prime Rate quoted by HKMC. The preceding summary of the April 27th Facility does not purport to be complete and is qualified in its entirety by reference to the Facility Letter, dated April 27, 2020, a copy of which is filed as Exhibit 10.8 hereto and incorporated herein by reference.
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On October 10, 2020, QBS System entered into a non-revolving credit facility consisting of up to HKD1,450,000 term loan (the “October 10th Facility”) with the Lender. Substantially all the proceeds from the October 10th Facility were used to pay wages, rents and working capital. Borrowings under the October 10th Facility bears interest at a rate, from time to time, equal to 2.5% per annum below the HKD Prime Rate quoted by the HKMC. Pursuant to the terms of the October 10th Facility, QBS System may on any business day during the availability period make a drawing under the October 10th Facility by giving the Lender at least three (3) business day’s prior written notice. The outstanding principal and interest accrued on each drawdown is payable on a monthly basis commencing one month from the date of the drawdown and shall be repaid in forty-eight (48) equal monthly instalments, commencing thirteen (13) months after the date of the drawdown. Upon thirty (30) days prior written notice to the Lender, QBS System may prepay all or any part of the October 10th Facility on each such Repayment Date in a minimum amount of HKD50,000 and in multiples of HKD10,000. Any payments required to be made on the October 10th Facility that is not made when due shall bear default interest on the overdue amount at the rate of 6% per annum over the HKD Prime Rate quoted by HKMC. The preceding summary of the October 10th Facility does not purport to be complete and is qualified in its entirety by reference to the Facility Letter, dated October 10, 2020, a copy of which is filed as Exhibit 10.9 hereto and incorporated herein by reference.
On June 28, 2021, QBS System entered into a non-revolving credit facility consisting of up to HKD1,000,000 term loan (the “June 28th Facility”) with the Lender. Substantially, all the proceeds from the June 28th Facility were used to pay wages, rents and working capital. Borrowings under the June 28th Facility bears interest at a rate, from time to time, equal to 2.5% per annum below the HKD Prime Rate quoted by the HKMC. Pursuant to the terms of the June 28th Facility, QBS System may on any business day during the availability period make a drawing under the June 28th Facility by giving the Lender at least three (3) business day’s prior written notice. The accrued interest is payable on a monthly basis commencing one month from the date of the drawdown. The outstanding principal and interest accrued after a drawdown shall be repaid in eighty-four (84) equal monthly instalments, commencing thirteen (13) months after the date of the drawdown. Upon thirty (30) days prior written notice to the Lender, QBS System may prepay all or any part of the June 28th Facility on such Repayment Date in a minimum amount of HKD50,000 and in multiples of HKD10,000. Any payments required to be made on the June 28th Facility that is not made when due shall bear default interest on the overdue amount at the rate of 6% per annum over the HKD Prime Rate quoted by HKMC. The preceding summary of the June 28th Facility does not purport to be complete and is qualified in its entirety by reference to the Facility Letter, dated June 28, 2021, a copy of which is filed as Exhibit 10.10 hereto and incorporated herein by reference.
DESCRIPTION OF PROPERTY
QBS System’s principal place of business is an office located at Unit 327, 3/F, Building 16W, 16 Science Park West Avenue, Hong Kong Science Park, Shatin, New Territories, consisting of approximately 1,069 square feet of office and conference room space, which we lease on a month-to-month basis for HKD26,725 or $25 per square foot. In addition, QBS System Pty Limited has an office in Australia that is the base for its local operations. Such space is provided at no expense by our officers and directors.
We believe that our existing facilities are adequate to meet current requirements. Suitable will seek out additional or substitute space on an as needed to accommodate any physical expansion of our operations and executive offices.
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RISK FACTORS
The following risk factors apply to the business and operations of the Company. These risk factors are not exhaustive. Investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of the Company. You should carefully consider the following risk factors, as well as the other information included in this CURRENT Report. In particular, please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.” The Company may face additional risks and uncertainties that are not presently known to IT, or that IT currently deem immaterial, which may also impair the business. The following discussion should be read in conjunction with the financial statements and notes to the financial statements included herein.
If any of the following or other risks materialize, the Company’s business, financial condition, and results of operations could be materially adversely affected which, in turn, could adversely impact the value of the Common Stock. In such a case, investors in Common Stock could lose all or part of their investment.
Risks Related to Our Business and Industry
We have a limited operating history, making it difficult to forecast our future results of operations.
QBS System commenced operations on April 14, 2011. Our relatively limited operating history makes it difficult to evaluate our current business and prospects, and to plan for our anticipated future growth. As a result of our limited operating history, our ability to accurately forecast our future results of operations is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue growth should not be considered indicative of our future performance.
Further, in future periods, our revenue growth could slow down or our revenue could decline for a number of reasons, including slowing demand for our offerings, increased competition, changes to technology, a decrease in the growth of our overall market, or our failure, for any reason, to continue to take advantage of growth opportunities. We have also encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described below. If our assumptions regarding these risks and uncertainties and our future revenue growth are incorrect, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, and our business could suffer.
The industry in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.
The IoT market in which we compete require continuous innovation and is highly competitive, rapidly evolving, subject to changing technology, shifting customer needs and frequent introductions of new products and services. Our competitors in the IoT enterprise marketplace include vendors of IoT devices and products, cloud platform providers for certain hardware and application vendors, hardware providers offering sensors and cloud integration partners, and IoT platforms from companies that have existing relationships with hardware and software companies. We compete on a service basis, by offering fully integrated IoT device connectivity to a variety of niche markets. New competitors could launch new businesses in our markets at a relatively low cost since technological and financial barriers to entry are relatively low. Some of our current and potential competitors may have competitive advantages, such as greater name recognition, longer operating histories, significant installed bases, broader geographic scope, and larger marketing budgets, as well as substantially greater financial, technical, personnel, and other resources. In addition, our potential competitors may have established marketing relationships and access to larger customer bases, and have major service agreements with consultants. We may also experience competition from smaller, younger competitors that may be more agile in responding to customers’ demands. These competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements or provide competitive pricing. As a result, even if our services are more effective than the services that our competitors offer, potential customers might select competitive services in lieu of purchasing our services. For these reasons, we may not be able to compete successfully against our current and future competitors, which could negatively impact our future sales and harm our business and financial condition.
In order to differentiate our services from our competitors’, we must continue to focus on improving our existing services and adapt to current technologies. If our services fail to achieve widespread market acceptance, if existing customers do not subscribe to our paid subscription services, or if we are unsuccessful in capitalizing on opportunities in the connected IoT market, our future growth may be slowed and our business, results of operations and financial condition could be materially adversely affected.
Our customers may be subject to periods of cyclical downturn.
Although our customer base is diversified, as of March 31, 2022, 3% of our customers are in the real estate, leisure, and entertainment, retail, and manufacturing industries, which are currently experiencing a cyclical downturn. We are committed to further upgrade our services offering, and to engage business in more industry verticals. However, there can be no assurance that downturns or prolonged adverse conditions in the real estate, leisure, and entertainment, retail, and manufacturing industries, or capital markets or in national or local economies will not have a material adverse impact on us.
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If we are not able to introduce new services successfully and to make enhancements to our existing services, our business and results of operations could be adversely affected.
To attract new customers and end users and keep our existing ones engaged, we must introduce new services and upgrade our existing offerings to meet their evolving preferences. It is difficult to predict the preferences of a particular customer or a specific group of customers. Changes and upgrades to our existing services may not be well received by our customers and end users, and newly introduced products or services may not achieve success as expected. For example, we may introduce new industry connectivity, such as internet of vehicles and such efforts may require us to contribute a substantial amount of additional human capital and financial resources. We cannot assure you that any of such new services will achieve market acceptance or generate sufficient revenues to adequately compensate the costs and expenses incurred in relation to our development and promotion efforts. New services that we develop may not be introduced in a timely or cost-effective manner or may not achieve the broad market acceptance necessary to generate significant revenue. If we fail to improve our existing services and introduce new ones in a timely or cost-effective manner, our ability to attract and retain customers may be impaired and may significantly impair our revenue growth as well as negatively impact our operating results if the additional costs are not offset by additional revenues.
We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet, physical and e-commerce retail, digital content, web services, electronic devices, advertising, and other services that we offer. Unfavorable changes could harm our business.
We are subject to general business regulations and laws, as well as regulations and laws specifically governing our business activities. These regulations and laws cover taxation, privacy, data protection, cybersecurity, distribution of goods, employment, operation of unmanned aircraft systems, premises occupied by us and other matters.
Unfavorable regulations, laws, decisions, or interpretations by government or regulatory authorities applying those laws and regulations, or inquiries, investigations, or enforcement actions initiated by them, could increase our cost of doing business and require us to change our business practices in a manner materially adverse to our business, damage our reputation, impede our growth, or otherwise have a negative effect on our operations.
Risks Related to the Company
If we are unable to hire, retain and motivate qualified personnel, our business will suffer.
Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. We believe that there is, and will continue to be, intense competition for highly skilled management, technical, sales and other personnel with experience in the industries in which we operate. We must provide competitive compensation packages and a high-quality work environment to hire, retain and motivate employees. If we are unable to retain and motivate our existing employees and attract qualified personnel to fill important positions, we may be unable to manage our business effectively, including the development, marketing and sale of our services, which could adversely affect our business, operating results and financial condition. To the extent we hire personnel from competitors, we also may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.
Any failure in our delivery of high-quality technical support services may adversely affect our relationships with our customers and our financial results.
Our customers depend on our services to resolve technical issues relating to various applications. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell our service offerings to existing and prospective customers, and our business, operating results and financial position.
We may be unable to compete successfully against existing and future competitors, which could harm our margins and our business.
The IoT business is intensely competitive. We face competition from a large number of existing companies who have significantly greater financial, technical, and marketing resources, as well as greater experience than we have. We believe that the general financial success of companies within the IoT market will continue to attract new competitors to the industry, which has a relatively low barrier to entry in some segments, including large technology companies that could expand their platforms or acquire one of our competitors.
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We can provide no assurance that we will be able to compete successfully against current or potential competitors. Many of our current and potential competitors have longer operating histories, better recognition and significantly greater financial, technical and marketing resources than we do. Many of these competitors may have well-established relationships with manufacturers and other key strategic partners and can devote substantially more resources to such relationships. As a result, they may be able to secure equipment, technology, products and systems, among other things that we may need, from vendors on more favorable terms, fulfill customer orders or requests more efficiently and adopt more aggressive pricing policies than we can. They also may be able to secure a broader range of technologies, products and systems from or develop close relationships with primary vendors. Some competitors may price their services, capabilities and systems below cost in an attempt to gain market share.
Increased competition may result in price reductions, and reduced gross margin, any of which could harm our business and adversely affect our operating results and financial condition. We may not be able to compete successfully and respond to competitive pressures. Our inability to compete effectively with current or future competitors could harm our business and have a material adverse effect on our results of operations and financial condition.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and | |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Our internal controls may be inadequate or ineffective, which could cause financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause investors to lose confidence in our reported financial information, either of which could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.
The costs of being a public company could result in us being unable to continue as a going concern.
As a public company, we are required to comply with numerous financial reporting and legal requirements, including those pertaining to audits and internal control. The costs of maintaining public company reporting requirements could be significant and may preclude us from seeking financing or equity investment on terms acceptable to us and our shareholders. We estimate these costs to be in excess of $100,000 per year and may be higher if our business volume or business activity increases significantly.
If our revenues are insufficient or non-existent, and/or we cannot satisfy many of these costs through the issuance of shares or debt, we may be unable to satisfy these costs in the normal course of business. This would certainly result in our being unable to continue as a going concern.
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Risks Related to Ownership of Our Common Stock
An active, liquid trading market for our common stock does not currently exist and may not develop and there is no assurance that a market may ever develop.
Our Common Stock is currently quoted on the Pink tier of OTC Markets Group Inc., an over-the-counter quotation system, under the symbol “FWFW.” There is, however, currently no trading market for the Common Stock and there is no assurance that a regular trading market will ever develop. The trading price of the Company’s securities could be subject to wide fluctuations, in response to quarterly variations in its operating results, announcements by the Company or others, developments affecting it, and other events or factors. In addition, the stock market has experienced extreme price and volume fluctuations in recent years. These fluctuations have had a substantial effect on the market prices for many companies, often unrelated to the operating performance of such companies, and may adversely affect the market prices of the securities Such risks could have an adverse effect on the stock’s future liquidity.
If we fail to remain current in our reporting requirements, we could be removed from the OTC Pink which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
As a company listed on the OTC Pink and subject to the reporting requirements of the Exchange Act, we must be current with our filings pursuant to Section 13 or 15(d) of the Exchange Act in order to maintain price quotation privileges on the OTC Pink. If we fail to remain current in our reporting requirements, we could be removed from the OTC Pink. As a result, the market liquidity of our securities could be severely adversely affected by limiting the ability of broker-dealers to trade our securities and the ability of stockholders to sell their securities in the secondary market.
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
The market price of our Common Stock may fluctuate significantly in the future.
We expect that the market price of our Common Stock may fluctuate in response to one or more of the following factors, many of which are beyond our control:
| ● | our ability to market our services on a cost-effective and timely basis; | |
| ● | our inability to obtain working capital financing, if needed; | |
| ● | changing conditions in the market; |
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| ● | changes in market valuations of similar companies; | |
| ● | stock market price and volume fluctuations generally; | |
| ● | regulatory developments; | |
| ● | fluctuations in our quarterly or annual operating results; | |
| ● | additions or departures of key personnel; | |
| ● | competitive pricing pressures; and | |
| ● | future sales of our Common Stock or other securities. |
Sales of substantial amounts of our Common Stock, or in anticipation that such sales could occur, may materially and adversely affect prevailing market prices for our Common Stock, if and when such market develops in the future.
The market price for our Common Stock may be particularly volatile given our status as a relatively unknown company, which could lead to wide fluctuations in our share price. You may be unable to sell your Common Stock at or above your purchase price, which may result in substantial losses to you.
The price of our Common Stock in the future may be particularly volatile when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats. The volatility in our share price will be attributable to a number of factors. First, our Common Stock will be, compared to the shares of such larger, more established companies, sporadically and thinly traded. As a consequence of this limited liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could decline precipitously in the event that a large number of our Common Stock are sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment, and uncertainty of future market acceptance for our services. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades on a national securities exchange and has a large public float. Many of these factors are beyond our control and may decrease the market price of our Common Stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our Common Stock will be at any time.
The sale of a large number of shares of Common Stock by our principal shareholders could depress the market price of our common stock.
As of March 22, 2023 our principal shareholders beneficially owned 16,200,000 or 60.7% of our common stock outstanding. The shares may become available for resale, subject to the requirements of the U.S. securities laws. The sale or prospect of a sale of a substantial number of these shares could have an adverse effect on the market price of our common stock.
Our future results may vary significantly which may adversely affect the price of our Common Stock.
It is possible that our quarterly revenues and operating results may vary significantly in the future and that period-to-period comparisons of our revenues and operating results are not necessarily meaningful indicators of the future. You should not rely on the results of one quarter as an indication of our future performance. It is also possible that in some future quarters, our revenues and operating results will fall below our expectations or the expectations of market analysts and investors. If we do not meet these expectations, the price of our Common Stock may decline significantly.
Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through issuance of additional shares.
Our Board has authority, without action or vote of the shareholders, to issue all or part of our authorized shares that are not issued. In addition, we may attempt to raise additional capital by selling shares, possibly at a deep discount to market. These actions will result in dilution of the ownership interests of existing shareholders, further dilute Common Stock book value, and that dilution may be material.
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Provisions of our Articles of Incorporation and Bylaws may delay or prevent a take-over that may not be in the best interests of our stockholders.
Provisions of our Articles of Incorporation and Bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt.
We do not intend to pay dividends on our Common Stock.
We intend to retain all of our earnings, if any, for the foreseeable future to finance the operation and expansion of our business and do not anticipate paying cash dividends. Any future determination to pay dividends will be at the discretion of the Board, subject to compliance with applicable law and any contractual provisions, and will depend on, among other factors, our results of operations, financial condition, capital requirements and other factors that the Board deems relevant. As a result, you should expect to receive a return on your investment in our Common Stock only if the market price of the Common Stock increases, which may never occur.
FINANCIAL INFORMATION/MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis should be read in conjunction with the historical financial statements and the related notes thereto contained in this report. The management’s discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in this Current Report, that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.
As the result of the Share Exchange and the change in business and operations of the Company, a discussion of the past financial results of the Company is not pertinent, and under applicable accounting principles the historical financial results of QBS System, the accounting acquirer, prior to the Share Exchange are considered the historical financial results of the Company.
The following discussion highlights the results of operations and the principal factors that have affected our financial condition, as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on the audited financial statements contained in this Current Report, which we have prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). You should read the discussion and analysis together with such financial statements and the related notes thereto.
Overview
Basis of Presentation
The audited financial statements of QBS System for the fiscal years ended March 31, 2022, and March 31, 2021, include a summary of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in these audited financial statements. All such adjustments are of a normal recurring nature.
Results of Operations
Year Ended March 31, 2022, Compared to Year Ended March 31, 2021
Year Ended March 31, 2022 | Year Ended March 31, 2021 | |||||||
| Revenue | $ | 3,256,440 | $ | 4,033,739 | ||||
| Cost of revenue | (2,462,070 | ) | (2,454,997 | ) | ||||
| GROSS PROFIT | 794,370 | 1,578,742 | ||||||
| Operating expenses | (893,729 | ) | (1,269,920 | ) | ||||
| (LOSS)/INCOME FROM OPERATIONS | (99,359 | ) | 308,822 | |||||
| Interest expense | (24,434 | ) | (23,981 | ) | ||||
| Other income | 165,833 | 370,731 | ||||||
| INCOME BEFORE INCOME TAXES | 42,040 | 655,572 | ||||||
| Income taxes | (4,008 | ) | (102,251 | ) | ||||
| NET INCOME | $ | 38,032 | $ | 553,321 | ||||
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Revenues. We generated $3,256,440 and $4,033,739 in revenues for the year ended March 31, 2022 and 2021, respectively. The decrease of $777,299, or approximately 19%, was primarily due to the impact of COVID-19 on our operations.
Cost of Revenue. Our Cost of Revenue was $2,462,070 for the year ended March 31, 2022, compared to $2,454,997 for the year ended March 31, 2021. No material fluctuation was noted.
Operating Expenses. Our operating expenses were $893,729 for the year ended March 31, 2022, as compared to $1,269,920 for the year ended March 31, 2021, in which both figures consisted of significant audit and advisory fees for business development and listing. Our total operating expenses decreased by $376,191 during the year ended March 31, 2022, compared to the same period in 2021. Such decrease in operating expenses was mainly due to the decrease in advisory fees for business development and listing of $68,341 and staff salaries of $149,399 included in general and administrative expenses.
(Loss)/Income from Operations. Our loss from operations was $99,359 for the year ended March 31, 2022, compared to income from operations of $308,822 in the year ended March 31, 2021. The decrease was primarily due to the decrease in operating expenses offset by the decrease in revenue.
Interest Expense, net. Interest expense, net was $24,434 for the year ended March 31, 2022, as compared to interest expenses, net of $23,981 for the year ended March 31, 2021. The increase of $453 in interest expense was primarily due to the interest expense from lease and bank loans.
Other Income. Other income was $165,833 for the year ended March 31, 2022, as compared to other income of $370,731 for the year ended March 31, 2021. The decrease of $204,898, or approximately 55%, was due to the decrease in government grant as there was no more government grants from employment support scheme of $165,585 for the year ended March 31, 2022.
Net Income. Our net income was $38,032 for the year ended March 31, 2022, compared to $553,321 for the year ended March 31, 2021, decreased by $515,289, or approximately 93% as a result of decrease in revenue primarily due to the impact of COVID-19 on our operations.
Liquidity and Capital Resources
Working Capital
As of March 31, 2022, and 2021, our total current assets were $2,555,582 and $2,412,221, respectively and remain fairly consistent.
As of March 31, 2022, and 2021, our working capital were $1,560,277 and $1,552,654, respectively and stockholders’ equity was $983,523 and $957,109 respectively. Both working capital and stockholders’ equity remain fairly consistent.
Cash Flows:
Year Ended March 31, 2022 | Year Ended March 31, 2021 | |||||||
| Cash flow from operating activities | $ | (396,933 | ) | $ | 346,534 | |||
| Cash flow from investing activities | (109,332 | ) | 93,531 | |||||
| Cash flow from financing activities | 83,116 | 822,819 | ||||||
| NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS | (423,149 | ) | 1,262,884 | |||||
| Effect of exchange rates on cash | (16,911 | ) | 12,274 | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 1,376,540 | 101,382 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 936,480 | $ | 1,376,540 | ||||
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Cash Flow from Operating Activities
During the years ended March 31, 2022, and 2021, the net cash (used in)/ provided by operating activities were $396,933 and $346,534, respectively. The decrease in the amount of $743,467 was primarily due to the decrease in net income, increase in cash outflow in prepaid taxes, and advisory fees prepaid for business development, during the year ended March 31, 2022.
Cash Flow from Investing Activities
During the years ended March 31, 2022 and 2021, the net cash (used in)/ provided by investing activities was $109,332 and $93,531, respectively. The decrease in the amount of $202,863 was primarily due to increase in advances to related parties during the year ended March 31, 2022.
Cash Flow from Financing Activities
During the years ended March 31, 2022, and 2021, the net cash provided by financing activities were $83,116 and $822,819, respectively. The net cash provided by financing activities decreased by $739,703 was primarily due to the repayment of bank loans during the year ended March 31, 2022.
Off-Balance Sheet Arrangements
As of March 31, 2022, we did 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 is material to investors.
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with U.S. GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
Allowance for expected credit losses
The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of default in the future. As of March 31, 2022, and 2021, the provision for credit losses was $154,212 and $91,445, respectively.
Results of Operations — Nine Months Ended December 31, 2022 Compared to Nine Months Ended December 31, 2021.
Nine Months Ended December 31, 2022 | Nine Months Ended December 31, 2021 | |||||||
| Revenue | $ | 2,336,943 | $ | 2,200,479 | ||||
| Cost of revenue | (2,003,995 | ) | (1,952,227 | ) | ||||
| GROSS PROFIT | 332,948 | 248,252 | ||||||
| Operating expenses | (487,815 | ) | (699,117 | ) | ||||
| LOSS FROM OPERATIONS | (154,867 | ) | (450,865 | ) | ||||
| Interest expense | (18,209 | ) | (17,965 | ) | ||||
| Other income | 87,856 | 190,444 | ||||||
| LOSS BEFORE INCOME TAXES | (85,220 | ) | (278,386 | ) | ||||
| Income taxes | 460 | (403 | ) | |||||
| NET LOSS | $ | (85,680 | ) | $ | (277,983 | ) | ||
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Revenues. We generated $2,336,943 and $2,200,479 in revenues for the nine months ended December 31, 2022 and 2021, respectively; and incurred $2,003,995 and $1,952,227 in cost of revenue for the nine months ended December 31, 2022 and 2021, respectively. No material fluctuation was noted.
Operating Expenses. Our operating expenses have decreased by $211,302, or 30%, to $487,815 for the nine months ended December 31, 2022 from $699,117 for the nine months ended December 31, 2021. Such decrease in operating expenses was mainly due to the decrease in advisory fees paid for business development included in general and administrative expenses.
Loss from Operations. Our loss from operations for the nine months ended December 31, 2022 was $154,867, compared to $450,865 for the nine months ended December 31, 2021. The decrease of $295,998, or 66%, was primarily due to the decrease in operating expenses.
Interest expense, net. Interest expense was $18,209 for the nine months ended December 31, 2022 as compared to $17,965 for the nine months ended December 31, 2021. No material fluctuation was noted.
Other Income. Our other income was $87,856 for the nine months ended December 31, 2022 as compared to $190,444 for the nine months ended December 31, 2021. The decrease was principally due to no more subsidies from the government.
Net Loss. As a result of the above factors, our net loss was $85,680 for the nine months ended December 31, 2022, compared to $277,983 for the nine months ended December 31, 2021, representing a decrease of $192,303, or 69%.
Liquidity and Capital Resources
Working Capital
As of December 31, 2022, and March 31, 2022, our total current assets were $2,216,317 and $2,555,582, respectively and remain fairly consistent.
As of December 31, 2022, and March 31, 2022, our working capital were $1,425,994 and $1,560,277, respectively and stockholders’ equity was $886,993 and $983,523 respectively.
The decrease in working capital is primarily due to the repayment of bank loans.
Cash Flows:
| Nine Months Ended December 31, 2022 | Nine Months Ended December 31, 2021 | |||||||
| Cash flow from operating activities | $ | (504,225 | ) | $ | (630,809 | ) | ||
| Cash flow from investing activities | (31,004 | ) | (103,224 | ) | ||||
| Cash flow from financing activities | (65,828 | ) | 75,004 | |||||
| NET DECREASE IN CASH AND EQUIVALENTS | (601,057 | ) | (659,029 | ) | ||||
| Effect of exchange rates on cash | 659 | (12,957 | ) | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 936,480 | 1,376,540 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 336,082 | $ | 704,554 | ||||
Cash Flow from Operating Activities
During the nine months ended December 31, 2022 and 2021, the net cash used in operating activities were $504,225 and $630,809, respectively. The decrease in the amount used in operating activities of $126,584 was primarily due to the decrease in cash outflow in advisory fees prepaid for business development during the nine months ended December 31, 2021.
Cash Flow from Investing Activities
During the nine months ended December 31, 2022, the net cash used in investing activities was $31,004, compared to the net cash used in investing activities was $103,224 for the nine months ended December 31, 2021. The decrease was due to decrease in advances to related parties.
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Cash Flow from Financing Activities
During the nine months ended December 31, 2022, the net cash used in financing activities was $65,828, while the net cash provided by for the nine months ended December 31, 2021 was $75,004. The increase in net cash used in financing activities were primarily due to the repayment of bank loans during the nine months ended December 31, 2022.
Off-Balance Sheet Arrangements
As of December 31, 2022, we did 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 is material to investors.
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with United States GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our financial statements.
While we believe that the historical experience, current trends and other factors considered to support the preparation of our financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
Allowance for expected credit losses
The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of default in the future. $137,093 and $154,212 of allowance for expected credit losses was established as of December 31, 2022, and March 31, 2022, respectively.
Inflation
The amounts presented in our financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Off Balance Sheet Arrangements
As of the date of this Current 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.
Seasonality
Our operating results are not affected by seasonality.
Inflation
Our business and operating results as reported have not been affected in any material way by inflation. However, the Company is aware that global inflation is increasing, and it expects that inflation will affect the Company during fiscal year ending September 2023, though it cannot predict at this point in what ways.
Critical Accounting Policies
The SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” suggesting that companies provide additional disclosure and commentary on their most critical accounting policies. In Financial Reporting Release No. 60, the SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The nature of our business generally does not call for the preparation or use of estimates.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of the Company’s common stock as of March 23, 2023, by (i) each person who is known by the Company to own beneficially more than 5% of any classes of outstanding common stock, (ii) each director of the Company, (iii) each of the Chief Executive Officers and the executive officers (collectively, the “Named Executive Officers”) and (iv) all directors and executive officers of the Company as a group based upon 26,691,164 shares outstanding as of March 23, 2023.
| Name and Address of Beneficial Owners of common stock 1 | Title of Class | Amount and Nature of Beneficial Ownership | % of Common Stock | |||||||
| Tang Siu Fung 2 | Common Stock | 16,200,000 | 60.7 | % | ||||||
| Cheng Sin Yi | — | — | * | |||||||
| Ho Yiu Chung | — | — | * | |||||||
| DIRECTORS AND OFFICERS – TOTAL (3 persons) | 16,200,000 | 60.7 | % | |||||||
| 5% SHAREHOLDERS | ||||||||||
| Sparta Universal Industrial Limited. 2 | Common Stock | 16,200,000 | 60.7 | % | ||||||
| QBS Flywheel Limited3 | Common Stock | 8,939,600 | 33.5 | % | ||||||
| * | Less than 1% |
| 1. | Unless otherwise indicated, the business address of each individual or entity listed in the table is c/o: Flywheel Advanced Technology, Inc., 123 West Nye Lane, Suite 455, Carson City, Nevada 83702. |
| 2. | Our President, Chief Executive Officer and Chairman of the Board, Mr. Tang, is the controlling shareholder of Sparta Universal Industrial Limited (“Sparta”), which holds 16,200,000 shares of the Common Stock. | |
| 3. | The business address for QBS Flywheel Limited is “GATEWAY” L36, 1 Macquarie PI, Sydney, NSW 2000, Australia. |
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
The following table sets forth the names and positions of our executive officers and directors. Directors will be elected at our annual meeting of stockholders and serve for one year or until their successors are elected and qualify. Officers are elected by the Board and their terms of office are, except to the extent governed by employment contract, at the discretion of the Board.
| NAME AND ADDRESS | AGE | POSITION(S) | DATE OF APPOINTMENT | |||
| Tang Siu Fung | 42 | President, Chief Executive Officer, and Chairman of the Board | September 2021 | |||
| Cheng Sin Yi | 37 | Secretary and Treasurer | September 2021 | |||
| Ho Yiu Chung | 40 | Director | September 2021 |
The principal occupation and business experience during the past five years for our executive officers and directors is as follows:
Tang Siu Fung, President, Chief Executive Officer and Chairman of the Board.
Tang Siu Fung, age 42, is a co-founder of the Company and has worked for the last five (5) years at the Company. He was appointed President and Chief Executive Officer of the Company and as the Chairman of the Board in September 2021. Mr. Tang has over 20 years of experience in the banking and financial services industry and has gained extensive corporate financial planning and advisory experience and knowledge throughout the years serving in both international and local financial institutions in Hong Kong, including The Hong Kong and Shanghai Banking Corporation Limited, Standard Chartered Bank (Hong Kong) Limited and the subsidiary of Bank of China Limited. His main role as Chairman of the Company is the development of Company strategy; he sets a clean and precise direction of where the company is heading as well as short- and long-term goals for the Company. Mr. Tang plays a major role in setting up corporate governance standards and expanding the Company’s business operations and transforming the business from a traditional software system company into an innovation and technology Company with gene of incubation.
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Cheng Sin Yi, Secretary and Treasurer
Cheng Sin Yi, age 37, has worked for the past five (5) years at the Company, first as the head of our Merger and Acquisition Department and then as Secretary and Treasurer since September 2021. Ms. Cheng was an Executive Officer in Cherry Body Fashions Mfy. Limited until 2012, responsible for all operational matters and external affairs of the organization. Ms. Cheng has extensive business management experience and excellent business negotiation skills. In 2017, Ms. Cheng has co-founded Road to Greatness Consultancy Company Ltd. Ms. Cheng graduated in 2008 as a Master of Business Administration from Kurt Bosch University in Switzerland.
Ho Yiu Chung, Director
Ho Yiu Chung, age 40, is a co-founder of the Company and has worked for the past five (5) years at the Company. He was appointed as a director in September 2021. He is also the director of Goldman Technology Holdings Limited. Prior to co-founding the Company, Mr. Ho was a senior project engineer and served as senior management role in Alien Technology Ltd until 2008 and served as Senior Project Engineer in Aceway Industries Ltd. He has over 15 years of project management experience and risk assessment capabilities. In 2017, Mr. Ho co-founded and served as Chief Technology Officer of Goldman Technology Holdings Limited. Mr. Ho leads the team of 6 and developed a full range of energy-efficient lighting products with patents. Mr. Ho graduated with a Bachelor of Engineering in Mechanical Engineering degree from the Hong Kong University of Science and Technology.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Vacancies on the Board arising from resignation, increase in the number of directors or otherwise may only be filled only by the vote of a majority of the directors then in office. Officers are appointed to serve until the meeting of the Board following the next annual meeting of stockholders and until their successors have been elected and qualified.
Director Independence
The Board currently consists of two (2) members, neither of whom are independent. We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board comprised of a majority of “independent directors.”
Audit Committee
We do not presently have an audit committee. The Board currently acts as our audit committee.
Compensation Committee
We do not presently have a compensation committee. The Board currently acts as our compensation committee.
Nominating Committee
We do not presently have a nominating committee. The Board currently acts as our nominating committee.
Code of Ethics
Our Board has not adopted a Code of Ethics due to the Company’s size and lack of employees.
Board Leadership Structure
We have chosen to combine the Chief Executive Officer and Board Chairman positions.
Delinquent Section 16(a) Reports
Not Applicable
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Involvement in Certain Legal Proceedings
None of our directors or executive officers has been involved in any of the following events during the past ten years:
| ● | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| ● | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); | |
| ● | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; or | |
| ● | being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. |
Board Diversity
Upon consummation of the Share Exchange, the Board will review, on an annual basis, the appropriate characteristics, skills and experience required for the Board o as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the Board, in approving (and, in the case of vacancies, appointing) such candidates, will take into account many factors, including the following:
| ● | personal and professional integrity; | |
| ● | ethics and values; | |
| ● | experience in the industries in which we compete; | |
| ● | experience as a director or executive officer of another publicly held company; | |
| ● | diversity of expertise and experience in substantive matters pertaining to our business relative to other board members; | |
| ● | conflicts of interest; and | |
| ● | practical business judgment. |
Family Relationships
There are no family relationships among our directors or executive officers.
Significant Employees
While the Company has engaged various consultants, other than management, we currently have no significant employees.
QBS System has entered into employment contacts with Mr. Wong Chi Fung and Mr. Kwan Ping Yuen.
QBS System appointed Mr. Wong Chi Fung as Chief Executive Officer by letter dated April 1, 2022.
QBS System appointed Ms. Kwan Ping Yuen as Chief Technology Officer by letter dated April 1, 2022.
The Company currently has no compensation plans or arrangements.
EXECUTIVE COMPENSATION
The following is a summary of all compensation paid to the Company’s executive officers for the last two completed fiscal years. The summary is broken out into two tables below, the first of which is for the Company prior to the Closing (“Pre-Closing”) because the Company’s last two completed fiscal years ended on September 30, 2022, and September 30, 2021. The second summary is for the Company subsequent to the Closing (“Post-Closing”) and the acquisition of QBS System because QBS System’s last two completed fiscal years ended on March 31, 2022, and March 31, 2021.
Summary Executive Compensation 2021-2022 – Pre-Closing
For the last two fiscal years ended September 30, 2022, and 2021, the Company has not paid any compensation to its executive officers.
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Named Executive Officer Employment Agreements
None.
Termination Provisions
As of the date of this Current Report, we have no contract, agreement, plan, or arrangement, whether written or unwritten, that provides for payments to a Named Executive Officer at, following, or in connection with any termination, including without limitation resignation, severance, retirement or a constructive termination of a Named Executive Officer, or a change in control of the Company or a change in the Named Executive Officer’s responsibilities, with respect to each Named Executive Officer.
Outstanding Equity Awards at Fiscal Year End
As of September 30, 2022, none of our Named Executive Officers held any unexercised options, stock that have not vested, or other equity incentive plan awards.
Director Compensation
To date, we have not paid our directors any compensation for services on the Board.
Equity Compensation Plan Information
The Company does not have any securities authorized for issuance or outstanding under an equity compensation plan or equity compensation grants made outside of such a plan.
Compensation of Directors
To date, we have not paid our directors any compensation for services on the Board.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
There are no arrangements for officers, employees or consultants that would result from a change-in-control.
Indebtedness of Directors, Senior Officers, Executive Officers and Other Management
None of our directors or executive officers or any associate or affiliate of our company during the last two fiscal years is or has been indebted to our company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.
Summary Executive Compensation 2022-2023 – Post-Closing
The following information is related to the Company subsequent to the closing of the Share Exchange Agreement and the acquisition of QBS System (“Post-Closing”) for QBS System’s last two completed fiscal years ended on March 31, 2022, and March 31, 2021.
During the last two completed fiscal years, no compensation was paid, distributed, or accrued to the Named Executive Officers serving as of the end of the last fiscal year in excess of $100,000:
| Name | Year | Fees earned or paid in cash ($) | Stock awards ($) | Option awards ($) | Non-equity incentive plan compensation ($) | Nonqualified deferred comparison earnings ($) | All other compensation ($) | Total ($) | ||||||||||||||||||||||||
| Tang Siu Fung | 2022 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| 2021 | ||||||||||||||||||||||||||||||||
| Cheng Sin Yi | 2022 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| 2021 | ||||||||||||||||||||||||||||||||
| Ho Yiu Chung | 2022 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| 2021 | ||||||||||||||||||||||||||||||||
| Wong Chi Fung | 2022 | 52,775 | - | - | - | - | - | - | ||||||||||||||||||||||||
| 2021 | 55,069 | - | - | - | - | - | - | |||||||||||||||||||||||||
| Kwan Ping Yuen | 2022 | 45, 890 | - | - | - | - | - | - | ||||||||||||||||||||||||
| 2021 | 35,565 | - | - | - | - | - | - | |||||||||||||||||||||||||
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Employment Contracts, Termination of Employment, Change-in-Control Arrangements
The Company does not currently have employment agreements with any of its executive officers but expects to enter into employment agreements with certain of them in the future.
QBS System has entered into employment contacts with Wong Chi Fung and Kwan Ping Yuen. Mr. Wong Chi Fung was appointed Chief Executive Officer of QBS System by letter dated April 1, 2022. Mr. Kwan Ping Yuen was appointed Chief Technology Officer by letter dated April 1, 2022.
The Company currently has no compensation plans or arrangements.
Compensation Committee
We do not currently have a compensation committee of the Board or a committee performing similar functions. The Board as a whole participates in the consideration of executive officer and director compensation.
Indebtedness of Directors, Senior Officers, Executive Officers and Other Management
None of our directors or executive officers or any associate or affiliate of the Company during the last two fiscal years is or has been indebted to the Company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SEC rules require us to disclose any transaction or currently proposed transaction in which the Company is a participant and in which any related person has or will have a direct or indirect material interest involving the lesser of $120,000.00 or one percent (1%) of the average of the Company’s total assets as of the end of last two completed fiscal years. A related person is any executive officer, director, nominee for director, or holder of 5% or more of the Company’s common stock, or an immediate family member of any of those persons.
Except as disclosed below, since the beginning of the fiscal year preceding the last fiscal year none of the following persons has had any direct or indirect material interest in any transaction to which our Company was or is a party, or in any proposed transaction to which our Company proposes to be a party:
| ● | any Director or officer of our Company; | |
| ● | any proposed Director of officer of our Company; | |
| ● | any person who beneficially owns, directly or indirectly, shares carrying more than 5 percent of the voting rights attached to our Common Stock; or | |
| ● | any member of the immediate family of any of the foregoing persons (including a spouse, parents, children, siblings, and in-laws). |
On July 13, 2021, pursuant to a Stock Purchase Agreement between NYJJ Hong Kong Limited (“NYJJ”) and Sparta, wherein Sparta purchased the A-1 Preferred Shares of the Company. As a result, Sparta became an approximately 90% holder of the voting rights of the issued and outstanding shares of the Company, on a fully diluted basis, and became the controlling shareholder. Sparta is controlled by Tang Siu Fung.
On September 15, 2022, Sparta provided notice to the Company to convert all of the issued and outstanding A-1 Preferred Shares into 16,200,000 shares of common stock. The Board approved the conversion and agreed that the Company would not charge any fee or expense for such conversion. As of the date of this report, Sparta is the holder of 16,200,000 of the 26,691,164 shares of common stock issued and outstanding, or approximately 60.7%.
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QBS System owed $84,171 and $98,112 as of March 31, 2022, and 2021, respectively, for advances from a director, Mr. Wong Chi Fung, which amounts are repayable on demand and interest free.
QBS System owes QBS Group Limited, of which the director of QBS System Mr. Wong Chi Fung is the director and shareholder, $293,817 and $296,968 as of March 31, 2022, and 2021, respectively, for advances from QBS Group Limited, which amounts are repayable on demand and interest free.
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.
We are currently not aware of any pending legal proceedings to which we are a party or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by any governmental authority.
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is currently quoted on the OTC Pink marketplace of OTC Markets Group, Inc., an inter-dealer quotation system, under the symbol “FWFW”. However, there is currently only a limited trading market for our Common Stock and there is no assurance that a regular trading market will ever develop.
Holders
As of March 23, 2023, there were 36 holders of record of our Common Stock, based on information provided by our transfer agent.
Dividends
To date, we have not paid dividends on shares of our Common Stock and we do not expect to declare or pay dividends on shares of our Common Stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by our Board.
Securities Authorized for Issuance Under Equity Compensation Plans
We do not presently maintain any equity compensation plans and have not maintained any such plans since our inception.
RECENT SALES OF UNREGISTERED SECURITIES
On March 22, 2023, pursuant to the terms of the Share Exchange Agreement, each share of QBS System’s common stock held by the Shareholder was exchanged for an aggregate of 8,939,600 shares of Common Stock.
This transaction was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and/or Regulation S promulgated thereunder, as not involving any public offering. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved. At the time of their issuance, the 8,939,600 shares of Common Stock were deemed to be restricted securities for the purpose of the Securities Act and will bear restrictive legends to that effect.
The information set forth in the Item 1.01 above is incorporated herein by reference.
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DESCRIPTION OF REGISTRANT’S SECURITIES
We have authorized capital stock consisting of 550,000,000 shares of Common Stock and 25,000,000 shares of Preferred Stock. As of the date of this Current Report, we had 26,691,164 shares of Common Stock issued and outstanding.
Common Stock
The holders of outstanding shares of Common Stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting of the election of directors then standing for election. The Common Stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the Common Stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors.
Preferred Stock
As of the date of this Current Report, the Company has 25,000,000 Preferred Shares authorized, par value $0.0001. 10,000,000 shares are designated Series A-1 Convertible Preferred Stock. As of the date hereof, no shares of Preferred Stock are issued and outstanding.
Options
We have not issued any stock options to purchase shares of our Common Stock.
Warrants
We have not issued any warrants to purchase shares of our Common Stock.
Other Convertible Securities
As of March 22, 2023, the Company does not have any outstanding convertible securities.
Transfer Agent
The Company’s transfer agent is Vstock Transfer, 18 Lafayette Place, Woodmere, New York 11598, Telephone # 212-828-8436.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company’s Articles of Incorporation provide for the elimination or limitation to the fullest extent permitted by Chapter 78 of Nevada Revised Statutes (the “NRS”) of the liability of directors and officers of the Company. The Articles of Incorporation also provide that the Company will, to the fullest extent permitted by the NRS, indemnify any and all directors and officers whom it shall have power to indemnify under the NRS from and against any and all of the expenses, liabilities, or other matters referred to in or covered by the NRS.
We do not currently have directors’ and officers’ liability insurance.
| ITEM 3.02 | UNREGISTERED SALES OF EQUITY SECURITIES. |
The information set forth in Item 1.01 and 2.01 above is incorporated herein by reference.
The issuance of the Exchange Shares in connection with the Share Exchange was not registered under the Securities Act, in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering, and Regulation S promulgated by the SEC under that section. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirement and are subject to further contractual restrictions on transfer as described below.
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| SECTION 5 | CORPORATE GOVERNANCE AND MANAGEMENT |
| ITEM 5.02 | DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS. |
The information set forth in Items 1.01 and 2.01 above is incorporated herein by reference, including, without limitation, the information regarding the departure of directors of the Company as of the Closing, and the biographical, related party, executive compensation and other information regarding the Company’s directors and executive officers.
There are no arrangements or understandings pursuant to which any of the Company’s current directors were appointed as a director.
| ITEM 5.06 | CHANGE IN SHELL COMPANY STATUS. |
Prior to the Share Exchange, we were a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act). As a result of the Share Exchange, the Company has ceased to be a shell company. The information contained in this Current Report, together with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as filed with the SEC, constitute the current “Form 10 information” necessary to satisfy the conditions contained in Rule 144(i)(2) under the Securities Act.
| ITEM 9.01 | FINANCIAL STATEMENTS AND EXHIBITS. |
| (a) | Financial Statements of Businesses Acquired. |
| In accordance with Item 9.01(a), the audited consolidated financial statements of QBS System for the last two fiscal years ended March 31, 2022 and March 31, 2021, and the accompanying notes, and the unaudited consolidated financial statements of QBS System for the nine months ended December 31, 2022 and December 31, 2021 with the accompany notes are included in this Current Report and attached hereto as Exhibit 99.2. | |
| (b) | Pro Forma Financial Information.
In accordance with Item 9.01(b), the unaudited pro forma condensed consolidated financial statements for the fiscal year ended September 30, 2022, and as of, and for, the three months ended December 31, 2022 and the accompanying notes are included in in this Current Report and attached hereto as Exhibit 99.3. |
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| (d) | Exhibits |
* Filed herewith.
** Upon request by the SEC, the Company hereby undertakes to furnish supplementally to the SEC a copy of any omitted schedule or exhibit to such agreement; provided, however, that Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedule or exhibit so furnished.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FLYWHEEL ADVANCED TECHNOLOGY, INC. | ||
| Dated: March 24, 2023 | By: | /s/ Tang Siu Fung |
| Name: | Tang Siu Fung | |
| Title: | Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) | |
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Exhibit 10.4
FORM OF LOCK-UP AGREEMENT
March ___, 2023
Flywheel Advanced Technology, Inc.
123 West Nye Lane, Suite 455
Carson City, NV 89706
Re: Flywheel Advanced Technology, Inc. - Lock-Up/Leak-Out Agreement
[____]:
This Lock-Up/Leak-Out Agreement (this “Agreement”) is being delivered to you in connection with the Share Exchange Agreement (the “Share Exchange Agreement”) dated as of December 15, 2022, by and among Flywheel Advanced Technology, Inc., a Nevada corporation (the “Company”), QBS System Limited, a limited company incorporated under the laws of Hong Kong with a company number of 1587852 (the “Seller”), and QBS Flywheel Limited, a company incorporated in Australia with a company number: 121831472 (the “Shareholder”) pursuant to which the Company will acquire all of the issued and outstanding equity of the Seller in exchange for shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”).
As consideration under the Share Exchange Agreement, the Shareholder will be issued shares of Common Stock. As the holder of 8,939,600 shares of Common Stock (the “Undersigned’s Shares”), the undersigned agreed, as an inducement to the Company to enter into the Share Exchange Agreement, to restrict the sale, assignment, transfer, encumbrance, or other disposition of the Undersigned’s Shares as hereinafter provided.
In consideration of the premises and of the terms and conditions contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
Lock-Up. Commencing on the date of Closing until the twelve (12) month anniversary of the Closing (the “Lock-Up Period”), the undersigned will not, and will cause all affiliates (as defined in Rule 144 promulgated under the Securities Act of 1933) of the undersigned not to, (a) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase, make any short sale or otherwise dispose of or agree to dispose of, directly or indirectly, any of the Undersigned’s Shares, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities and Exchange Act of 1934, as amended and the rules and regulations of the Securities and Exchange Commission promulgated thereunder with respect to any of the Undersigned’s Shares, or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Undersigned’s Shares, whether any such transaction is to be settled by delivery of such securities, in case or otherwise. The foregoing sentence shall not apply to the exercise of options or warrants or the conversion of a security outstanding as of the date hereof; provided, however, that the undersigned agrees that the foregoing sentence shall apply to any securities issued by the Company to the undersigned upon such an exercise or conversion.
The foregoing restriction is expressly agreed to preclude the undersigned, and any affiliate of the undersigned and any person in privity with the undersigned from engaging in any hedging or other transaction which is designed to, or which reasonably could be expected to, lead to, or result in a sale or disposition of the Undersigned’s Shares even if the Undersigned’s Shares would be disposed of by someone other than the undersigned. Such prohibited hedging or other transactions would include, without limitation, any short sale or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any of the Undersigned’s Shares or with respect to any security that includes, relates to, or derives any significant part of its value from the Undersigned’s Shares.
Notwithstanding the foregoing, the undersigned may transfer the Undersigned’s Shares as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein. For purposes of this Agreement, “immediate family” shall mean any relationship by blood, marriage, or adoption, not more remote than first cousin. The undersigned now has, and, except as contemplated by the immediately preceding sentence, for the duration of this Agreement will have, good and marketable title to the Undersigned’s Shares, free and clear of all liens, encumbrances, and claims whatsoever. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent (the “Transfer Agent”) and registrar against the transfer of the Undersigned’s Shares except in compliance with the foregoing restrictions.
In order to enforce this covenant, the Company shall impose irrevocable stop-transfer instructions preventing the Transfer Agent from effecting any actions in violation of this Agreement.
Leak-Out. For a period of one year after the end of the Lock-Up Period, the undersigned agrees to limit the resales of the Undersigned’s Shares in the public market to five percent of the trailing ten (10) day average trading volume of the Common Stock. If the undersigned violates this Leak-Out provisions, the Company shall be entitled to the profits made by the undersigned on any trades made in violation of this Leak-Out provision and the undersigned hereby agrees that such remedy is not a penalty and is equitable relief commensurate with the harm done to the Company.
Termination. This Agreement will terminate ninety (90) days after the occurrence of any of the following events: (i) if the Company is late in two out of three consecutive 10K or 10Q filings with the Securities and Exchange Commission; (ii) if the Company’s auditor resigns over concerns tied to any material misstatements or weaknesses in the financial reporting by the Company; or (iii) a change of control of the Company by way of a merger or consolidation to which the Company is a party and is not the surviving entity, or by way of any sale, transfer, assignment, or other disposition, whether by operation of law or otherwise, of the outstanding voting stock or other securities of the Company, which results in any single third party (or group of third parties acting in concert) owning directly or indirectly a majority of voting stock or other securities then outstanding of the Company.
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The undersigned acknowledges that the execution, delivery, and performance of this Agreement is a material inducement to the Company to complete the transactions contemplated by the Share Exchange Agreement and that the Company shall be entitled to specific performance of the undersigned’s obligations hereunder. The undersigned hereby represents that the undersigned has the power and authority to execute, deliver and perform this Agreement, that the undersigned has received adequate consideration therefor and that the undersigned will directly benefit from the closing of the transactions contemplated by the Share Exchange Agreement.
The undersigned understands and agrees that this Agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors, and assigns. No provision of this Agreement may be waived or amended except in written instrument signed by a majority of the Board of Directors of the Company and the undersigned.
This Agreement may be executed in two counterparts, each of which shall be deemed an original but both of which shall be considered one and the same instrument.
This Agreement will be governed by and construed in accordance with the laws of the State of Nevada, without giving effect to any choice of law or conflicting provision or rule (whether of the State of Nevada, or any other jurisdiction) that would cause the laws of any jurisdiction other than the State of Nevada to be applied. In furtherance of the foregoing, the internal laws of the State of Nevada will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.
[Remainder of page intentionally left blank]
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| Very truly yours, | ||
| Flywheel Advanced Technology, Inc. | ||
| By: | ||
| Name: | ||
| Title: | ||
| Agreed to and Acknowledged: | |
| Exact Name of Shareholder | |
| Authorized Signature | |
| Title |
[Signature Page to Lock-Up Agreement – Shareholder]
Exhibit 10.5
FORM OF
NON-DISCLOSURE AND NON-COMPETE AGREEMENT
NON-DISCLOSURE AND NON-COMPETE AGREEMENT, dated as of March ___, 2023 (this “Agreement”), by and among Flywheel Advanced Technology, Inc., a Nevada corporation, (the “Company”), QBS System Limited, a limited company incorporated under the laws of Hong Kong with a company number of 1587852 (the “Seller”), and __________ (the “Executive”).
WHEREAS, the Company, the Seller and QBS Flywheel Limited, a company incorporated in Australia with a company number: 121831472, the sole shareholder of the Seller, entered into a Share Exchange Agreement on December 15, 2022 (the “Share Exchange Agreement”); and
WHEREAS, as a condition to closing the transactions contemplated by the Share Exchange Agreement, the parties hereto agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, representations and warranties set forth herein, and for other good and valuable consideration, the parties hereto hereby agree as follows:
1. Non-Competition.
a For a period of three (3) years after the date hereof (the “Restricted Period”), the Executive shall not (i) engage, directly or indirectly, individually or through another entity, in any business in the Hong Kong Special Administrative Region of the People’s Republic of China and the People’s Republic of China that produces or supplies products or services of the kind produced or supplied by the Company or the Seller as of the date hereof or that competes, either directly or indirectly, with the Company or the Seller in any market in which they are operating as of the date hereof or at any time during the Restricted Period; and (ii) without the prior written consent of the Company, directly or indirectly, own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, partner, stockholder, member, consultant or otherwise, any means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act (a “Person”) that competes with the Company or the Seller in producing or supplying products or services of the kind produced or supplied by the Company or the Seller as of the date hereof or at any time during the Restricted Period. For purposes of this Section 1(a), (i) the ownership of securities having no more than one percent (1%) of the outstanding voting power of any competitor which are listed on any national securities exchange shall not be deemed to be in violation of this Section 1(a) as long as the Person owning such securities has no other connection or relationship with such competitor, and (ii) the ownership of the securities listed on Schedule 1 attached hereto shall not be deemed in violation of this Section 1(a).
b As a separate and independent covenant, the Executive agrees with Company and the Seller that, for a period of three (3) years following the date hereof, the Executive will not in any way, directly or indirectly, for the purpose of conducting or engaging in any business that produces or supplies products or services of the kind produced or supplied by the Seller as of the date hereof, call upon, solicit, advise or otherwise do, or attempt to do, business with any customers of the Seller with whom the Seller had any dealings during the period of time prior to December 15, 2022 or take away or interfere or attempt to interfere with any custom, trade, business or patronage of the Seller or interfere with or attempt to interfere with any officers, employees, representatives or agents of the Seller or the Company or induce or attempt to induce any of them to leave the employ of the Seller or the Company or violate the terms of their contracts, or any employment arrangements, with the Seller or the Company.
c The Restricted Period shall be extended by the length of any period during which the Executive is in breach of the terms of this Section 1.
d The Executive acknowledges that the covenants of the Executive set forth in this Agreement are an essential element of this Agreement and that, but for the agreement of the Executive to comply with these covenants, the Company would not have entered into the Share Exchange Agreement.
2. Non-Solicitation of Business. The Executive will not, during the Restricted Period, solicit, directly or indirectly, any business (other than for the Company and the Seller) from any person or entity or provide advice or services to any person or entity which directly or indirectly competes with the Company or the Seller.
3. Non-Solicitation and Independent Contractors. The Executive will not, during the Restricted Period, directly or indirectly, individually or through another entity or affiliate, (i) induce or attempt to induce any employee, consultant or independent contractor of the Company or the Seller, in each case prior to the date hereof or during the Restricted Period, to leave the employ or consulting or contracting relationship with, or in any way interfere with the relationship between the Company and the Seller and any employee, consultant or independent contractor thereof, (ii) solicit for employment or as a consultant or an independent contractor any person who was an employee, consultant or independent contractor of the Company or the Seller, in each case prior to date hereof at any time during the Restricted Period, except pursuant to a general solicitation that is not directed specifically to any such employee, consultant or independent contractor; provided that nothing herein prevents the Executive or any of thier respective Affiliates from hiring any person whose employment or engagement has been terminated by the Company or the Seller after one-hundred and eighty (180) days from the date of termination of employment or engagement, any employee, consultant or independent contractor whose employment or engagement has been terminated by such employee, consultant or independent contractor, or (iii) induce or attempt to induce any customer, supplier, distributor or other business relation of the Seller or the Company to cease doing business with the Seller or the Company or in any way interfere with the relationship between any such customer, supplier, distributor or other business relation and the Seller and the Company.
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4. Confidentiality. For a period of three (3) years from the date hereof, the Executive shall, and shall cause their respective Affiliates to, hold, and shall use its reasonable best efforts to cause its or their representatives to, hold in confidence any and all non-public or otherwise confidential information, whether written or oral, concerning the Company and the Seller, and the Seller’s business and business operations. In the event that Executive or any such agent, representative, Affiliate, employee, officer or director becomes legally compelled to disclose any such confidential information, the Executive shall provide notice to the Company and the Seller in writing and consult with the Company regarding the disclosure of such information and use its commercially reasonable efforts to obtain any appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information. In the event that such protective order or other remedy is not obtained, or the Company or the Seller waives compliance with this Section 4, the Executive shall furnish only that portion of such confidential information which is legally required to be provided and exercise its reasonable best efforts to obtain assurances that confidential treatment will be accorded such information. The Executive shall promptly furnish (prior to, at, or as soon as practicable following, the date hereof) to the Company and the Seller any and all copies (in whatever form or medium) of all such confidential information then in the possession of the Executive or any of their respective agents, representatives, Affiliates, employees, officers or directors, destroy any and all additional copies then in the possession of the Executive or any of their respective agents, representatives, Affiliates, employees, officers or directors of such information and of any analyses, compilations, studies or other documents prepared, in whole or in part, on the basis thereof; provided, however, that this Section 4 shall not apply to any information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by the Executive, or any of their respective agents, representatives, Affiliates, employees, officers or directors; and provided, further, that, with respect to any intellectual property of the Seller or the Company, specific information shall not be deemed to be within the foregoing exception merely because it is embraced in general disclosures in the public domain. In addition, with respect to such intellectual property, any combination of features shall not be deemed to be within the foregoing exception merely because the individual features are in the public domain unless the combination itself and its principle of operation are in the public domain.
5. No Conflict. The Executive represents and warrants to the Company and the Seller that they are not a party to or bound by any agreement, understanding or arrangement with any other person or entity or any other agreement which would prevent or limit their ability to enter into this Agreement or perform their obligations hereunder.
6. Enforcement. The parties hereto expressly agree that any and all disputes arising out of, or in connection with, this Agreement will be resolved only in accordance with the dispute resolution provisions of the Share Exchange Agreement, including Section 10.10 (Specific Performance) and Section 10.12 (Waiver of Jury Trial), which are incorporated herein by reference and shall apply to the terms of this Agreement and the parties hereto mutatis mutandis.
7. Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any applicable law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect for so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
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8. Assignment. This Agreement and the rights and obligations hereunder may not be assigned by operation of law or otherwise without the prior written consent of the other parties hereto (which consent may be granted or withheld in the sole discretion of such party) and any such assignment or attempted assignment without such consent shall be null and void; provided, however, that the Company may assign this Agreement or any of its rights and obligations hereunder to one or more Affiliates of the Company without the consent of the Seller or the Executive.
9. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Nevada without regard to the conflicts of laws rules thereof.
10. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by an internationally recognized overnight courier service, by facsimile or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties hereto at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10):
| a | if to the Executive: |
Email:
Attention:
with a copy to:
| b | if to the Company or the Seller: |
Flywheel Advanced Technology, Inc.,
123 West Nye Lane, Suite 455
Carson City, NV 89706
Attention:
with a copy to:
The Crone Law Group P.C.
1 East Liberty, Suite 600,
Reno, NV 89501
Email:
Attention:
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11. Interpretation and Rules of Construction. Except to the extent otherwise provided or that the context otherwise requires, the headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement. When a reference is made in this Agreement to a Section or Schedule, such reference is to a Section of, or a Schedule to, this Agreement, unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”. The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement. Capitalized terms used, but not otherwise defined herein, shall have the meanings ascribed to them in the Share Exchange Agreement. All terms defined in this Agreement have the defined meanings when used in any certificate or other document delivered or made available pursuant hereto, unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. References to a Person are also to its successors and permitted assigns.
12. Entire Agreement. This Agreement and Share Exchange Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, among the parties hereto with respect to the subject matter hereof.
13. Amendment. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the parties hereto that expressly references the Section of this Agreement to be amended; or (b) by a waiver in accordance with Section 14.
14. Waiver. Any party hereto may (a) extend the time for the performance of any of the obligations or other acts of any other party, (b) waive any inaccuracies in the representations and warranties of any other party contained herein or in any document delivered by any other party pursuant hereto, or (c) waive compliance with any of the agreements of any other party or conditions to such party’s obligations contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the parties to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of any of such rights. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
15. No Third-Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of, and be enforceable by, only the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever, including any rights of employment for any specified period, under or by reason of this Agreement.
16. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission or portable document format (“.pdf”)) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above.
| EXECUTIVE | ||
| By: | ||
| Name: | ||
| Title: | ||
| FLYWHEEL ADVANCED TECHNOLOGY, INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
| QBS SYSTEM LIMITED | ||
| By: | ||
| Name: | ||
| Title: | ||
[SIGNATURE PAGE TO NON-DISCLOSURE AND NON-COMPETE AGREEMENT]
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
Exhibit 10.10
Exhibit 99.2
QBS SYSTEM LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
QBS SYSTEM LIMITED
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of QBS System Limited.
Opinion on the Financial Statements
We audited the accompanying consolidated balance sheets of QBS System Limited and its subsidiaries (the “Company”) as of March 31, 2021, and 2022, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended March 31, 2022, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021, and 2022, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Kreit & Chiu CPA, LLP
We have served as the Company’s auditor since 2022.
Los Angeles, California
March 24, 2023
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CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2022 AND 2021
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and equivalents | $ | 936,480 | $ | 1,376,540 | ||||
| Accounts receivable, net of allowances | 1,078,520 | 834,519 | ||||||
| Due from related parties | 107,070 | - | ||||||
| Prepaid expenses and other current assets | 425,369 | 201,162 | ||||||
| Deferred taxes assets | 8,143 | - | ||||||
| Total Current Assets | 2,555,582 | 2,412,221 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, NET | 15,648 | 20,985 | ||||||
| RIGHT-OF-USE ASSETS | 101,593 | 5,237 | ||||||
| TOTAL ASSETS | $ | 2,672,823 | $ | 2,438,443 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Bank loans - current portion | $ | 102,035 | $ | 27,175 | ||||
| Accounts payable | 357,857 | 152,837 | ||||||
| Accrued expenses and other current liabilities | 86,941 | 141,138 | ||||||
| Due to related parties | 377,988 | 395,080 | ||||||
| Operating leases liabilities | 50,031 | 5,980 | ||||||
| Income tax payable | 20,453 | 137,357 | ||||||
| Total current liabilities | 995,305 | 859,567 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Bank loans | 632,382 | 618,511 | ||||||
| Operating leases liabilities | 61,613 | - | ||||||
| Deferred taxes liabilities | - | 3,256 | ||||||
| Total long-term liabilities | 693,995 | 621,767 | ||||||
| Total Liabilities | 1,689,300 | 1,481,334 | ||||||
| COMMITMENTS AND CONTINGENCIES | - | - | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock (100 shares issued and outstanding) | 13 | 13 | ||||||
| Retained earnings | 996,548 | 958,516 | ||||||
| Accumulated other comprehensive (loss) | (13,038 | ) | (1,420 | ) | ||||
| Total Stockholders’ Equity | 983,523 | 957,109 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,672,823 | $ | 2,438,443 | ||||
See accompanying notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
YEARS ENDED MARCH 31, 2022 AND 2021
| 2022 | 2021 | |||||||
| REVENUE, NET | $ | 3,256,440 | $ | 4,033,739 | ||||
| COST OF REVENUE | (2,462,070 | ) | (2,454,997 | ) | ||||
| GROSS PROFIT | 794,370 | 1,578,742 | ||||||
| OPERATING EXPENSES | ||||||||
| Sales and marketing | 70,602 | 45,466 | ||||||
| General and administrative | 707,143 | 1,097,283 | ||||||
| Provision for credit losses | 64,354 | 86,542 | ||||||
| Depreciation and amortization | 51,630 | 40,629 | ||||||
| Total Operating Expenses | 893,729 | 1,269,920 | ||||||
| OPERATING (LOSS) INCOME | (99,359 | ) | 308,822 | |||||
| OTHER INCOME (EXPENSES) | ||||||||
| Interest income (expense), net | (24,434 | ) | (23,981 | ) | ||||
| Other income | 165,833 | 370,731 | ||||||
| Total Other Income | 141,399 | 346,750 | ||||||
| INCOME BEFORE INCOME TAXES | 42,040 | 655,572 | ||||||
| Income taxes | 4,008 | 102,251 | ||||||
| NET INCOME | 38,032 | 553,321 | ||||||
| OTHER COMPREHENSIVE INCOME/(LOSS) | ||||||||
| Foreign currency translation (loss) | (11,618 | ) | (1,420 | ) | ||||
| COMPREHENSIVE INCOME | 26,414 | 551,901 | ||||||
| Net income per share - basic and diluted: | $ | 380 | $ | 5,533 | ||||
| Weighted average number of shares outstanding | 100 | 100 | ||||||
See accompanying notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED MARCH 31, 2022 AND 2021
| Common stock | Retained | Accumulated other comprehensive | ||||||||||||||||||
| Shares | Amount |
earnings | income (loss) | Total | ||||||||||||||||
| Balance at March 31, 2020 | 100 | $ | 13 | $ | 405,195 | - | 405,208 | |||||||||||||
| Net income for year | - | - | 553,321 | - | 553,321 | |||||||||||||||
| Exchange difference on translation | - | - | - | (1,420 | ) | (1,420 | ) | |||||||||||||
| Balance at March 31, 2021 | 100 | 13 | 958,516 | (1,420 | ) | 957,109 | ||||||||||||||
| Net income for year | - | - | 38,032 | - | 38,032 | |||||||||||||||
| Exchange difference on translation | - | - | - | (11,618 | ) | (11,618 | ) | |||||||||||||
| Balance at March 31, 2022 | 100 | $ | 13 | $ | 996,548 | $ | (13,038 | ) | $ | 983,523 | ||||||||||
See accompanying notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2022 AND 2021
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 38,032 | $ | 553,321 | ||||
| Adjusted to reconcile net income to cash provided (used) by operating activities: | ||||||||
| Depreciation | 9,770 | 9,850 | ||||||
| Lease amortisation | 41,860 | 30,779 | ||||||
| Provision for credit losses | 64,354 | 86,542 | ||||||
| Deferred income taxes | (11,424 | ) | (670 | ) | ||||
| Changes in operating assets and liabilities | ||||||||
| (Increase)/decrease in: | ||||||||
| Accounts receivable | (318,533 | ) | (322,734 | ) | ||||
| Operating lease right-of use assets | (138,776 | ) | - | |||||
| Prepaid expenses and other current assets | (227,528 | ) | (162,811 | ) | ||||
| Increase/(decrease) in: | ||||||||
| Accounts payable | 207,724 | 83,291 | ||||||
| Operating leases liabilities | 106,281 | (15,411 | ) | |||||
| Accrued expenses and other current liabilities | (53,348 | ) | (18,545 | ) | ||||
| Income tax payable | (115,345 | ) | 102,922 | |||||
| Net cash (used by) provided by operating activities | (396,933 | ) | 346,534 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property, plant and equipment | (4,629 | ) | (5,558 | ) | ||||
| Advances to related parties | (104,703 | ) | 99,089 | |||||
| Net cash (used by)/provided by investing activities | (109,332 | ) | 93,531 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | 128,436 | 645,104 | ||||||
| Repayment of notes payable | (32,353 | ) | (64,510 | ) | ||||
| Advances from related party | (12,967 | ) | 242,225 | |||||
| Net cash provided by financing activities | 83,116 | 822,819 | ||||||
| NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS | (423,149 | ) | 1,262,884 | |||||
| EFFECT OF EXCHANGE RATES ON | (16,911 | ) | 12,274 | |||||
| CASH AND EQUIVALENTS AT BEGINNING OF YEAR | 1,376,540 | 101,382 | ||||||
| CASH AND EQUIVALENTS AT END OF YEAR | $ | 936,480 | $ | 1,376,540 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid for income taxes | $ | (101,852 | ) | $ | - | |||
| Cash paid for interest | $ | (19,217 | ) | $ | (23,371 | ) | ||
See accompanying notes to Consolidated Financial Statements.
| 5 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION |
| (A) | Organization |
QBS System Limited (“the Company”) was incorporated in Hong Kong on April 14, 2011 with limited liabilities and its principal activities are providing Internet of Things (“IoT”) solutions and services across industries. Its IoT solutions help clients build applications using available IoT device, sensors, framework and platform, to integrate the available hardware and software solution with clients’ existing landscape or implement a new IoT solution for enterprises.
The Company provides IoT solutions and services to assist its clients build applications using available IoT devices, sensors, frameworks, and platforms, to integrate hardware and software solutions with clients existing landscape or implement new IoT solutions for enterprises. The Company provides a full- range IoT services comprising consulting development and implementation, analytics, support, and evolution. It has a business portfolio providing IoT integration solution services, IoT maintenance, support services, IoT projects and ventures Business Process Outsourcing (“BPO”) services, and approximately nine years of experience in Hong Kong providing IoT software and hardware engineering services. Clients range across various industries, such as logistics and supply chain management, food & beverage, automation and smart building. The applications of the Company’ s IoT Solution include connected equipment in the enterprise (Enterprise IoT) and industrial assets such as machines, robots, or even workers in smart factories and industrial facilities (Industrial IoT, the essential component of Industry 4.0).
The Company provides full-range IoT services comprising consulting, development and implementation, analytics, support and evolution. It has a business portfolio including the provision of IoT integration solution services, IoT support and maintenance services and IoT Business Process Outsourcing (“BPO”) services.
The Company formed a wholly owned subsidiary, QBS System Pty Ltd in Australia on May 8, 2020 and its principal activities are providing computer network systems design and integration services.
On December 15, 2022, The Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Flywheel Advanced Technology, Inc., a Nevada corporation (the “Flywheel Advanced”), and QBS Flywheel Limited, a company incorporated under the laws of Australia (the “Ultimate holding company”). Subject to the closing conditions set forth in the Share Exchange Agreement, at the closing the Ultimate holding company will transfer and assign to the Flywheel Advanced all of the issued and outstanding shares of the Company for 8,939,600 newly issued shares of the Flywheel Advance’ s common stock, par value $0.0001 per share (the “Common Stock”).
We use the terms “Company”, “we” and “us” to refer to both QBS System Limited and its subsidiary.
| 6 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| (B) | Basis of preparation and principles of consolidation |
The accompanying consolidated financial statements (“CFS”) were prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The accompanying CFS reflect all adjustments that management considers necessary for a fair presentation of the results of operations for these periods.
The accompanying CFS were prepared on a consolidated basis and reflect the financial statements of QBS System Limited, a Hong Kong company, and its wholly owned subsidiary, QBS System Pty Ltd, an Australian Private Company. All intercompany transactions and balances are eliminated on consolidation.
| (C) | Use of estimates |
The preparation of CFS in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the CFS. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, revenue recognition, allowance for credit losses, valuation allowances for deferred tax assets, the measurement of lease liabilities and right-of-use (“ROU”) assets, measurements of assets and obligations related to employee benefits, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, variable consideration, other obligations for revenue recognition, income tax uncertainties and other contingencies. Management believes the estimates used in the preparation of the CFS are reasonable, and management has made assumptions about the possible effects of the ongoing COVID-19 pandemic on critical and significant accounting estimates. Although these estimates and assumptions are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any changes in estimates are adjusted prospectively in the Company’s CFS.
| (D) | Financial instruments and concentration of credit risk |
Financial instruments that potentially subject the Company to concentration of credit risk are reflected principally in cash and equivalents and accounts receivable. The Company places its cash and cash equivalents with banks with high investment grade ratings, limits the amount of credit exposure with any one bank and conducts ongoing evaluations of the creditworthiness of the banks with which it does business. To reduce its credit risk on accounts receivable, the Company conducts ongoing credit evaluations of its customers.
| (E) | Cash and equivalents |
For purpose of the statements of cash flows, cash and equivalents include cash on hand and demand deposits with a bank with an initial maturity of less than three months.
| 7 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| (F) | Accounts receivable and allowance for expected credit losses |
Accounts receivables are recorded net of allowances for expected credit losses. On April 1, 2020, the Company adopted ASC Topic 326, Financial Instruments-Credit Losses. Accounts receivable and contract assets are in the scope for which assessment is made. The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of default in the future. Accounts receivable balances are written-off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.
| (G) | Property, plant and equipment, net |
Property, plant and equipment are stated at cost less accumulated depreciation and amortization and accumulated impairment loss. Expenditures for replacements and improvements are capitalized, whereas the costs of maintenance and repairs are expensed.
Depreciation is provided on a straight-line basis, less estimated residual value over the assets’ estimated useful lives. The estimated useful lives are 5 years.
| (H) | Right-of-use asset |
In accordance with FASB Codification Topic 842 (ASC Topic 842), Leases, right-of-use (ROU) asset are stated at cost, less accumulated amortisation.
Amortization is provided on a straight-line basis, less estimated residual value over the assets’ estimated useful lives. The estimated useful live is the term of the leases.
| (I) | Long-lived assets |
In accordance with FASB Codification Topic 360 (ASC Topic 360), “ Accounting for the impairment or disposal of Long-Lived Assets”, long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets. The Company reviews property and equipment to determine that carrying values are not impaired at least annually.
| 8 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| (J) | Leases |
ASC Topic 842 requires a lessee to record a ROU asset and a lease liability for all leases with terms longer than 12 months. Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company determines the lease term by assuming the exercise of renewal options that are reasonably certain. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its local incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. When the Company’s contracts contain lease and non-lease components, the Company accounts for both components as a single lease component. Refer to Note 6.
| (K) | Fair value of financial instruments |
FASB Codification Topic 825 (ASC Topic 825), “Disclosure about Fair Value of Financial Instruments,” requires certain disclosures regarding the fair value (“FV”) of financial instruments. The carrying amounts of accounts receivables, other current assets and prepaid expenses, accounts payable, other payables and accrued liabilities and due to Company companies approximate their FVs because of the short-term nature of the instruments. The management of the Company is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial statements.
| (L) | Revenue recognition |
The Company’s revenue mainly is comprised the following services: IoT software and hardware development service, BPO service and IT support and maintenance service.
Revenues from IoT software and hardware development are measured based on the skills, estimate time, cost of outsourcing, human resources and materials required for the project which specified in a quotation or contract with a customer and excludes discounts and amounts collected on behalf of third parties. Revenues recognized under quotation or contracts generally when persuasive evidence of an arrangement exists, services have been performed and collection of amounts billed is fixed, based on the achievement of milestone in contract and is reasonably assured.
Revenues from BPO services are measured based on the number of headcounts, rate of headcount, skill level and whether the headcount was engaged on a full-time or part-time basis. Revenues are recognized under quotations or contracts generally when persuasive evidence of an arrangement exists, the sales price is fixed or determinable, services have been performed and collection of amounts billed is reasonably assured.
Revenues from IoT maintenance and support services are measured based on the skills, hardware/material required and estimate time required for the project. Revenue are recognized over time as services are provided and extended service plans are recognized over the performance period of the service contract or quotation as the obligation represents a stand-ready obligation to the customer.
| 9 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
Effective April 1, 2020, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from services by: (1) identifying the contract (if any) with a customer; (2) identifying the performance obligations in the contract (if any); (3) determining the transaction price; (4) allocating the transaction price to each performance obligation in the contract (if any); and (5) recognizing revenue when each performance obligation is satisfied. The Company has no outstanding contracts with any of its customers as of March 31, 2022 and 2021. The Company recognizes revenue when it satisfies a performance obligation by providing services to a customer.
The Company generally invoices a client after performance of services. Payments are due as per contract terms.
| (M) | Cost of revenue |
Cost of revenue primarily consists of sub-contracting fee, engineers salary and purchases of equipment used or installed as part of the project. It also includes operational expenses, which consist of facilities maintenance expenses, travel and living expenses, IT expenses, and consulting and certain other expenses. Consulting charges represent the cost of consultants and contract resources with specialized skills who are directly responsible for the performance of services for clients and travel and other billable costs related to the Company’s clients. Recurring direct costs for services are recognized as incurred.
| (N) | Foreign currency translation |
The Company’s CFS and statements of cash flows are reported in United States dollars (“US$”), the Company’s reporting currency. The functional currency for the Company is Hong Kong dollars (“HK$”). The functional currency for the Company’s subsidiary organized in Australian is the Australian dollars (“A$”). The translation of the functional currencies of the Company and its subsidiary into U.S. dollars is performed for balance sheet accounts using the exchange rates in effect as of the balance sheet date and for revenues and expense accounts using a monthly average exchange rate prevailing during the respective period. The gains or losses resulting from such translation are reported as currency translation adjustments under other comprehensive income (loss), net, under accumulated other comprehensive income (loss) as a separate component of equity.
Monetary assets and liabilities of the Company and its subsidiary denominated in currencies other than the functional currency of the Company and subsidiary are translated into their respective functional currency at the rates of exchange prevailing on the balance sheet date.
Transactions of the Company and its subsidiary in currencies other than the Company’s and the subsidiary’s functional currencies are translated into the respective functional currencies at the average monthly exchange rate prevailing during the period of the transaction. The gains or losses resulting from foreign currency transactions are included in the consolidated statements of income.
| 10 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
The exchange rates used to translate amounts in HK$ and AU$ into US$ for the purposes of preparing the financial statements were as follows:
| March 31, 2022 | March 31, 2021 | |||||||
| Balance sheet items, except for common stock, additional paid-in capital and retained earnings, as of year end | US$1=HK$7.827 | US$1=HK$7.7437 | ||||||
| US$1=AUD1.33 | US$1=AUD1.31 | |||||||
| Amounts included in the statements of operations and cash flows for the year | US$1=HK$7.786 | US$1=HK$7.751 | ||||||
| US$1=AUD1.356 | US$1=AUD1.39 |
| (O) | Other comprehensive (loss)/income |
The foreign currency translation gain or loss resulting from translation of the financial statements expressed in HK$ and AU$ to US$ is reported as other comprehensive income or loss in the statements of operations and stockholders’ equity.
| (P) | Employee benefit plans |
Contributions to defined contribution plans are expensed in the period in which services are rendered by the covered employees. The Company recognizes its liabilities for compensated absences dependent on whether the obligation is attributable to employee services already rendered, relates to rights that vest or accumulate and payment is probable and estimable. Refer to Note 13.
| (Q) | Government grants |
The Company recognizes incentives in the CFS under “other income (expense), net” Incentives are recognized in the consolidated statements of income when there is probable assurance the Company will comply with the conditions for their receipt and a reasonable expectation that the funds will be received. In certain circumstances, the receipt of an incentive may not be subject to any condition or requirement to incur further costs, in which case the incentive is recognized in the consolidated statement of income for the period in which it becomes receivable. In the event that it becomes likely that the Company will be required to repay an incentive that has already been recognized, the Company makes a provision for the estimated liability.
| (R) | Income taxes |
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period included the enactment date.
| 11 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| (S) | Earnings per share |
Basic earnings per share are computed by dividing income available to stockholders by the weighted average number of shares outstanding during the year. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the potential shares had been issued and if the additional shares were diluted. There were no potentially dilutive securities for 2022 and 2021.
| (T) | Commitments and contingencies |
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with such liabilities are expensed as incurred.
| (U) | Segments |
The Company operates in three reportable segments, provision of IT maintenance and support services, IoT BPO services and IoT development services in Hong Kong and Australia.
The chief operating decision maker (“CODM”) generally reviews financial information such as revenues, cost of revenues and gross profit, disaggregated by the operating segments to allocate an overall budget among the operating segments.
The Company does not allocate and therefore the CODM does not evaluate, certain operating expenses, interest expense or income taxes by segment. Many of the Company’s assets are shared by multiple operating segments. The Company manages these assets on a total Company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented. Refer to Note 14.
| (V) | Recently Adopted Accounting Standards |
ASU No. 2016-02 - Leases (Topic 842) (“ASU 2016-02”), ASU No. 2018-10 - Codification improvements to Topic 842, Leases (“ASU 2018-10”), ASU No. 2018-11 - Leases (Topic 842) (“ASU 2018-11”) (collectively, the “New Leasing Standard”)
The New Leasing Standard became effective for public business entities for fiscal years beginning after December 15, 2018. The Company adopted the New Leasing Standard as of January 1, 2019 using the effective date method by recording ROU of $72,803 and lease liabilities of $72,803. Under this method, periods prior to 2019 remain unchanged. The Company applied the practical expedients for the leases that commenced before January 1, 2019 whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases.
| 12 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
ASU 2019-12 – Income taxes (Topic 740): Simplifying the accounting for income taxes (“ASU 2019-12”)
In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Income taxes (Topic 740). The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoption of ASU 2019-12 did not have a material impact on the Company’s CFS.
| (W) | Recently Issued Accounting Standards |
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. This ASU is currently not expected to have a material impact on our CFS and statements of cash flows.
In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance.” This ASU improves financial reporting by requiring disclosures that increase the transparency of transactions with governments. The ASU is effective for the Company for annual periods, beginning December 15, 2021. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its CFS.
| 2. | CASH AND EQUIVALENTS |
Cash is composited of the following as of March 31, 2021 and 2022
| 2022 | 2021 | |||||||
| Cash at bank | $ | 934,802 | $ | 1,363,571 | ||||
| Cash on hand | 1,678 | 12,969 | ||||||
| Total | $ | 936,480 | $ | 1,376,540 | ||||
| 13 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| 3. | ACCOUNTS RECEIVABLE, NET OF ALLOWANCES |
Accounts receivable at March 31, 2022 and 2021 consisted of the following:
| 2022 | 2021 | |||||||
| Accounts receivable | $ | 1,232,732 | $ | 925,964 | ||||
| Less: allowance for expected credit losses | 154,212 | 91,445 | ||||||
| Accounts receivable, net | $ | 1,078,520 | $ | 834,519 | ||||
The movement in “Allowance for expected credit losses” on customer balances for the years ended March 31, 2022 and 2021 was as follows:
| 2022 | 2021 | |||||||
| Balance at beginning of year | $ | 91,445 | $ | - | ||||
| Addition during the year | 64,354 | 86,542 | ||||||
| Translation adjustment | (1,587 | ) | 4,903 | |||||
| Balance at end of year | $ | 154,212 | $ | 91,445 | ||||
| 4. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets at March 31, 2022 and 2021 consisted of the following:
| 2022 | 2021 | |||||||
| Advisory fees prepaid for business development | $ | 324,054 | $ | 124,785 | ||||
| Deposits | 15,799 | 15,968 | ||||||
| Advance to suppliers | 54,778 | - | ||||||
| Other receivables | 30,432 | 60,023 | ||||||
| Other | 306 | 386 | ||||||
| $ | 425,369 | $ | 201,162 | |||||
| 14 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| 5. | PROPERTY, PLANT AND EQUIPMENT, NET |
The following is a summary of property and equipment at March 31:
| 2022 | 2021 | |||||||
| Furniture and Fixtures | $ | 18,096 | $ | 18,290 | ||||
| Computer Equipment | 67,640 | 63,710 | ||||||
| 85,736 | 82,000 | |||||||
| Less: accumulated depreciation | 70,088 | 61,015 | ||||||
| Property and equipment, net | $ | 15,648 | $ | 20,985 | ||||
| 6. | LEASES |
The Company leases offices. Rental contract is for 36 months. The lease agreement has no covenants.
Accumulated ROU assets and amortization as of March 31, 2022 and 2021 are as follows :
| 2022 | 2021 | |||||||
| Operating lease cost - office | $ | 138,054 | $ | 72,803 | ||||
| Less: accumulated amortization | 36,461 | 67,566 | ||||||
| ROU assets, net | $ | 101,593 | $ | 5,237 | ||||
The following is lease liabilities at March 31, 2022 and 2021:
| 2022 | 2021 | |||||||
| Current portion | $ | 50,031 | $ | 5,980 | ||||
| Non-current portion | 61,613 | - | ||||||
| $ | 111,644 | $ | 5,980 | |||||
| 15 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
The following is a summary of the weighted remaining leases term and the weighted average discount rate for the Company’s leases at March 31, 2022 and 2021:
| 2022 | 2021 | |||||||
| Weighted average remaining lease term | ||||||||
Operating leases | 2.16 | 0.21 | ||||||
| Weighted average discount rate | ||||||||
Operating leases | 5 | % | 5 | % | ||||
During 2022 and 2021, cash paid for operating leases liabilities was $32,634 and $16,145 respectively.
The Company’ s leases have remaining lease terms inclusive of renewal or termination options that the Company is reasonably certain to exercise. The following table summarizes the maturity of the Company’s operating lease liabilities as of March 31, 2022:
| Year Ending March 31 | ||||
| 2023 | $ | 54,251 | ||
| 2024 | 54,251 | |||
| 2025 | 9,041 | |||
| Total operating lease payments | 117,543 | |||
| Less: Imputed interest | 5,899 | |||
| Total operating lease liabilities | $ | 111,644 | ||
The Company’s leases have remaining terms inclusive of renewal or termination options that the Company is reasonably certain to exercise. The following table summarizes the maturity of the Company’s operating lease liabilities as of March 31, 2021:
| Year Ending March 31 | ||||
| 2022 | $ | 5,998 | ||
| Less: Imputed interest | 18 | |||
| Total operating lease liabilities | $ | 5,980 | ||
There were no corresponding impairment charges during the years ended March 31, 2022 and 2021.
| 16 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| 7. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities at March 31, 2022 and 2021 consisted of the following:
| 2022 | 2021 | |||||||
| Accrued expenses | $ | 8,953 | $ | 2,841 | ||||
| Accrued employee cost | 40,160 | 118,368 | ||||||
| Sales tax payable | 17,991 | 19,929 | ||||||
| Other | 19,837 | - | ||||||
| $ | 86,941 | $ | 141,138 | |||||
|
8. | Bank loans |
A summary of the Company’s loans payable as of March 31 2022 and 2021 is as follows
| 2022 | 2021 | |||||||
| Bank loans | ||||||||
| HK$3,550,000 3 years loan (note a) | $ | 421,388 | $ | 458,437 | ||||
| HK$1,450,000 5 years loan (note b) | 185,262 | 187,249 | ||||||
| HK$1,000,000 8 years loan (note c) | 127,767 | - | ||||||
| Total | $ | 734,417 | $ | 645,686 | ||||
| Current portion | $ | 102,035 | $ | 27,175 | ||||
| Non-current portion | 632,382 | 618,511 | ||||||
| Total | $ | 734,417 | $ | 645,686 | ||||
| (a) | On April 27, 2020, the Company was granted a bank loan from Bank of China (Hong Kong) Limited of HK$3,550,000. The loan has interest of 2.5% below the Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited from time to time and is secured by the personal guarantees of the Company’s Director, Mr. Wong Chi Fung and shareholder, Mr. Kwan Ping Yuen and guarantee by the HKMC Insurance Limited under the SME Financing Guarantee Scheme. The Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited as of 31 March 2022 was 5.25%. The outstanding principal and interest accrued is payable by 24 equal monthly instalments, commencing 13 months after the date of drawdown. |
| 17 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| (b) | On October 10, 2020, the Company was granted a bank loan from Bank of China (Hong Kong) Limited of HK$1,450,000. The loan has interest of 2.5% below the Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited from time to time and is secured by the personal guarantees of the Company’s Director, Mr. Wong Chi Fung and shareholder, Mr. Kwan Ping Yuen and guarantee by the HKMC Insurance Limited under the SME Financing Guarantee Scheme. The Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited as of 31 March 2022 was 5.25%. The outstanding principal and interest accrued is payable by 48 equal monthly instalments, commencing on 13 months after the date of drawdown. | |
| (c) | On June 28, 2021, the Company was granted a bank loan from Bank of China (Hong Kong) Limited of HK1,000,000. The loan has interest of 2.5% below the Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited from time to time and is secured by the personal guarantees of the Company’s Director, Mr. Wong Chi Fung and shareholder, Mr. Kwan Ping Yuen and guarantee by the HKMC Insurance Limited under the SME Financing Guarantee Scheme. The Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited as of 31 March 2022 was 5.25%. The outstanding principal and interest accrued is payable by 84 equal monthly instalments, commencing on 13 months after the date of drawdown. |
Fund-based and non-fund-based credit facilities with banks are available for operational requirements in the form of overdrafts and short-term loans. As of March 31, 2022 and 2021, the limits available were $766,602 and $645,686, respectively, of which $734,417 and $645,686, respectively, was utilized, constituting non- funded drawdown.
| 9. | INCOME TAX |
The income tax expense (benefit) for the years ended March 31, 2022 and 2021 is summarized as follows:
| 2022 | 2021 | |||||||
| Current tax expense: | ||||||||
| Hong Kong profits tax | ||||||||
| Provision for the year | $ | 16,716 | $ | 104,212 | ||||
| One-off tax deduction | (1,284 | ) | (1,290 | ) | ||||
| 15,432 | 102,922 | |||||||
| Deferred tax benefit: | ||||||||
| Hong Kong profits tax | ||||||||
| Deferred tax benefit | (11,424 | ) | (671 | ) | ||||
| Total income taxes | $ | 4,008 | $ | 102,251 | ||||
| 18 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
The Company is subject to Hong Kong Profits Tax. The Company is qualified for the two-tiered profits tax rates for fiscal 2022 based on the financial results for the year ended March 31, 2022. Thus, Hong Kong profits tax was provided in CFS on the estimated assessable profit for the first HK$2 million at 8.25% and on the estimated assessable profit above HK$2 million for the year at 16.5%. The provision for Hong Kong profits tax was calculated at the same basis as for fiscal 2021. One-off tax reduction is tax concession on the final tax of the year assessment fiscal 2022 at 100% (2020/21: 100%) with a ceiling of $1,284 (2020/21: $1,290).
Subsidiary in Australia is subject to a tax 25% for fiscal 2022 (26% for fiscal 2021). The subsidiary is qualified for the reduced tax rate that fall below turnover threshold of AUD 50 million (USD 37 million). No Australian income tax was provided in the CFS as the subsidiary does not have assessable profit during the year (2021: Nil).
A reconciliation of the provision for income taxes compared with the amount at the tax rate for the fiscal 2022 and 2021 was as follows:
| 2022 | 2021 | |||||||
| Income before income tax expense | $ | 42,040 | $ | 655,572 | ||||
Tax charge at the applicable tax rate at 8.25% on first HK$2million of profit and at 16.5% on profit above HK$2million | $ | 3,468 | $ | 92,303 | ||||
| Tax effect of expenses not deductible | 13,826 | 38,930 | ||||||
| Tax effect of exempted bank interest income and government incentives not taxable | (3,246 | ) | (33,114 | ) | ||||
| One-off tax deduction | (1,284 | ) | (1,290 | ) | ||||
| Other | (8,756 | ) | 5,422 | |||||
| Total income taxes | $ | 4,008 | $ | 102,251 | ||||
| 19 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
The components and movements in deferred tax (assets) liabilities during Fiscal 2022 and 2021 are as follows:
| Accelerated depreciation allowances and bad debt provision | ||||
| At March 31, 2020 | $ | 3,923 | ||
| Deferred taxation credited to statement of operations | (671 | ) | ||
| Translation difference | 4 | |||
| At March 31, 2021 | 3,256 | |||
| Deferred taxation credited to statement of operations | (11,424 | ) | ||
| Translation difference | 25 | |||
| At March 31, 2022 | $ | (8,143 | ) | |
| 10. | STOCKHOLDERS’ EQUITY |
The Company was incorporated on April 14, 2011, 100 shares were issued at $13 and fully paid in cash.
| 11. | NET REVENUE |
Net revenue for fiscal 2022 and 2021 was:
| Disaggregation of revenue for fiscal 2022 and 2021: | 2022 | 2021 | ||||||
| IoT projects and ventures BPO services | $ | 576,526 | $ | 963,787 | ||||
| IoT software and hardware engineering services | 1,764,724 | 2,253,204 | ||||||
| IoT maintenance and support services | 915,190 | 816,748 | ||||||
| $ | 3,256,440 | $ | 4,033,739 | |||||
| 20 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| 12. | OTHER INCOME |
Other income for the years ended March 31, 2022 and 2021 was
| 2022 | 2021 | |||||||
| Government grants - Employment Support Scheme (Note 1) | $ | - | $ | 165,585 | ||||
| Government grants - Subsidy for early deployment of 5G | 31,515 | 31,658 | ||||||
| Government grants - Distance Business | 7,750 | 3,336 | ||||||
| Government grants - Innovation and Technology Commission funding scheme (Note 2) | 29,152 | 87,763 | ||||||
| Government grants - Bud funding (Note 3) | 48,324 | 75,574 | ||||||
| Graduation funding | 19,717 | - | ||||||
| Business grants and JobSaver payments | 29,366 | - | ||||||
| Exchange gains | - | 6,788 | ||||||
| Other income | 9 | 27 | ||||||
| $ | 165,833 | $ | 370,731 |
| Note 1 | The amount represents wage subsidies provided to the Company under the scheme to provide time- limited financial support to employers to retain employees who may otherwise be made redundant in 2020. | ||
| Note 2 | The amount represents funding provided to the Company under a researcher programme for Incubates and Innovation and Technology Tenants of the Hong Kong Science & Technology Parks Corporation and Hong Kong Cyberport Management Company Limited. | ||
| Note 3 | The amount represents funding provided to the Company under a dedicated fund on branding, upgrading and domestic Sales (the bud fund) - mainland programme issued by the Hong Kong Productivity Council. |
| 13. | EMPLOYEE BENEFITS |
The Company contributes to a Mandatory Provident Fund plan which is available to all employees in Hong Kong. Mandatory contributions for both employees and employers to the plan are payable at 5% of the employee’s relevant income, subject to the maximum monthly contribution of $193 (equivalent to HK$1,500). No contribution from the employee is required if his / her income is less than the minimum relevant income level of $916 (equivalent to HK$7,100). The Company’s contributions to this plan are expensed as they fall due. The total provision and contributions made for such employee benefits was $44,660 and $58,542 for the years ended March 31, 2022 and 2021, respectively.
Employee of the Company’s Australian subsidiary are entitled to receive retirement benefits from the Emergency Services Superannuation Scheme in Australia. The benefit amounts are calculated based on the member’s years of service and final average salary. The total contributions made for such employee benefits was $4,550 and $0 for the years ended March 31, 2022 and 2021, respectively.
| 21 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
| 14. | SEGMENTS |
The Company has identified its operating segments based on the internal reports that are reviewed and used by the Chief Executive Officer (being the CODM) in assessing performance and determining the allocation of resources. The Company operates in three reportable segments; provision of IoT maintenance and support services, IoT projects and ventures BPO services and IoT software and hardware engineering services in Hong Kong. The accounting policies of the segments are the same as described in the summary of significant accounting policies. The Company evaluates segment performance based on income from operations. All inter-company transactions between segments have been eliminated. As a result, the components of operating income for one segment may not be comparable to another segment. The following is a summary of the Company’s segment information as of and for the years ended March 31, 2022 and 2021:
| IoT BPO services | IoT development services | IT maintenance and support services | Total Reportable segments | |||||||||||||
| 2022 | ||||||||||||||||
| Revenues, net | $ | 576,526 | $ | 1,764,724 | $ | 915,190 | $ | 3,256,440 | ||||||||
| Cost of revenue | 376,339 | 1,294,340 | 791,391 | 2,462,070 | ||||||||||||
| Gross profit | 200,187 | 470,384 | 123,799 | 794,370 | ||||||||||||
| Net Loss from operations | (17,591 | ) | (53,844 | ) | (27,924 | ) | (99,359 | ) | ||||||||
| Total assets | 473,201 | 1,448,451 | 751,171 | 2,672,823 | ||||||||||||
| Depreciation and amortization | 9,141 | 27,979 | 14,510 | 51,630 | ||||||||||||
| 2021 | ||||||||||||||||
| Revenues | $ | 963,787 | $ | 2,253,204 | $ | 816,748 | $ | 4,033,739 | ||||||||
| Cost of revenue | 765,415 | 1,058,090 | 631,492 | 2,454,997 | ||||||||||||
| Gross profit | 198,372 | 1,195,114 | 185,256 | 1,578,742 | ||||||||||||
| Net Income from operations | 73,787 | 172,505 | 62,530 | 308,822 | ||||||||||||
| Total assets | 582,621 | 1,362,088 | 493,734 | 2,438,443 | ||||||||||||
| Depreciation and amortization | 9,708 | 22,695 | 8,226 | 40,629 | ||||||||||||
| 15. | RELATED PARTY TRANSACTIONS |
The Company advanced to an affiliate (a subsidiary of ultimate holding company) , Wolf Asia Pty Limited of which the $97,709 and $0 as of March 31, 2022 and 2021 respectively for advances to the affiliate, which were repayable on demand and interest free.
The Company advanced to a related party $9,361 and $0 as of March 31, 2022 and 2021 respectively for advances to director, Mr. Wong Ka Ki, Ricky, which were repayable on demand and interest free.
| 22 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
The Company owed related party $84,171 and $98,112 as of March 31, 2022 and 2021 respectively for advances from director, Mr. Wong Chi Fung, which were repayable on demand and interest free.
The Company owed a related company, QBS Company Limited of which the director of the Company, Mr. Wong Chi Fung is the director and shareholder, of $293,817 and $296,968 as of March 31, 2022 and 2021 respectively for advances from the related company, which were repayable on demand and interest free.
A related company, Youguo Technologies Limited of which the shareholder of the Company, Mr. Kwan Ping Yuen is the director and shareholder of the related company, provided sub-contracting service related to the Company of $213,052 and $239,297 to the Company during the years ended March 31, 2022 and 2021, respectively.
Due from related parties at March 31, 2022 and 2021 consisted of the following:
| 2022 | 2021 | |||||||
| Amount due from Wolf Asia Pty Limited | $ | 97,709 | $ | - | ||||
| Amount due from a director | 9,361 | - | ||||||
| $ | 107,070 | $ | - | |||||
Due to related parties at March 31, 2022 and 2021 consisted of the following:
| 2022 | 2021 | |||||||
Amount due to a director | $ | 84,171 | $ | 98,112 | ||||
| Amount due to QBS Company Limited | 293,817 | 296,968 | ||||||
| $ | 377,988 | $ | 395,080 | |||||
| 16. | CONCENTRATIONS AND RISKS |
During 2022 and 2021, 100% of the Company’s assets were located in Pacific Asia.
Net revenues from geographic areas based on the location of the Company’s service delivery centers for fiscal 2022 and 2021 are as follows.
| 2022 | 2021 | |||||||
| Hong Kong | $ | 3,256,440 | $ | 3,771,491 | ||||
| Australia | - | 262,248 | ||||||
| Total | $ | 3,256,440 | $ | 4,033,739 | ||||
| 23 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
Details of the customers accounting for 10% or more of the Company’ s total revenue and account receivables are as follows:
| Customer A | Customer B | |||||||
| For the year ended | ||||||||
| March 31, 2022 | $ | 635,822 | $ | 397,191 | ||||
| March 31, 2021 | $ | 463,200 | $ | 308,866 | ||||
| Accounts receivable | ||||||||
| As of March 31, 2022 | $ | 359,303 | $ | 77,482 | ||||
| As of March 31, 2021 | $ | 111,309 | $ | 3,838 | ||||
Details of the suppliers accounting for 10% or more of the Company’s total cost of revenue and account payables are as follows:
| Supplier A | Supplier B | Supplier C | Supplier D | |||||||||||||
| For the year ended | ||||||||||||||||
| March 31, 2022 | $ | 480,176 | $ | 184,500 | $ | 149,514 | $ | 207,208 | ||||||||
| March 31, 2021 | $ | 410,293 | $ | 231,902 | $ | 217,166 | $ | 201,273 | ||||||||
| Accounts payable | ||||||||||||||||
| As of March 31, 2022 | $ | 242,249 | $ | 9,040 | $ | - | $ | 25,827 | ||||||||
| As of March 31, 2021 | $ | 86,278 | $ | - | $ | - | $ | 33,576 | ||||||||
| 17. | MERGER WITH FLYWHEEL ADVANCED TECHNOLOGY, INC. |
On December 15, 2022, Flywheel Advanced Technology, Inc., a Nevada corporation (“Flywheel Advanced”), entered into a share exchange agreement (the “Share Exchange Agreement”) with the Company, a limited company incorporated under the laws of Hong Kong, and QBS Flywheel Limited, a company incorporated under the laws of Australia (the “Shareholder”). Subject to the closing conditions set forth in the Share Exchange Agreement, at the closing the Shareholder will transfer and assign to Flywheel Advanced all of the issued and outstanding shares of the Company in exchange for 8,939,600 newly issued shares of Flywheel Advanced’ s common stock, par value $0.0001 per share (the “Common Stock”). Following the closing of the share exchange, there will be no change in the officers and directors of Flywheel Advanced, and the Company will continue its business as a wholly owned subsidiary of Flywheel Advanced and the Shareholder shall collectively own 8,939,600 Common Stock, or 33.41% of the then issued and outstanding shares of Common Stock on a fully diluted basis.
| 24 |
QBS SYSTEM LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
| 25 |
QBS SYSTEM LIMITED
CONTENTS
| 26 |
QBS SYSTEM LIMITED
| December 31, | March 31, | |||||||
| 2022 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and equivalents | $ | 336,082 | $ | 936,480 | ||||
| Accounts receivable, net of allowances | 1,332,953 | 1,078,520 | ||||||
| Due from related parties | 123,054 | 107,070 | ||||||
| Prepaid expenses and other current assets | 384,772 | 425,369 | ||||||
| Income tax refundable | 31,737 | - | ||||||
| Deferred tax assets | 7,719 | 8,143 | ||||||
| Total Current Assets | 2,216,317 | 2,555,582 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, NET | 9,584 | 15,648 | ||||||
| RIGHT-OF-USE ASSETS | 67,768 | 101,593 | ||||||
| TOTAL ASSETS | $ | 2,293,669 | $ | 2,672,823 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Bank loans - current portion | $ | 107,489 | $ | 102,035 | ||||
| Accounts payable | 162,417 | 357,857 | ||||||
| Accrued expenses and other current liabilities | 118,116 | 86,941 | ||||||
| Due to related parties | 379,777 | 377,988 | ||||||
| Operating lease liabilities | 22,524 | 50,031 | ||||||
| Income taxes payable | - | 20,453 | ||||||
| Total current liabilities | 790,323 | 995,305 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Bank loans | 564,169 | 632,382 | ||||||
| Operating lease liabilities | 52,184 | 61,613 | ||||||
| Total long-term liabilities | 616,353 | 693,995 | ||||||
| Total Liabilities | 1,406,676 | 1,689,300 | ||||||
| COMMITMENTS AND CONTINGENCIES | - | - | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock (100 shares issued and outstanding) | 13 | 13 | ||||||
| Retained earnings | 910,868 | 996,548 | ||||||
| Accumulated other comprehensive loss | (23,888 | ) | (13,038 | ) | ||||
| Total Stockholders’ Equity | 886,993 | 983,523 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,293,669 | $ | 2,672,823 | ||||
See accompanying notes to Consolidated Financial Statements.
| 27 |
QBS SYSTEM LIMITED
OPERATIONS AND COMPREHENSIVE
INCOME(LOSS) (UNAUDITED)
| Nine Months Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| REVENUE, NET | $ | 2,336,943 | $ | 2,200,479 | ||||
| COST OF REVENUE | (2,003,995 | ) | (1,952,227 | ) | ||||
| GROSS PROFIT | 332,948 | 248,252 | ||||||
| OPERATING EXPENSES | ||||||||
| Sales and marketing | 52,664 | 40,523 | ||||||
| General and administrative | 394,954 | 620,504 | ||||||
| Depreciation and amortization | 40,197 | 38,090 | ||||||
| Total Operating Expenses | 487,815 | 699,117 | ||||||
| OPERATING LOSS | (154,867 | ) | (450,865 | ) | ||||
| OTHER INCOME (EXPENSES) | ||||||||
| Interest expense, net | (18,209 | ) | (17,965 | ) | ||||
| Other income | 87,856 | 190,444 | ||||||
| Total Other Income | 69,647 | 172,479 | ||||||
| LOSS BEFORE INCOME TAXES | (85,220 | ) | (278,386 | ) | ||||
| Income taxes | 460 | (403 | ) | |||||
| NET LOSS | (85,680 | ) | (277,983 | ) | ||||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Foreign currency translation loss | (10,850 | ) | (12,880 | ) | ||||
| COMPREHENSIVE LOSS | $ | (96,530 | ) | $ | (290,863 | ) | ||
| Net loss per share - basic and diluted: | $ | (857 | ) | $ | (2,780 | ) | ||
| Weighted average number of shares outstanding | 100 | 100 | ||||||
See accompanying notes to Consolidated Financial Statements.
| 28 |
QBS SYSTEM LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Accumulated | ||||||||||||||||||||
| other | ||||||||||||||||||||
| Common stock | Retained | comprehensive | ||||||||||||||||||
| Shares | Amount | earnings | loss | Total | ||||||||||||||||
| Balance at March 31, 2021 | 100 | $ | 13 | $ | 958,516 | $ | (1,420 | ) | $ | 957,109 | ||||||||||
| Net loss for period | - | - | (277,983 | ) | - | (277,983 | ) | |||||||||||||
| Exchange difference on translation | - | - | - | (12,880 | ) | (12,880 | ) | |||||||||||||
| Balance at December 31, 2021 | 100 | $ | 13 | $ | 680,533 | $ | (14,300 | ) | $ | 666,246 | ||||||||||
| Accumulated | ||||||||||||||||||||
| other | ||||||||||||||||||||
| Common stock | Retained | comprehensive | ||||||||||||||||||
| Shares | Amount | earnings | loss | Total | ||||||||||||||||
| Balance at March 31, 2022 | 100 | $ | 13 | $ | 996,548 | $ | (13,038 | ) | $ | 983,523 | ||||||||||
| Net loss for period | - | - | (85,680 | ) | - | (85,680 | ) | |||||||||||||
| Exchange difference on translation | - | - | - | (10,850 | ) | (10,850 | ) | |||||||||||||
| Balance at December 31, 2022 | 100 | $ | 13 | $ | 910,868 | $ | (23,888 | ) | $ | 886,993 | ||||||||||
See accompanying notes to Consolidated Financial Statements.
| 29 |
QBS SYSTEM LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
| Nine Months Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (85,680 | ) | $ | (277,983 | ) | ||
| Adjusted to reconcile net loss to cash used by operating activities: | ||||||||
| Depreciation | 6,101 | 7,335 | ||||||
| Lease amortisation | 34,096 | 30,755 | ||||||
| Deferred income taxes | 460 | (403 | ) | |||||
| Changes in operating assets and liabilities | ||||||||
| (Increase)/decrease in: | ||||||||
| Accounts receivable | (247,808 | ) | (249,520 | ) | ||||
| Prepaid expenses and other current assets | 42,319 | (270,835 | ) | |||||
| (Decrease)/ increase in: | ||||||||
| Accounts payable | (195,928 | ) | 177,262 | |||||
| Operating leases liabilities | (37,235 | ) | (20,816 | ) | ||||
| Accrued expenses and other current liabilities | 34,372 | 7,586 | ||||||
| Income taxes payable | (54,922 | ) | (34,190 | ) | ||||
| Net cash used by operating activities | (504,225 | ) | (630,809 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property, plant and equipment | (4,599 | ) | (5,538 | ) | ||||
| Advances to related parties | (26,405 | ) | (97,686 | ) | ||||
| Net cash used by investing activities | (31,004 | ) | (103,224 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | - | 128,560 | ||||||
| Repayment of notes payable | (65,828 | ) | (27,053 | ) | ||||
| Advances from related party | - | (26,503 | ) | |||||
| Net cash (used by)/provided by financing activities | (65,828 | ) | 75,004 | |||||
| NET DECREASE IN CASH AND EQUIVALENTS | (601,057 | ) | (659,029 | ) | ||||
| EFFECT OF EXCHANGE RATES ON CASH AND EQUIVALENTS | 659 | (12,957 | ) | |||||
| CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | 936,480 | 1,376,540 | ||||||
| CASH AND EQUIVALENTS AT END OF PERIOD | $ | 336,082 | $ | 704,554 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for income taxes | $ | (55,472 | ) | $ | (34,189 | ) | ||
| Cash paid for interest | $ | (14,966 | ) | $ | (14,189 | ) | ||
See accompanying notes to Consolidated Financial Statements.
| 30 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
| (A) | Organization |
QBS System Limited (“the Company”) was incorporated in Hong Kong on April 14, 2011 with limited liability and its principal activities are providing Internet of Things (“IoT”) solutions and services across industries. Its IoT solutions help clients build applications using available IoT device, sensors, framework and platform, to integrate the available hardware and software solution with clients’ existing landscape or implement a new IoT solution for enterprises.
The Company provides IoT solutions and services to assist its clients build applications using available IoT devices, sensors, frameworks, and platforms, to integrate hardware and software solutions with clients existing landscape or implement new IoT solutions for enterprises. The Company provides a full-range IoT services comprising consulting development and implementation, analytics, support, and evolution. It has a business portfolio providing IoT integration solution services, IoT maintenance, support services, IoT projects and ventures Business Process Outsourcing (“BPO”) services, and approximately nine years of experience in Hong Kong providing IoT software and hardware engineering services. Clients range across various industries, such as logistics and supply chain management, food & beverage, automation and smart building. The applications of the Company’s IoT Solution include connected equipment in the enterprise (Enterprise IoT) and industrial assets such as machines, robots, or even workers in smart factories and industrial facilities (Industrial IoT, the essential component of Industry 4.0).
The Company provides a full-range IoT services comprising consulting, development and implementation, analytics, support and evolution. It has a business portfolio including the provision of IoT integration solution services, IoT support and maintenance services and IoT Business Process Outsourcing (“BPO”) services.
The Company formed a wholly owned subsidiary, QBS System Pty Ltd in Australia on May 8, 2020 and its principal activities are providing computer network systems design and integration services.
On December 15, 2022, The Company entered into a share exchange agreement (the “ Share Exchange Agreement”) with Flywheel Advanced Technology, Inc., a Nevada corporation (the “ Flywheel Advanced”), and QBS Flywheel Limited, a company incorporated under the laws of Australia (the “ Ultimate holding company”). Subject to the closing conditions set forth in the Share Exchange Agreement, at the closing the ultimate holding company will transfer and assign to the Flywheel Advanced all of the issued and outstanding shares of the Company for 8,939,600 newly issued shares of the Flywheel Advance’s common stock, par value $0.0001 per share (the “Common Stock”).
We use the terms “Company”, “we” and “us” to refer to both QBS System Limited and its subsidiary.
| 31 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
| (B) | Basis of preparation and principles of consolidation |
The accompanying consolidated financial statements (“CFS”) were prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The accompanying CFS reflect all adjustments that management considers necessary for a fair presentation of the results of operations for these periods.
The accompanying CFS were prepared on a consolidated basis and reflect the financial statements of QBS System Limited, a Hong Kong company, and its wholly owned subsidiary, QBS System Pty Ltd, an Australian Private Company. All intercompany transactions and balances are eliminated on consolidation.
| (C) | Use of estimates |
The preparation of CFS in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the CFS. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, revenue recognition, allowance for credit losses, valuation allowances for deferred tax assets, the measurement of lease liabilities and right-of-use (“ROU”) assets, measurements of assets and obligations related to employee benefits, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, variable consideration, other obligations for revenue recognition, income tax uncertainties and other contingencies. Management believes the estimates used in the preparation of the CFS are reasonable, and management has made assumptions about the possible effects of the ongoing COVID-19 pandemic on critical and significant accounting estimates. Although these estimates and assumptions are based upon management’ s best knowledge of current events and actions, actual results could differ from these estimates. Any changes in estimates are adjusted prospectively in the Company’s CFS.
| (D) | Financial instruments and concentration of credit risk |
Financial instruments that potentially subject the Company to concentration of credit risk are reflected principally in cash and equivalents and accounts receivable. The Company places its cash and cash equivalents with banks with high investment grade ratings, limits the amount of credit exposure with any one bank and conducts ongoing evaluations of the creditworthiness of the banks with which it does business. To reduce its credit risk on accounts receivable, the Company conducts ongoing credit evaluations of its customers.
| (E) | Cash and equivalents |
For purpose of the statements of cash flows, cash and equivalents include cash on hand and demand deposits with a bank with an initial maturity of less than three months.
| 32 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
| (F) | Accounts receivable and allowance for expected credit losses |
Accounts receivables are recorded net of allowances for expected credit losses. The Company follows ASC Topic 326, Financial Instruments-Credit Losses. Accounts receivable and contract assets are in the scope for which assessment is made. The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay. The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates. In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of default in the future. Accounts receivable balances are written-off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.
| (G) | Property, plant and equipment, net |
Property, plant and equipment are stated at cost less accumulated depreciation and amortization and accumulated impairment loss. Expenditures for replacements and improvements are capitalized, whereas the costs of maintenance and repairs are expensed.
Depreciation is provided on a straight-line basis, less estimated residual value over the assets’ estimated useful lives. The estimated useful lives are 5 periods.
| (H) | Right-of-use asset |
In accordance with FASB Codification Topic 842 (ASC Topic 842), Leases, right-of-use (ROU) asset is stated at cost, less accumulated amortisation.
Amortization is provided on a straight-line basis, less estimated residual value over the assets’ estimated useful lives. The estimated useful live is the term of the leases.
| (I) | Long-lived assets |
In accordance with FASB Codification Topic 360 (ASC Topic 360), “Accounting for the impairment or disposal of Long-Lived Assets”, long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets. The Company reviews property and equipment to determine that carrying values are not impaired.
| 33 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
| (J) | Leases |
ASC Topic 842 requires a lessee to record a ROU asset and a lease liability for all leases with terms longer than 12 months. Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company determines the lease term by assuming the exercise of renewal options that are reasonably certain. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its local incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. When the Company’s contracts contain lease and non-lease components, the Company accounts for both components as a single lease component. Refer to Note 6.
Impact of COVID-19
In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19. In this guidance, entities can elect not to apply lease modification accounting with respect to such lease concessions and instead, treat the concession as if it was a part of the existing contract. The Company has elected to not evaluate leases under the lease modification accounting framework for concessions that result from effects of the COVID-19 pandemic. The Company has accounted for rent abatement as a negative lease payment in the affected period.
| (K) | Fair value of financial instruments |
FASB Codification Topic 825 (ASC Topic 825), “Disclosure about Fair Value of Financial Instruments,” requires certain disclosures regarding the fair value (“FV”) of financial instruments. The carrying amounts of accounts receivables, other current assets and prepaid expenses, accounts payable, other payables and accrued liabilities and due to Company companies approximate their FVs because of the short-term nature of the instruments. The management of the Company is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial statements.
| (L) | Revenue recognition |
The Company’s revenue is comprised mainly the following services: IoT software and hardware development service, BPO service and IT support and maintenance service.
Revenues from IoT software and hardware development are measured based on the skills, estimate time, cost of outsourcing, human resources and materials required for the project which are specified in a quotation or contract with a customer and exclude discounts and amounts collected on behalf of third parties. Revenues recognized under quotation or contracts generally when persuasive evidence of an arrangement exists, services have been performed and collection of amounts billed is fixed, based on the achievement of milestone in contract and is reasonably assured.
| 34 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
Revenues from BPO services are measured based on headcounts, rate of each headcount, skill level and whether the headcount is engaged on a full-time or part-time basis. Revenues are recognized under quotations or contracts generally when persuasive evidence of an arrangement exists, the sales price is fixed or determinable, services have been performed and collection of amounts billed is reasonably assured.
Revenues from IoT maintenance and support services are measured based on the skills, hardware/material required and estimate time required for the project. Revenue are recognized over time as services are provided and extended service plans are recognized over the performance period of the service contract or quotation as the obligation represents a stand-ready obligation to the customer.
The Company follows ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from services by: (1) identifying the contract (if any) with a customer; (2) identifying the performance obligations in the contract (if any); (3) determining the transaction price; (4) allocating the transaction price to each performance obligation in the contract (if any); and (5) recognizing revenue when each performance obligation is satisfied. The Company has no outstanding contracts with any of its customers as of December 31, 2022 and March 31, 2022. The Company recognizes revenue when it satisfies a performance obligation by providing services to a customer.
The Company generally invoices a client after performance of services. Payments are due as per contract terms.
| (M) | Cost of revenue |
Cost of revenue primarily consists of sub-contracting fee, engineers salary and purchases of equipment used or installed as part of the project. It also includes operational expenses, which consist of facilities maintenance expenses, travel and living expenses, IT expenses, and consulting and certain other expenses. Consulting charges represent the cost of consultants and contract resources with specialized skills who are directly responsible for the performance of services for clients and travel and other billable costs related to the Company’s clients. Recurring direct costs for services are recognized as incurred.
| (N) | Foreign currency translation |
The Company’s CFS and statements of cash flows are reported in United States dollars (“US$”), the Company’s reporting currency. The functional currency for the Company is Hong Kong dollars (“HK$”). The functional currency for the Company’s subsidiary organized in Australian is the Australian dollars (“A$”). The translation of the functional currencies of the Company and its subsidiary into US$ is performed for balance sheet accounts using the exchange rates in effect as of the balance sheet date and for revenues and expense accounts using a monthly average exchange rate prevailing during the respective period. The gains or losses resulting from such translation are reported as currency translation adjustments under other comprehensive income (loss), net, under accumulated other comprehensive income (loss) as a separate component of equity.
| 35 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
Monetary assets and liabilities of the Company and its subsidiary denominated in currencies other than the functional currency of the Company and subsidiary are translated into their respective functional currency at the rates of exchange prevailing on the balance sheet date.
Transactions of the Company and its subsidiary in currencies other than the Company’s and the Subsidiary’s functional currencies are translated into the respective functional currencies at the average monthly exchange rate prevailing during the period of the transaction. The gains or losses resulting from foreign currency transactions are included in the consolidated statements of income.
The exchange rates used to translate amounts in HK$ and AU$ into US$ for the purposes of preparing the financial statements were as follows:
| December 31, 2022 | March 31, 2022 | |||
| Balance sheet items, except for common stock, additional paid-in capital and retained earnings, as of period end | US$1=HK$7.7899 | US$1=HK$7.827 | ||
| US$1=AUD1.47225 | US$1=AUD1.33 |
| Amounts included in the statements of operations and cash flows for the period | Nine Months Ended December 31, | |||
| 2022 | 2021 | |||
| US$1=HK$7.837801 | US$1=HK$7.778489 | |||
| US$1=AUD1.466078 | US$1=AUD1.347654 | |||
| (O) | Other comprehensive (loss)/income |
The foreign currency translation gain or loss resulting from translation of the financial statements expressed in HK$ and AU$ to US$ is reported as other comprehensive income or loss in the statements of operations and stockholders’ equity.
| (P) | Employee benefit plans |
Contributions to defined contribution plans are expensed in the period in which services are rendered by the covered employees. The Company recognizes its liabilities for compensated absences dependent on whether the obligation is attributable to employee services already rendered, relates to rights that vest or accumulate and payment is probable and estimable. Refer to Note 13.
| 36 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
| (Q) | Government grants |
The Company recognizes incentives in the CFS under “other income (expense), net.” Incentives are recognized in the consolidated statements of income when it is probable the Company will comply with the conditions for their receipt and a reasonable expectation that the funds will be received. In certain circumstances, the receipt of an incentive may not be subject to any condition or requirement to incur further costs, in which case the incentive is recognized in the consolidated statement of operations for the period in which it becomes receivable. If it becomes likely that the Company will be required to repay an incentive that has already been recognized, the Company makes a provision for the estimated liability.
| (R) | Income taxes |
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period included the enactment date.
| (S) | Earnings per share |
Basic earnings(loss) per share are computed by dividing income available to stockholders by the weighted average number of shares outstanding during the period. Diluted income per share is computed like basic income per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the potential shares had been issued and if the additional shares were diluted. There were no potentially dilutive securities for 2022 and 2021.
| (T) | Commitments and contingencies |
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with such liabilities are expensed as incurred.
| 37 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
| (U) | Segments |
The Company operates in three reportable segments, provision of IT maintenance and support services, IoT BPO services and IoT development services in Hong Kong and Australia.
The chief operating decision maker (‘CODM’) generally reviews financial information such as revenues, cost of revenues and gross profit, disaggregated by the operating segments to allocate an overall budget among the operating segments.
The Company does not allocate and therefore the CODM does not evaluate, certain operating expenses, interest expense or income taxes by segment. Many of the Company’s assets are shared by multiple operating segments. The Company manages these assets on a total Company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented. Refer to Note 14.
| (V) | Recently Issued Accounting Standards |
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326- 30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this ASU address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, which to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses standard. The new effective date for these preparers is for fiscal years beginning after July 1, 2023, including interim periods within those fiscal years. The Company has not early adopted this update and it will become effective on July 1, 2023 assuming the Company will remain eligible to be smaller reporting company. The adoption did not have material impact on the Company’s unaudited CFS.
| 38 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
2. CASH AND EQUIVALENTS
Cash is composited of the following
| December 31, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Cash at bank | $ | 334,396 | $ | 934,802 | ||||
| Cash on hand | 1,686 | 1,678 | ||||||
| Total | $ | 336,082 | $ | 936,480 | ||||
3. ACCOUNTS RECEIVABLE, NET OF ALLOWANCES
Accounts receivable consisted of the following:
| December 31, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Accounts receivable | $ | 1,470,046 | $ | 1,232,732 | ||||
| Less: allowance for expected credit losses | 137,093 | 154,212 | ||||||
| Accounts receivable, net | $ | 1,332,953 | $ | 1,078,520 | ||||
The movement in “Allowance for expected credit losses” for nine months ended December 31, 2022 and 2021 was as follows:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Balance at beginning of period | $ | 154,212 | $ | 91,445 | ||||
| Addition during the period | - | - | ||||||
| Reversal during the period | (8,684 | ) | - | |||||
| Translation adjustment | (8,435 | ) | (4,355 | ) | ||||
| Balance at end of period | $ | 137,093 | $ | 87,090 | ||||
| 39 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
| December 31, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Advisory fees prepaid for business development | $ | 315,831 | $ | 324,054 | ||||
| Deposits | 15,935 | 15,799 | ||||||
| Advance to suppliers | 51,349 | 54,778 | ||||||
| Other receivables | 1,451 | 30,432 | ||||||
| Others | 206 | 306 | ||||||
| $ | 384,772 | $ | 425,369 | |||||
5. PROPERTY, PLANT AND EQUIPMENT, NET
The following is a summary of property and equipment:
| December 31, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Furniture and Fixtures | $ | 18,181 | $ | 18,096 | ||||
| Computer Equipment | 67,960 | 67,640 | ||||||
| 86,141 | 85,736 | |||||||
| Less: accumulated depreciation | 76,557 | 70,088 | ||||||
| Property and equipment, net | $ | 9,584 | $ | 15,648 | ||||
6. LEASES
The Company leases offices. Rental contract is for 36 months. The lease agreement has no covenants.
Accumulated ROU assets and amortization are as follows :
| December 31, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Operating lease cost - office | $ | 138,707 | $ | 138,054 | ||||
| Less: accumulated amortization | 70,939 | 36,461 | ||||||
| ROU assets, net | $ | 67,768 | $ | 101,593 | ||||
| 40 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
The following is leases liabilities:
| December 31, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Current portion | $ | 22,524 | $ | 50,031 | ||||
| Non-current portion | 52,184 | 61,613 | ||||||
| $ | 74,708 | $ | 111,644 | |||||
The following is a summary of the weighted remaining leases term and the weighted average discount rate for the Company’s leases at December 31, 2022 and March 31, 2022:
| December 31 | March 31 | |||||||
| 2022 | 2022 | |||||||
| Weighted average remaining lease term | ||||||||
| Operating leases | 1.91 | 2.16 | ||||||
| Weighted average discount rate | ||||||||
| Operating leases | 5 | % | 5 | % | ||||
During nine months ended December 31, 2022 and 2021, cash paid for operating leases liabilities was $37,235 and $20,816 respectively.
The Company’ s leases have remaining lease terms inclusive of renewal or termination options that the Company is reasonably certain to exercise. The following table summarizes the maturity of the Company’ s operating lease liabilities as of December 31, 2022:
| Year Ending December 31 | ||||
| 2023 | $ | 54,507 | ||
| 2024 | 22,711 | |||
| Total operating lease payments | 77,218 | |||
| Less: Imputed interest | 2,510 | |||
| Total operating lease liabilities | $ | 74,708 | ||
There were no corresponding impairment charges during nine months ended December 31, 2022 and 2021.
| 41 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities as above consisted of the following:
| December 31, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Accrued expenses | $ | 2,824 | $ | 8,953 | ||||
| Accrued employee cost | 81,300 | 40,160 | ||||||
| Sales tax payable | 16,064 | 17,991 | ||||||
| Other | 17,928 | 19,837 | ||||||
| $ | 118,116 | $ | 86,941 | |||||
8. BANK LOANS
| A summary of the Company’s loans payable is as follows | December 31, | March 31, | ||||||
| 2022 | 2022 | |||||||
| Bank loans | ||||||||
| HK$3,550,000 3 years loan (note a) | $ | 375,793 | $ | 421,388 | ||||
| HK$1,450,000 5 years loan (note b) | 173,028 | 185,262 | ||||||
| HK$1,000,000 8 years loan (note c) | 122,837 | 127,767 | ||||||
| Total | $ | 671,658 | $ | 734,417 | ||||
| Current portion | $ | 107,489 | $ | 102,035 | ||||
| Non-current portion | 564,169 | 632,382 | ||||||
| Total | $ | 671,658 | $ | 734,417 | ||||
| (a) | On April 27, 2020, the Company was granted a bank loan from Bank of China (Hong Kong) Limited of HK$3,550,000.The loan has interest of 2.5% below the Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited from time to time and is secured by the personal guarantees of the Company’s Director, Mr. Wong Chi Fung and shareholder, Mr. Kwan Ping Yuen and guarantee from the HKMC Insurance Limited under the SME Financing Guarantee Scheme. The Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited as of December 31, 2022 and March 31, 2022 were 5.875% and 5.25% respectively. The outstanding principal and interest accrued is payable by 24 equal monthly instalments, commencing 13 months after the date of drawdown. |
| 42 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
| (b) | On October 10, 2020, the Company was granted a bank loan from Bank of China (Hong Kong) Limited of HK$1,450,000 .The loan has interest of 2.5% below the Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited from time to time and is secured by the personal guarantees of the Company’s Director, Mr. Wong Chi Fung and shareholder, Mr. Kwan Ping Yuen and guarantee from the HKMC Insurance Limited under the SME Financing Guarantee Scheme. The Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited as of December 31, 2022 and March 31, 2022 were 5.875% and 5.25% respectively. The outstanding principal and interest accrued is payable by 48 equal monthly instalments, commencing on 13 months after the date of drawdown. | |
| (c) | On June 28, 2021, the Company was granted a bank loan from Bank of China (Hong Kong) Limited of HK1,000,000. The loan has interest of 2.5% below the Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited from time to time and is secured by the personal guarantees of the Company’s Director, Mr. Wong Chi Fung and shareholder, Mr. Kwan Ping Yuen and guarantee from the HKMC Insurance Limited under the SME Financing Guarantee Scheme. The Hong Kong Dollars Prime Rate quoted by The Hong Kong Mortgage Corporation Limited as of December 31, 2022 and March 31, 2022 were 5.875% and 5.25% respectively. The outstanding principal and interest accrued is payable by 84 equal monthly instalments, commencing on 13 months after the date of drawdown. |
Fund-based and non-fund-based credit facilities with banks are available for operational requirements in the form of overdrafts and short-term loans. As of December 31, 2022 and March 31, 2022, the limits available were $770,228 and $766,602, respectively, of which $671,658 and $734,417, respectively, was utilized, constituting non-funded drawdown.
9. INCOME TAX
The income tax expense (benefit) for the nine months ended December 31, 2022 and 2021 is
| 2022 | 2021 | |||||||
| Current tax expense: | ||||||||
| Hong Kong profits tax | ||||||||
| Provision for the period | $ | - | $ | - | ||||
| One-off tax deduction | - | - | ||||||
| Deferred tax benefit: | ||||||||
| Hong Kong profits tax | - | - | ||||||
| Deferred tax benefit | 460 | (403 | ) | |||||
| Total income taxes | $ | 460 | $ | (403 | ) | |||
| 43 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
The Company is subject to Hong Kong Profits Tax. The Company is qualified for the two-tiered profits tax rates for fiscal 2022 based on the financial results for the period ended December 31, 2022. Thus, Hong Kong profits tax was provided in the CFS on the estimated assessable profit for the first HK$2 million at 8.25% and on the estimated assessable profit above HK$2 million for the period at 16.5%. One-off tax reduction is tax concession on the final tax of the period assessment fiscal 2022 at 100% (2020/21: 100%) with a ceiling of $1,284 (2020/21: $1,290). The Company did not make any provisions for Hong Kong profit tax as the Company incurred a loss during the nine months and there were no assessable profits for the nine months ended 31 December 2022 and 2021.
Subsidiary in Australia is subject to a tax 25% for nine months ended December 31, 2022 (26% for nine months ended December 31, 2021). The subsidiary is qualified for the reduced tax rate that fall below turnover threshold of AUD 50 million (USD 37 million). No Australian income tax was provided in the CFS as the subsidiary does not have assessable profit during the period (2021: Nil).
A reconciliation of the provision for income taxes compared with the amount at the tax rate for the nine months ended December 31, 2022 and 2021 was as follows:
| 2022 | 2021 | |||||||
| Loss before income tax expense | $ | (85,220 | ) | $ | (278,386 | ) | ||
| Tax charge at the applicable tax rate at 8.25% on first HK$2million of profit and at 16.5% on profit above HK$2million | $ | (7,031 | ) | $ | (22,967 | ) | ||
| Tax effect of expenses not deductible | 194 | 15,715 | ||||||
| Tax effect of exempted bank interest income and government incentives not taxable | (4,222 | ) | (3,249 | ) | ||||
| Tax effect of tax losses carried forward | 10,573 | 10,300 | ||||||
| Other | 946 | (202 | ) | |||||
| Total income taxes(benefit) | $ | 460 | $ | (403 | ) | |||
The components and movements in deferred tax (assets) liabilities are as follows:
| Accelerated | ||||
| depreciation | ||||
| allowances | ||||
| At March 31, 2021 | $ | 3,256 | ||
| Deferred taxation credited to statement of operations | (403 | ) | ||
| Translation difference | (22 | ) | ||
| At December 31, 2021 | $ | 2,831 | ||
| 44 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
| Accelerated | ||||
| depreciation | ||||
| allowances and | ||||
| bad debt | ||||
| At March 31, 2022 | $ | (8,143 | ) | |
| Deferred taxation credited to statement of operations | 460 | |||
| Translation difference | (36 | ) | ||
| At December 31, 2022 | $ | (7,719 | ) | |
10. STOCKHOLDERS’ EQUITY
The Company was incorporated on April 14, 2011, 100 shares were issued at $13 and fully paid in cash.
11. NET REVENUE
Disaggregation of revenue is as follows:
| Nine Months Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| IoT projects and ventures BPO | $ | 579,691 | $ | 426,485 | ||||
| IoT software and hardware | 935,403 | 1,135,383 | ||||||
| IoT maintenance and support | 821,849 | 638,611 | ||||||
| $ | 2,336,943 | $ | 2,200,479 | |||||
| 45 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
12. OTHER INCOME
Other income was:
| Nine Months Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Government grants - Employment Support Scheme (Note 1) | $ | 51,035 | $ | - | ||||
| Government grants - Subsidy for early deployment of 5G | - | 31,545 | ||||||
| Government grants - Distance Business | - | 7,757 | ||||||
| Government grants - Innovation and Technology | - | 58,315 | ||||||
| Government grants - Bud funding (Note 2) | - | 48,371 | ||||||
| Graduation funding | - | 14,676 | ||||||
| Reversal of credit losses | 8,684 | - | ||||||
| Other income | 28,137 | 29,780 | ||||||
| $ | 87,856 | $ | 190,444 | |||||
| Note 1 | The amount is wage subsidies provided to the Company under the scheme to provide time-limited financial support to employers to retain employees who may otherwise be made redundant in 2022. | |
| Note 2 | The amount is funding provided to the Company under a dedicated fund on branding, upgrading and domestic Sales (the bud fund) - mainland programme issued by the Hong Kong Productivity Council. |
| 46 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
13. EMPLOYEE BENEFITS
The Company contributes to a Mandatory Provident Fund plan which is available to all employees in Hong Kong. Mandatory contributions for both employees and employers to the plan are payable at 5% of the employee’s relevant income, subject to the maximum monthly contribution of $193 (equivalent to HK$1,500). No contribution from the employee is required if his / her income is less than the income level of $916 (equivalent to HK$7,100). The Company’s contributions to this plan are expensed as they fall due. The total provision and contributions made for such employee benefits was $21,120 and $36,498 for the nine months ended December 31, 2022 and 2021, respectively.
Employees of the Company’s Australian subsidiary are entitled to receive retirement benefits from the Emergency Services Superannuation Scheme in Australia. The benefit amounts are calculated based on the member’s periods of service and final average salary. The total contributions made for such employee benefits was $0 and $4,578 for the nine months ended December 31, 2022 and 2021, respectively.
14. SEGMENTS
The Company has identified its operating segments based on the internal reports that are reviewed and used by the Chief Executive Officer (being the CODM) in assessing performance and determining the allocation of resources. The Company operates in three reportable segments; provision of IoT maintenance and support services, IoT projects and ventures BPO services and IoT software and hardware engineering services in Hong Kong. The accounting policies of the segments are the same as described in the summary of significant accounting policies. The Company evaluates segment performance based on income from operations. All inter-company transactions between segments have been eliminated. As a result, the components of operating income for one segment may not be comparable to another segment. The following is a summary of the Company’s segment information as of and for the nine months ended December 31, 2022 and 2021:
| IoT | IT maintenance | Total | ||||||||||||||
| IoT BPO | development | and support | Reportable | |||||||||||||
| services | services | services | segments | |||||||||||||
| For the nine months ended December 31, 2022 | ||||||||||||||||
| Revenues, net | $ | 579,691 | $ | 935,403 | $ | 821,849 | $ | 2,336,943 | ||||||||
| Cost of revenue | 583,728 | 600,346 | 819,921 | 2,003,995 | ||||||||||||
| Gross (loss) profit | (4,037 | ) | 335,057 | 1,928 | 332,948 | |||||||||||
| Net loss from operations | (38,416 | ) | (61,988 | ) | (54,463 | ) | (154,867 | ) | ||||||||
| Depreciation and amortization | 9,971 | 16,090 | 14,136 | 40,197 | ||||||||||||
| 47 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
| For the nine months ended December 31, 2021 | ||||||||||||||||
| Revenues | $ | 426,485 | $ | 1,135,383 | $ | 638,611 | $ | 2,200,479 | ||||||||
| Cost of revenue | 335,043 | 967,730 | 649,454 | 1,952,227 | ||||||||||||
| Gross profit (loss) | 91,442 | 167,653 | (10,843 | ) | 248,252 | |||||||||||
| Net loss from | ||||||||||||||||
| operations | (87,384 | ) | (232,633 | ) | (130,848 | ) | (450,865 | ) | ||||||||
| Depreciation and amortization | 7,383 | 19,653 | 11,054 | 38,090 | ||||||||||||
| December 31, | March 31, | |||||||
| Segment of assets | 2022 | 2022 | ||||||
| IoT BPO services | $ | 568,957 | $ | 473,201 | ||||
| IoT development services | 918,082 | 1,448,451 | ||||||
| IT maintenance and support services | 806,630 | 751,171 | ||||||
| $ | 2,293,669 | $ | 2,672,823 | |||||
15. RELATED PARTY TRANSACTIONS
The Company advanced to an affiliate (a subsidiary of ultimate holding company), Wolf Asia Pty Limited of which $88,300 and $97,709 as of December 31, 2022 and March 31, 2022 respectively for advances to the affiliate, which were repayable on demand and interest free.
The Company advanced to an ultimate holding company, QBS Flywheel Limited of which the $34,754 as of December 31, 2022 for advances to the ultimate holding company, which were repayable on demand and interest free.
The Company advanced to a related party $9,361 as of March 31, 2022 for advances to director, Mr. Wong Ka Ki, Ricky, which were repayable on demand and interest free.
The Company owed related party $84,570 and $84,171 as of December 31, 2022 and March 31, 2022 respectively for advances from director, Mr. Wong Chi Fung, which were repayable on demand and interest free.
The Company owed a related company, QBS Company Limited of which the director of the Company, Mr. Wong Chi Fung is the director and shareholder, of $295,207 and $293,817 as of December 31, 2022 and March 31, 2022 respectively for advances from the related company, which were repayable on demand and interest free.
| 48 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
A related company, Youguo Technologies Limited of which the shareholder of the Company, Mr. Kwan Ping Yuen is the director and shareholder of the related company, provided sub-contracting service related to the Company of $0 and $148,979 to the Company during the nine months ended December 31, 2022 and 2021, respectively.
Due from related parties consisted of the following:
| December 31, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Amount due from Wolf Asia Pty Limited | $ | 88,300 | $ | 97,709 | ||||
| Amount due from QBS Flywheel Limited | 34,754 | - | ||||||
| Amount due from a director | - | 9,361 | ||||||
| $ | 123,054 | $ | 107,070 | |||||
Due to related parties consisted of the following:
| 2022 | 2022 | |||||||
| Amount due to a director | $ | 84,570 | $ | 84,171 | ||||
| Amount QBS Company Limited | 295,207 | 293,817 | ||||||
| $ | 379,777 | $ | 377,988 |
16. CONCENTRATIONS AND RISKS
During the nine months ended December 31, 2022 and 2021, 100% of the Company’s assets were located in Pacific Asia.
Net revenue from geographic areas based on the location of the Company’s service delivery centers for the nine months ended December 31, 2022 and 2021 is as follows.
| Nine Months Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Hong Kong | $ | 2,336,943 | $ | 2,200,479 | ||||
| Australia | - | - | ||||||
| Total | $ | 2,336,943 | $ | 2,200,479 | ||||
Details of the customers accounting for 10% or more of the Company’ s total revenue and account receivables are as follows:
| Customer A | Customer B | Customer C | ||||||||||
| For the nine months ended | ||||||||||||
| December 31, 2022 | $ | 504,159 | $ | 287,075 | $ | 255,174 | ||||||
| December 31, 2021 | $ | 444,958 | $ | 237,450 | $ | - | ||||||
| 49 |
QBS SYSTEM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
UNAUDITED
| Accounts receivable | ||||||||||||
| As of December 31, 2022 | $ | 389,264 | $ | 288,887 | $ | 102,697 | ||||||
| As of March 31, 2022 | $ | 359,303 | $ | 77,482 | $ | 37,052 | ||||||
Details of the suppliers accounting for 10% or more of the Company’s total cost of revenue and account payables are as follows:
| Supplier A | Supplier B | Supplier C | Supplier D | |||||||||||||
| For the nine months ended | ||||||||||||||||
| December 31, 2022 | $ | 420,870 | $ | 204,139 | $ | - | $ | 106,886 | ||||||||
| December 31, 2021 | $ | 387,102 | $ | 149,129 | $ | 148,979 | $ | 146,558 | ||||||||
| Accounts payable | ||||||||||||||||
| As of December 31, 2022 | $ | 86,053 | $ | - | $ | - | $ | - | ||||||||
| As of March 31, 2022 | $ | 242,249 | $ | 9,040 | $ | - | $ | 25,827 | ||||||||
17. MERGER WITH FLYWHEEL ADVANCED TECHNOLOGY, INC.
On December 15, 2022, Flywheel Advanced Technology, Inc., a Nevada corporation (“Flywheel Advanced”), entered into a share exchange agreement (the “Share Exchange Agreement”) with the Company, a limited company incorporated under the laws of Hong Kong, and QBS Flywheel Limited, a company incorporated under the laws of Australia (the “Shareholder”). Subject to the closing conditions set forth in the Share Exchange Agreement, at the closing the Shareholder will transfer and assign to Flywheel Advanced all of the issued and outstanding shares of the Company in exchange for 8,939,600 newly issued shares of Flywheel Advanced’ s common stock, par value $0.0001 per share (the “Common Stock”). Following the closing of the share exchange, there will be no change in the officers and directors of Flywheel Advanced, and the Company will continue its business as a wholly owned subsidiary of Flywheel Advanced and the Shareholder shall collectively own 8,939,600 Common Stock, or 33.41% of the then issued and outstanding shares of Common Stock on a fully diluted basis.
| 50 |
Exhibit 99.3
FLYWHEEL ADVANCED TECHNOLOGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2022
| Flywheel Advanced | QBS System | ProForma Adjustments | Pro Forma Consolidated | |||||||||||||||
| ASSETS | ||||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||||
| Cash and equivalents | $ | - | $ | 336,082 | $ | - | $ | 336,082 | ||||||||||
| Accounts receivable, net of | 1,332,953 | |||||||||||||||||
| allowances | - | - | 1,332,953 | |||||||||||||||
| Due from related parties | - | 123,054 | - | 123,054 | ||||||||||||||
| Prepaid expenses and other current | 679 | 384,772 | - | 385,451 | ||||||||||||||
| Income tax refundable | - | 31,737 | - | 31,737 | ||||||||||||||
| Deferred taxes assets | - | 7,719 | - | 7,719 | ||||||||||||||
| Total Current Assets | 679 | 2,216,317 | - | 2,216,996 | ||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT, | - | 9,584 | - | 9,584 | ||||||||||||||
| RIGHT-OF-USE ASSETS | - | 67,768 | - | 67,768 | ||||||||||||||
| GOODWILL | - | - | {b} | 2,063,075 | 2,063,075 | |||||||||||||
| TOTAL ASSETS | $ | 679 | $ | 2,293,669 | $ | 2,063,075 | $ | 4,357,423 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||
| Bank loans - current portion | $ | - | $ | 107,489 | $ | - | $ | 107,489 | ||||||||||
| Accounts payable | - | 162,417 | - | 162,417 | ||||||||||||||
| Accrued expenses and other current | 16,879 | 118,116 | - | 134,995 | ||||||||||||||
| Due to related parties | 213,762 | 379,777 | - | 593,539 | ||||||||||||||
| Operating leases liabilities | - | 22,524 | - | 22,524 | ||||||||||||||
| Income tax payable | - | - | - | - | ||||||||||||||
| Total current liabilities | 230,641 | 790,323 | - | 1,020,964 | ||||||||||||||
| LONG-TERM LIABILITIES | ||||||||||||||||||
| Bank loans | - | 564,169 | - | 564,169 | ||||||||||||||
| Operating leases liabilities | - | 52,184 | - | 52,184 | ||||||||||||||
| Total long-term liabilities | - | 616,353 | - | 616,353 | ||||||||||||||
| Total Liabilities | 230,641 | 1,406,676 | - | 1,637,317 | ||||||||||||||
| COMMITMENTS AND CONTINGENCIES | - | - | - | - | ||||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||||
| Common stock | 1,782 | 13 | {a}{c} | 881 | 2,676 | |||||||||||||
| Paid in capital | 2,534,546 | - | {a}{b} | 2,949,174 | 5,483,720 | |||||||||||||
| (Accumulated deficit)/Retained earnings (loss) | (2,766,290 | ) | 910,868 | {c} | (910,868 | ) | (2,766,290 | ) | ||||||||||
| Accumulated other comprehensive loss | - | (23,888 | ) | {c} | 23,888 | - | ||||||||||||
| Total Stockholders’ Equity | (229,962 | ) | 886,993 | 2,063,075 | 2,720,106 | |||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 679 | $ | 2,293,669 | $ | 2,063,075 | $ | 4,357,423 | ||||||||||
See accompanying notes to pro forma consolidated financial statements.
| 1 |
FLYWHEEL ADVANCED TECHNOLOGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE LOSS
THREE MONTHS ENDED DECEMBER 31, 2022
| Flywheel Advanced | QBS System | Pro Forma Adjustments | Pro Forma Consolidated | |||||||||||||
| REVENUE, NET | $ | - | $ | 688,188 | $ | - | $ | 688,188 | ||||||||
| COST OF REVENUE | - | (480,002 | ) | - | (480,002 | ) | ||||||||||
| GROSS PROFIT | - | 208,186 | - | 208,186 | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Sales and marketing | - | 15,402 | - | 15,402 | ||||||||||||
| General and administrative | 25,832 | 150,936 | - | 176,768 | ||||||||||||
| Depreciation and amortization | - | 13,591 | - | 13,591 | ||||||||||||
| Total Operating Expenses | 25,832 | 179,929 | - | 205,761 | ||||||||||||
| OPERATING (LOSS) INCOME | (25,832 | ) | 28,257 | - | 2,425 | |||||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Interest income (expense), net | - | (5,843 | ) | - | (5,843 | ) | ||||||||||
| Other income | - | 7,403 | - | 7,403 | ||||||||||||
| Total Other Income | - | 1,560 | - | 1,560 | ||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | (25,832 | ) | 29,817 | - | 3,985 | |||||||||||
| Income taxes | - | 154 | - | 154 | ||||||||||||
| NET INCOME (LOSS) | (25,832 | ) | 29,663 | - | 3,831 | |||||||||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||||||
| Foreign currency translation (loss) | - | (6,172 | ) | - | (6,172 | ) | ||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | (25,832 | ) | $ | 23,491 | $ | - | $ | (2,341 | ) | ||||||
| Net loss per share, basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | 0.00 | ||||||||
| Weighted average shares outstanding, basic and diluted | 17,822,564 | 8,939,600 | {d} | 26,762,164 | ||||||||||||
See accompanying notes to pro forma consolidated financial statements.
| 2 |
FLYWHEEL ADVANCED TECHNOLOGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED SEPTEMBER 30, 2022
| Flywheel Advanced | QBS System | Pro Forma Adjustments | Pro Forma Consolidated | |||||||||||||
| REVENUE, NET | $ | - | $ | 3,682,142 | $ | - | $ | 3,682,142 | ||||||||
| COST OF REVENUE | - | (2,765,796 | ) | - | (2,765,796 | ) | ||||||||||
| GROSS PROFIT | - | 916,346 | - | 916,346 | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Sales and marketing | - | 75,095 | - | 75,095 | ||||||||||||
| General and administrative | 204,130 | 632,468 | - | 836,598 | ||||||||||||
| Provision for credit losses | 55,340 | 55,340 | ||||||||||||||
| Depreciation and amortization | - | 53,566 | - | 53,566 | ||||||||||||
| Total Operating Expenses | 204,130 | 816,469 | - | 1,020,599 | ||||||||||||
| OPERATING (LOSS) INCOME | (204,130 | ) | 99,877 | - | (104,253 | ) | ||||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Interest income (expense), net | - | (25,511 | ) | - | (25,511 | ) | ||||||||||
| Other income | - | 147,974 | - | 147,974 | ||||||||||||
| Total Other Income | - | 122,463 | - | 122,463 | ||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | (204,130 | ) | 222,340 | - | 18,210 | |||||||||||
| Income taxes | - | 15,124 | - | 15,124 | ||||||||||||
| NET INCOME (LOSS) | $ | (204,130 | ) | $ | 207,216 | $ | - | $ | 3,086 | |||||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||||||
| Foreign currency translation (loss) | - | (19,168 | ) | - | (19,168 | ) | ||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | (204,130 | ) | $ | 188,048 | $ | - | $ | (16,082 | ) | ||||||
| Net loss per share, basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | 0.00 | ||||||||
| Weighted average shares outstanding, basic and diluted | 17,822,564 | 8,939,600 | {d} | 26,762,164 | ||||||||||||
See accompanying notes to pro forma consolidated financial statements.
| 3 |
FLYWHEEL ADVANCED TECHNOLOGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
December 31 and September 30, 2022
Note 1 Introduction
On December 15, 2022, Flywheel Advanced Technology, Inc., a Nevada corporation (the “ Company “or “Flywheel Advanced”), entered into a share exchange agreement (the “Share Exchange Agreement”) with QBS System Limited, a limited company incorporated under the laws of Hong Kong (“QBS System”), and QBS Flywheel Limited, a company incorporated under the laws of Australia (the “Shareholder”). Subject to the closing conditions set forth in the Share Exchange Agreement, at closing the Shareholder will transfer and assign to the Company all of the issued and outstanding shares of QBS System for 8,939,600 newly issued shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”). Following the closing of the share exchange, there will be no change in the officers and directors of the Company, and QBS System will continue its business as a wholly owned subsidiary of the Company and the Shareholder shall own 8,939,600 Common Stock, or 33.41% of the then issued and outstanding shares of Common Stock on a fully diluted basis.
The following unaudited pro forma consolidated balance sheets as of December 31, 2022 and the unaudited pro forma consolidated statements of operations for the year ended September 30, 2022 and for the three months ended December 31, 2022 are based on the historical consolidated financial statements of Flywheel Advanced and QBS System and its subsidiary, QBS System Pty Limited as adjusted to give effect to the acquisition of QBS System and its subsidiary by Flywheel Advanced (the “Acquisition” ). The Acquisition was accounted for using the acquisition method of accounting and assuming a purchase price by the issuance of the Company’s common shares of $2,950,068.
Under the acquisition method of accounting, the total purchase price presented in the accompanying unaudited pro forma consolidated financial statements was allocated to the assets acquired based on their fair values assuming the transaction occurred on December 31, 2022 with respect to the balance sheet and as of October 1, 2021 with respect to the statements of operations for the three months ended December 31, 2022 and the year ended September 30, 2022. The excess of the purchase price over the total of estimated fair values assigned to tangible and identifiable intangible assets acquired is recognized as goodwill.
The unaudited pro forma consolidated financial statements do not necessarily reflect what the consolidated company’s financial condition or results of operations would have been had the Acquisition occurred on the dates indicated. The unaudited pro forma consolidated financial statements and the underlying pro forma adjustments are based upon currently available information and include certain estimates and assumptions made by management; accordingly, actual results could differ materially from the pro forma information. Management believes the assumptions provide a reasonable and supportable basis for presenting the estimated significant effects of the arrangement. The unaudited pro forma consolidated financial statements is provided for illustrative purposes only and may or may not provide an indication of results in the future.
The unaudited pro forma consolidated financial statements, including the notes thereto, should be read in conjunction with Flywheel Advanced’s historical financial statements for the year ended December 31, 2022 and three months ended December 31, 2022, included in our Annual Report on Form 10-K and Quarter Report on Form 10-Q.
| 4 |
FLYWHEEL ADVANCED TECHNOLOGY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
December 31 and September 30, 2022
Note 2 Basis of Presentation
Flywheel Advanced and QBS System and its subsidiary have different fiscal quarter and year ends. Flywheel Advanced has a fiscal year ending on September 30, however, QBS System and its subsidiary has a fiscal calendar year ending on March 31. Accordingly, the unaudited pro forma consolidated statement of operations for the fiscal year ended September 30, 2022, combines the historical results of (i) Flywheel Advanced for the 12 months ended September 30, 2022, and (ii) QBS System and its subsidiary for the six months October 1, 2021, to March 31, 2022, and six months April 1, 2022, to September 30, 2022. The unaudited pro forma consolidated statement of operations for the three months ended December 31, 2022, combines the historical results of (i) Flywheel Advanced for the three months ended December 31, 2022, and (ii) QBS System and its subsidiary for the three months October 1, 2022, to December 31, 2022. We have used balance sheet at December 31, 2022 for the purpose of preparing the unaudited pro forma consolidated balance sheet as of December 31, 2022.
The unaudited pro forma consolidated balance sheet as of December 31, 2022, and the unaudited pro forma consolidated statements of operations for the year ended September 30, 2022 and for the three months ended December 31, 2022 are based on the historical financial statements of Flywheel Advanced after giving effect to the acquisition of QBS System and its subsidiary (the “Acquisition”) using the acquisition method of accounting. In conjunction with the Acquisition, we may incur future restructuring expenses and transaction costs that are not included in the pro forma consolidated financial statements.
The unaudited pro forma consolidated balance sheet as of December 31, 2022, is presented as if the Acquisition occurred on December 31, 2022. The unaudited pro forma consolidated statements of operations for the year ended September 30, 2022, and for the three months ended December 31, 2022, are presented as if the Acquisition had taken place on October 1, 2021 and October 1, 2022, respectively.
The unaudited pro forma financial statements for QBS System and its subsidiary are prepared in accordance with US GAAP and translated into USD.
The unaudited pro forma consolidated financial information is based on estimates and assumptions which have been made solely for purposes of developing such pro forma information.
| 5 |
FLYWHEEL ADVANCED TECHNOLOGY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
December 31 and September 30, 2022
Note 3 Purchase Consideration and Allocation
Purchase Consideration
The purchase consideration is approximately $3 million , based on the closing price of Flywheel common stock on Over-the-Counter-Markets of $0.33 on December 31, 2022. The purchase consideration is as follows:
| QBS System’s ordinary shares issued and outstanding | 100 | (1) | ||
| Exchange ratio | 89,396 | |||
| Flywheel Advanced shares issued in exchange | 8,939,600 | |||
| Flywheel Advanced closing share price | $ | 0.33 | (2) | |
| Purchase consideration paid at closing | $ | 2,950,068 |
| (1) | Represents 100 shares of QBS ordinary shares issued and outstanding as of December 31, 2022. | |
| (2) | Represents the closing price of the Flywheel Advanced’s common stock on the Over-the-Counter- Markets on December 31, 2022. |
Purchase Price Allocation
Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed of QBS System and its subsidiary are recorded at their fair values as of the Acquisition Date and added to those of Flywheel Advanced. The purchase price allocation shown below is based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and has been prepared to illustrate the estimated effect of the acquisition. Flywheel Advanced has performed the fair valuation of QBS System and its subsidiary’s assets and liabilities. The fair values are subject to adjustment after the close of the transaction as additional information is obtained.
| 6 |
FLYWHEEL ADVANCED TECHNOLOGY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
December 31 and September 30, 2022
The following table sets forth the allocation of the total purchase consideration to the identifiable tangible and intangible assets acquired and liabilities assumed, based on QBS System and its subsidiary’s balance sheet at December 31, 2022, with excess recorded as goodwill:
| Purchase consideration | $ | 2,950,068 | ||
| Cash and equivalents | $ | 336,082 | ||
| Other current assets | 1,880,235 | |||
| Property and Equipment | 9,584 | |||
| Right-of-use assets | 67,768 | |||
| Total assets acquired | 2,293,669 | |||
| Bank loans | (671,658 | ) | ||
| Other liabilities | (735,018 | ) | ||
| Total liabilities assumed | (1,406,676 | ) | ||
| Fair value of net assets acquired | 886,993 | |||
| Goodwill | $ | 2,063,075 |
Goodwill is the excess of acquisition consideration over the fair value of the underlying net assets acquired. In accordance with ASC 350, Goodwill and Other Intangible Assets, goodwill is not amortized, but instead is reviewed for impairment at least annually, absent any indicators of impairment. Goodwill recorded in the Acquisition is not deductible for tax purposes.
Note 3 Pro Forma Adjustment
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited consolidated financial information:
Adjustments to the unaudited pro forma consolidated balance sheet at December 31, 2022:
| {a} | Reflects the issuance of 8,939,600 shares at acquisition of $2,950,068. | |
| {b} | Reflects $2,063,075 of goodwill which is the excess of the purchase price over the fair value of the assets acquired as if the Acquisition occurred on December 31, 2022. | |
| {c} | Represents the write-off of the QBS System and its subsidiary’s book value of equity of $886,980 and issuance of 100 shares of common stock valued at $13. |
Adjustments to the unaudited pro forma consolidated statement of operations for the year ended September 30, 2022 and for the three months ended December 31, 2022:
| {d} | Addition to basic and diluted weighted average number of shares outstanding to reflect the 8,939,600 common shares issued as part of the Acquisition consideration. The calculation of weighted average shares outstanding for basic and diluted earnings per share assumes that the shares issuable relating to the arrangement was outstanding for the entire year as if the Acquisition transaction occurred on October 1, 2021. |
| 7 |