NOTES
TO FINANCIAL STATEMENTS
JUNE
30, 2018 and 2017
1.
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
- Interdyne Company (the "Company") was incorporated in October 1946 in the state of California. The
Company is a dormant shell currently seeking new opportunities. On November 22, 1988, the Company filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Central District of California.
On May 17, 1990, the Company’s Amended Plan of Reorganization (the “Plan”) was confirmed by Bankruptcy Court,
and the Plan became effective May 29, 1990. On July 20, 1990, the Bankruptcy Court approved a stipulation for nonmaterial modifications
to the Plan. All claims and interest have been settled in accordance with the terms of the Plan. On August 22, 1990, the Board
of Directors approved a change in the Company’s year-end to June 30, pursuant to the Plan.
Basis
of Preparation
– The accompanying financial statements have been prepared in accordance with generally accepted accounting
principles used in the United States of America.
Related
Party –
The Company follows ASC 850, “Related Party Disclosure”, for the identification of related parties
and disclosure of related party transactions. A party is considered to be related to the Company if the party directly or indirectly
or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties
also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company
and its management and other parties with which the Company may deal if one party controls or can significantly influence the
management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing
its own separate interests. A party which can significantly influence the management or operating policies of the transacting
parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent
that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related
party.
Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply
that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions
unless such representations can be substantiated.
Income
Taxes
– The Company accounts for income taxes in accordance with the provisions of the
Financial Accounting Standards
Board (“FASB”) codified within Accounting Standards Codification (“ASC”) Topic No. 740-10, Income Taxes
.
Deferred income taxes are recognized for the temporary differences between the tax basis of assets and liabilities and their financial
reporting amounts. The Company assesses, on an annual basis, the realizability of its deferred tax assets. A valuation allowance
for deferred tax assets is established if, based upon available evidence, it is more likely than not that all or a portion of
the deferred tax assets will not be realized.
Use
of Estimates
– The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make certain estimates and assumptions that affect the reported amounts and
timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and the disclosure of contingent
assets and liabilities. These estimates and assumptions are based on the Company’s historical results as well as management’s
future expectations. The Company’s actual results may vary from those estimates and assumptions.
Net
Loss per Share
– The Company adopted ASC No. 260, “
Earnings Per Share
”, that requires the reporting
of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings
(loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. In accordance with ASC No. 260, “
Earnings Per Share
”, any anti-dilutive
effects on net income (loss) per share are excluded. The Company has no potentially dilutive securities outstanding for any years
presented. Weighted average shares for computing net loss per share were 39,999,942 for each of the years presented.
Fair
Value of Financial Instruments -
The Company applies the provisions of accounting guidance, FASB Topic ASC 825 that requires
all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on
the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction between willing parties.
Fair
Value Measurement –
The Company’s financial instruments consist principally of cash, accrued professional fees,
due to related party and other accrued expenses. ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments
establish a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure
fair value, and enhances disclosure requirements for fair value measurements.
Fair
Value Hierarchy
The
Company has categorized its financial instruments, based on the priority of inputs to the valuation technique, into a three-level
fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets
or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
Financial
assets and liabilities recorded on the balance sheet are categorized based on the inputs to the valuation techniques as follows:
Level
1 Financial assets and liabilities for which values are based on unadjusted quoted prices for identical assets
or liabilities in an active market that management has the ability to access.
Level
2 Financial assets and liabilities for which values are based on quoted prices in markets that are not active
or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (commodity
derivatives and interest rate swaps).
Level
3 Financial assets and liabilities for which values are based on prices or valuation techniques that require
inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s
own assumptions about the assumptions a market participant would use in pricing the asset or liability.
When
the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement
is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. The carrying
amounts of cash, accrued professional fees and other accrued expenses approximate fair value because of the short-term nature
of these items. Per ASC Topic 820 framework these are considered Level 3 inputs where estimates are unobservable by market participants
outside of the Company and must be estimated using assumptions developed by the Company.
It
is not, however, practical to determine the fair value of amounts due to related party because the transactions cannot be assumed
to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available
for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments,
if any, and the associated potential costs.
Recent
Accounting Pronouncements
– In February 2016, the FASB issued ASU 2016-02, “
Leases (Topic
842)
”. Under ASU 2016-02, lessees will be required to recognize all leases (with the exception of short-term
leases) at the commencement date including a lease liability, which is a lessee’s obligation to make lease payments
arising from a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees (for capital and operating
leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial statements. The modified retrospective approach would not
require any transition accounting for leases that expired before the earliest comparative period presented. Lessees may not
apply a full retrospective transition approach.
The
standard will be effective for the Company beginning July 1, 2019, with early adoption permitted. The Company plans to adopt the
standard effective July 1, 2019. The Company does not expect adoption will have a material impact on the Company’s balance
sheets and statements of operations.
In
March 2018, the FASB issued ASU 2018-05, “
Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 118
”. This ASU adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which
expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December
22, 2017 - the date on which the Tax Cuts and Jobs Act was signed into law. The amendments are effective upon addition to the
FASB Accounting Standards Codification. The Company is currently evaluating the impact of the adoption of this guidance on its
balance sheets and statements of operations.
2. RELATED
PARTY TRANSACTIONS
In
prior years, the Company made advances to Acculogic, Inc., an affiliated company through common ownership and management. The
advances bear interest at a rate of 8.5% per annum and are payable on demand. Interest income from the affiliate totaled $0 and
$1,100, respectively, for the years ended June 30, 2018 and 2017. The Company received payments of $0 and $195,204 from the
affiliate, respectively, for the years ended June 30, 2018 and 2017. There was no balance due from Acculogic, Inc. as of
June 30, 2018 and 2017.
An
officer of the Company charged a management fee totaling $6,000 for each of the years ended June 30, 2018 and 2017 for the use
of a home office, accounting and other services. During the years ended June 30, 2018 and 2017, the officer also paid operating
expense of $25 and $25, respectively, on behalf of the Company to support the Company’s operation and these payments were
fully reimbursed to him. The balance due to this officer was $9,000 and $3,000 as of June 30, 2018 and 2017, respectively. The
amounts due to this officer are unsecured, bearing no interest and are repayable on demand.
3.
INCOME TAXES
The
Tax Cuts and Jobs Act of 2017 (the "Tax Act 2017") was signed into law on December 22, 2017. The Tax Act 2017, among
other things, reduces the statutory U.S. federal corporate tax rate from 34% to 21%, requires companies to pay a one-time transition
tax on earnings of certain foreign subsidiaries that were previously tax deferred, changes rules related to uses and limitations
of net operating loss carryforwards created in tax years beginning after December 31, 2017, eliminates the corporate alternative
minimum tax ("AMT"), and changes how existing AMT credits can be realized, creates the base erosion anti-abuse tax,
a new minimum tax, and creates a new limitation on deductible interest expense.
With
the enactment of the Tax Act 2017, the Company’s financial results for the year ended June 30, 2018 included a re-valuation
of the U.S. deferred tax assets and corresponding valuation allowance at the new lower 21% U.S. federal statutory tax rate. There
was no impact of the re-valuation to the net income because it was fully offset by the valuation allowance that was recorded against
the deferred tax asset. The Company has suffered recurring losses from operations and retained tax accumulated deficit of $395,315
as of June 30, 2018. The Company therefore did not recognize any one-time transition tax. The impact of the Tax Act 2017 on the
Company may differ from management's estimates. These estimates will be evaluated when necessary based on future regulations or
guidance issued by the U.S. Department of the Treasury, and on specific actions the Company may take in the future.
Income
taxes for the years ended June 30, 2018 and 2017 represent state minimum franchise tax of $800. The Company had net operating
loss carryovers for federal income tax purposes totaling approximately $129,248 and $98,797, as of the years ended June 30, 2018
and 2017, respectively. The ultimate realization of such loss carryovers will be dependent on the Company attaining future taxable
earnings. Based on the level of historical operating results and projections of future taxable earnings, management believes that
it is more likely than not that the Company will not be able to utilize the benefits of these carryovers. The effective tax rates
for the years ended June 30, 2018 and 2017 were 21% and 34%, respectively. The reduction of the effective tax rate was primarily
due to the reduced federal income tax rate arising from the Tax Act 2017. As of June 30, 2018 and 2017, the Company had a full
valuation allowance recorded against the deferred tax assets of $27,142 and $33,591, respectively. If not utilized, the carryovers
expire beginning in fiscal 2027.
The
Company files income tax returns in the U.S. federal jurisdiction and in the state of California. With few exceptions, the Company
is no longer subject to U.S. federal and state tax examinations by tax authorities for the years ending June 30, 2012 and earlier.
According to Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), ownership changes may limit
the amount of the NOL carry forwards that can be utilized annually to offset future taxable income and tax, respectively.
4.
COMMITMENTS AND CONTINGENCIES
In
March 2017, the Company received a letter from the County of Santa Clara, California, which claimed that the Company is delinquent
on its property taxes relating to tax year 1988/1989 in the amount of $80,238.07 including penalties which should be paid immediately.
The Company believes that these property taxes were related to the period prior to the filing of the reorganization of the Company
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Central District of California on November
22, 1988 and the eventual confirmation of the Company’s Amended Plan of Reorganization (the “Plan”) by the Bankruptcy
Court on May 17, 1990, and thus have been settled in accordance with the terms of the Plan and are therefore invalid. The Company
has informed the County of Santa Clara that if it wants to assert its claim, it would have to petition to the Bankruptcy Court
for relief. The Company does not recognize the said claim and therefore has not recorded any tax liabilities related to this claim.
If the County of Santa Clara claim is adjudicated to be valid and the Company is liable, the tax liabilities imposed could have
a material effect on the Company’s result of operations and financial position.