NOTES
TO THE FINANCIAL STATEMENTS
MARCH
31, 2020 AND 2019
Note
1 – Nature of the Business
Luckwel
Pharmaceuticals Inc. (“Luckwel” or the “Company”) plans to acquire, develop, manufacture, and market pharmaceutical
medication.
On
April 11, 2018, Luckwel filed a Certificate of Amendment to the Articles of Incorporation to change its name from Luckycom Pharmaceuticals
Inc. to Luckwel and to increase the number of its authorized shares of common stock to 200,000,000 with an effective date of April 13,
2018. The Company then amended and restated its by-laws to reflect the new corporate name. In January 2021, the Company amended its certificate
of incorporation to increase the number of authorized shares from 200,000,000 to 500,000,000.
The
Company’s corporate office is located in Cambridge, Massachusetts and is incorporated in the State of Nevada.
As
used in this Annual Report on Form 10-K (“Annual Report”), unless otherwise indicated, all references herein to “Luckwel,”
the “Company,” “we” or “us” refer to Luckwel Pharmaceuticals Inc.
Note
2 – Summary of Significant Accounting Policies
The
following is a summary of the significant accounting policies followed in the preparation of these financial statements.
Basis
of Presentation
The
financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States
of America (“U.S. GAAP”).
Cash
Cash
include all cash in banks with no restrictions.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fair
Value of Financial Instruments
Accounting
Standards Codification (“ASC”) Topic 820, Fair Value Measurement, defines fair value as the price that would be received
to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The
Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases
the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement.
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access
at the measurement date. Level 2 utilizes quoted market prices in markets that are not active, broker or dealer quotations, or alternative
pricing sources with reasonable levels of price transparency. Level 3 inputs are unobservable inputs for the asset or liability in which
there is little, if any, market activity for the asset or liability at the measurement date.
The
Company’s financial instruments consist of cash, accrued liabilities and due to officer. The carrying amount of these financial
instruments approximate fair value due to either length of maturity or interest rates that approximate prevailing market rates unless
otherwise disclosed in these financial statements. There were no financial instruments classified as Level 3 in the fair value hierarchy
during the years ended March 31, 2020 and 2019.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the tax basis of assets
and liabilities and their reported amounts using the enacted tax rates in effect for the year in which the differences are expected to
reverse. Tax credits are generally recognized as reductions of income tax provisions in the year in which the credits arise. The measurement
of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized. The effect of a change in income tax rates is recognized as income or expense in
the period that includes the enacted or substantively enacted date.
Accounting
for uncertainty in income taxes recognized in the financial statements is in accordance with accounting authoritative guidance, which
prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine
the likelihood that it will be sustained upon external examination. If the tax position is deemed “more likely than not”
to be sustained, the tax position is then assessed to determine the amount of the benefit to recognize in the financial statements. The
amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon
ultimate settlement.
Basic
and Diluted Net Loss Per Share
Basic
loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number
of common shares during the period. Diluted loss per share is calculated by dividing the Company’s net loss available to common
shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares
outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There were no potentially dilutive
debt or equity outstanding as of March 31, 2020 and March 31, 2019.
Recent
Accounting Pronouncements
The
Company does not believe any other recently issued but not yet effective accounting standards, if currently adopted, would have a material
effect on the financial position, statements of operations and cash flows.
Note
3 – Going Concern
The
Company does not have any sources of revenues and needs additional cash resources to maintain its operations. The Company had
$44 in cash and a stockholders’ deficit of $3,227,773 at March 31, 2020, has incurred losses since inception, and has not
yet received any revenue from sales of products or services. These factors raise substantial doubt about the Company’s ability
to continue as a going concern for a period of one year after the date that the financial statements are issued. The Company’s ability to continue as a going concern is dependent on its ability to raise additional
capital or obtain necessary debt financing. The Company is presently dependent on its Chief Executive Officer, Mr. Kingrich Lee
to either provide the Company funding for its daily operation and expenses, including professional fees and fees charged by regulators,
although he is under no obligation to do so, or to spearhead financing efforts with third parties.
The
Company currently does not have any arrangements in place to complete any financings and there is no assurance that it will be successful
in completing any such financings on terms that will be acceptable.
The
financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses and
further losses are anticipated as a result of the development of business which raises substantial doubt about its ability to
continue as a going concern for a period of one year after the date that the financial statements are issued. The ability to continue as
a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining financing necessary
to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends
to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement
of its common stock.
In
March 2020, the World Health Organization declared the global novel coronavirus disease 2019 (COVID-19) outbreak a pandemic. As the Company
was still a shell company at March 31, 2020, the Company’s operations have not been significantly impacted financially by the COVID-19
outbreak other than to delay the Company’s plans to develop the business and raise required funds. The Company cannot at this time
predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on its financial condition and ability to
raise additional capital to finance future planned operations.
Subsequent
to March 31, 2020, in January 2021, the Company sold 300,000 shares of its common stock at a purchase price of $0.40 per share for gross
proceeds of $120,000. In February 2021, $1.2 million of debt that was owed to Mr. Kingrich Lee was converted into 3,000,000 shares of
the Company’s common stock at a conversion price of $0.40 per share. In April 2021, the Company sold 300,000 shares of its common
stock at a purchase price of $0.40 per share for total gross proceeds of $120,000. In May 2021, the Company sold 187,500 shares of
its common stock at a purchase price of $0.40 per share for total gross proceeds of $75,000.
Note
4 – Other Payable and Accrued Liabilities
Other
payable and accrued liabilities at March 31, 2020 and 2019 were as follows:
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Tax penalties
|
|
|
70,000
|
|
|
|
60,000
|
|
Other accrued expenses and payables
|
|
|
8,163
|
|
|
|
7,843
|
|
Total other payable and accrued liabilities
|
|
$
|
78,163
|
|
|
$
|
67,843
|
|
Note
5 – Related Party Transactions
The
Company’s sole officer and director, and a shareholder, Mr. Kingrich Lee, loaned an aggregate of $372,055 and $669,493 in cash
to the Company during the years ended March 31, 2020 and March 31, 2019, respectively. Accordingly, Mr. Kingrich Lee was owed an aggregate
amount of $1,123,305 and $751,250 as of March 31, 2020 and March 31, 2019, respectively. These amounts were unsecured, non-interest bearing
and are due on demand.
On
May 3, 2018, the Company entered into an Intellectual Property Sale and Purchase Agreement (the “Agreement”) with Luckwel
Asia Limited (the “Seller”, formerly known as Essential Choice Ventures Ltd), an entity under common control of Mr. Kingrich
Lee to purchase from the Seller the intellectual property rights to five drugs, comprising three generic medicines used to treat hypertension
and high cholesterol and two advanced drug candidates - KL008 for treatment of hypertension and KL009 for treatment of high cholesterol
in various stages of being developed and manufactured (the “Transaction”). Pursuant to the terms of the Agreement, the Company
would pay the Seller on closing (i) $40,000 and (ii) issue an aggregate 125,000,000 restricted shares of its common stock, par value
$0.01. The Transaction closed on May 3, 2018. The Company recorded the carrying value of the intellectual property as nil in the Seller’s
record, $40,000 as capital distribution to the Seller and recorded the par value of the common stock as additional paid-in capital, which
was due to the Transaction being regarded as an equity transaction because both parties were under common control.
On
November 1, 2018, we entered into another new one-year employment agreement with Mr. Lee to continue his employment as our Chief Executive
Officer through October 31, 2019 and continuing on a year-to-year basis thereafter unless terminated by either party on not less than
thirty (30) days notice prior to the expiration of the one-year extension anniversary. His salary is $180,000 a year. Additionally, he
shall be entitled to an education allowance for his children who are attending full-time local education from kindergarten to senior
secondary levels in any type of school and a housing allowance of $3,000 a month. As of March 31, 2020, Mr. Kingrich Lee was owed $144,000
pursuant to his employment agreement, which is recorded in accrued expenses. Upon termination of Mr. Lee’s employment, except for
termination for cause or termination by Mr. Lee, he shall be entitled to a payment equal to two (2) months’ salary ($30,000 at
March 31, 2020) and shall also be eligible to retain his other benefits for a period of six (6) months (a minimum of $18,000 in housing
allowance at March 31, 2020 plus any eligible education expenses).
Note
6 – Capital Stock
As
of March 31, 2020 and March 31, 2019, the Company had 143,376,000 shares of common stock issued and outstanding. During the year ended
March 31, 2019, the Company issued an aggregate of 125,000,000 restricted shares of its common stock to Luckwel Asia Limited.
Note
7 – Income Taxes
The
Company accounts for income taxes under FASB ASC 740 (“ASC 740”). For the years ended March 31, 2020 and 2019, the Company
did not record a current or deferred income tax expense or benefit. The following table reconciles the federal statutory income rate
to the Company’s effective income tax rate:
|
|
Year
Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Tax
at U.S. statutory rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
Changes
from statutory rate:
|
|
|
|
|
|
|
|
|
State
taxes, net of federal benefit
|
|
|
6.2
|
%
|
|
|
-%
|
|
Non-deductible
Permanent items
|
|
|
(0.5
|
)%
|
|
|
(0.6
|
)%
|
Change
in valuation allowance
|
|
|
(26.7
|
)%
|
|
|
(20.4
|
)%
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Deferred
tax assets and liabilities are determined based on the difference between financial statement and tax bases using enacted rates in effect
for the year in which the differences are expected to reverse. The components of the Company’s deferred tax assets are as follows:
|
|
Year
Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
411,448
|
|
|
$
|
309,099
|
|
Accrued expenses
|
|
|
39,658
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
451,106
|
|
|
|
309,099
|
|
Valuation allowance
|
|
|
(451,106
|
)
|
|
|
(309,099
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company has weighed the positive and negative evidence to assess the recoverability of its deferred tax assets. Realization of
future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income. After this
assessment, the Company determined it was more likely than not that the Company will not realize the benefit of its deferred tax
assets. As a result, the Company has provided a full valuation allowance against its net deferred tax assets. The valuation allowance
for deferred tax assets as of March 31, 2020 and 2019 was $451,106 and $309,099, respectively. For the years ended March
31, 2020 and March 31, 2019, the Company recorded a net valuation increase of $142,007 and $126,963, respectively, primarily
related to net operating losses and accrued expenses.
As of March 31, 2020, the Company had
gross U.S. federal net operating loss carryforwards of $1,845,401 including $978,994 that had an indefinite carryforward period and
$866,407 that were subject to expiration at various dates through 2037. The Company had gross state operating loss carryforwards of
$378,380 that were subject to expiration through 2040. The net operating loss carryforwards are subject to review and possible
adjustment by the Internal Revenue Service and state authorities.
Net
operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest
of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue
Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually
to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company
immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
The
Company has not completed a study to assess whether one or more ownership changes have occurred, as defined in Section 382 of the
Code. As such, the Company’s net operating losses may be
limited. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research development credit
carryforwards before utilization.
The
Company files income tax returns in the United States and Massachusetts. All years prior to March 31, 2016 are closed with the Internal
Revenue Service. As of March 31, 2020, there are currently no income tax audits in progress.
As
of March 31, 2020 and 2019, the Company did not have any unrecognized tax benefits and did not have a balance of accrued interest or
penalties related to uncertain tax positions.
In
March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes
provisions relating to several aspects of corporate income taxes. The CARES Act did not have a significant impact on the Company’s
provision for income taxes.
Note
8 – Risks and Uncertainties
In
March 2020, the World Health Organization declared the global novel coronavirus disease 2019 (COVID-19) outbreak a pandemic. As the Company
is still a shell company, the Company’s operations have not been significantly impacted financially by the COVID-19 outbreak
other than to delay the Company’s plans to develop the business and raise required funds. The Company cannot at this time predict
the specific extent, duration, or full impact that the COVID-19 outbreak will have on its financial condition and ability to raise additional
capital to finance future planned operations.
Note
9 – Subsequent Events
Management
of the Company has evaluated subsequent events through the date of issuance of the financial statements and has concluded that there
were no other subsequent events requiring adjustment to or disclosure in these financial statements, other than those noted below:
In
April 2020, the Company borrowed $15,000 in the form of a promissory note (the “Note”) from a third party. The Note bears
interest at 7% per annum and had no maturity date. This loan was repaid in May 2021.
In
January 2021, the Company completed a private placement offering with an individual for the purchase of an aggregate of 300,000 shares
of common stock of the Company at a price of $0.40 per share for total gross proceeds of $120,000.
In
January 2021, the Company amended its certificate of incorporation to increase the number of authorized shares from 200,000,000 to 500,000,000.
In
February 2021, $1.2 million of debt that was owed to Mr. Kingrich Lee was converted into 3,000,000 shares of common stock of the Company
at a conversion price of $0.40 per share.
In
April 2021, the Company completed a private placement offering with a group of individual investors for the purchase of an aggregate
of 300,000 shares of common stock of the Company at a price of $0.40 per share for total gross proceeds of $120,000.
In May 2021, the Company
completed a private placement offering with an investor for the purchase of 187,500 shares of common stock of the Company at a price
of $0.40 per share for total gross proceeds of $75,000.