UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
þ ANNUAL REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission file number 333-190215
XALLES HOLDINGS INC.
(Exact name of registrant as specified in its charter)
| NEVADA | 80-0524316 | |
| (State or Other Jurisdiction of Incorporation of Organization) | (I.R.S. Employer Identification No.) |
2020 Pennsylvania Ave. NW, #527
Washington DC 20006
(Address of principal executive offices)
(202) 595-1299
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “ large accelerated filer and “ accelerated filer” and “ smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes þ No
As of June 30, 2015, which was the last business day of the registrant’s most recent second fiscal quarter, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was $1,960,000.00 based on our last sale price to investors of $0.10. For the purposes of the foregoing calculation only, all directors, executive officers, related parties and holders of more than 10% of the issued and outstanding common stock of the registrant have been deemed affiliates.
As of April 13, 2016 the registrant’s outstanding stock consisted of 31,015,000 common shares.
Explanatory Note
This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2015 which the Registrant previously filed with the Securities and Exchange Commission on April
14, 2016 (the “Original Filing”). The Registrant is filing this Amendment to correct the following:
| 1. | To correct it’s EIN to 80-0524316; and |
| 2. | To correct an error in the Report of Independent Registered Public Accounting Firm to include the period from October 23, 2014 (inception) to December 31, 2014 in the report. |
Except as set forth above, the Original Filing has not been amended, updated or otherwise modified. Other events occurring after the filing of the Form 10-K/A or other disclosures necessary to reflect subsequent events have been addressed in our reports filed with the Securities and Exchange Commission subsequent to the filing of this Form 10-K/A.
| 1 |
XALLES HOLDINGS INC.
TABLE OF CONTENTS
PART I
Item 1 Description of Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
PART II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 8 Financial Statements and Supplementary Data
Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 Certain Relationships and Related Transactions and Director Independence
Item 14 Principal Accountant Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
| 2 |
PART I
Item 1. Description of Business
Forward-looking Statements
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.
As used in this annual report, the terms "we", "us", "our", “the Company”, and "Xalles" mean Xalles Holdings Inc., unless otherwise indicated.
All dollar amounts refer to US dollars unless otherwise indicated.
Corporate Background
We are an emerging growth company (as defined in the Jumpstart Our Business Startups (JOBS) Act), and were formed in the State of Nevada on December 14, 2009.
We are building a business development company specialized in the payment industry and financial technology (“Fintech”).
Xalles supports government and business organizations with payment consulting and system solutions. Xalles supports its own investee companies with the same strategic services plus direct investment and marketing and communications services.
Xalles has created a financial, technological and resource backbone to support the investee companies and external client projects. This backbone consists of senior payment solutions consultants and a proprietary system for the financial reconciliation and auditing of business and government payment transactions. Xalles also has a license to a patented payment card security solution.
Xalles, through its 3 core services, provides the company with high growth opportunities with assets on the balance sheet combined with recurring revenue streams for progressive income.
For targeted investments, Xalles has selected companies that have anchor customers, the right plan to capture the emerging target market, an exit strategy, and can leverage Xalles’ IP and payments systems expertise to add value and accelerate the rollout of their products and services.
Xalles forms a partnership with the investee companies, and while meeting their needs, also shares in their success.
| 3 |
Our Business
As discussed in the Financial Statements included in this Annual Report, as of December 31, 2015, we had no revenue and had a net loss of approximately $156,450 for the year ended December 31, 2015. These factors raise substantial doubt that we will be able to continue operations as a going concern, and our independent auditors included an explanatory paragraph regarding this uncertainty in their report on our financial statements. Our ability to continue as a going concern is dependent upon our generating cash flow sufficient to fund operations. Our business strategy may not be successful in addressing these issues. If we cannot continue as a going concern, our stockholders may lose their entire investment in us.
Our contact address is 2020 Pennsylvania Ave. NW, #527, Washington DC, 20006. Our telephone number is 202-595-1299. Our fax number is 202-318-7712. Our website is www.xalles.com.
Unless otherwise indicated, all references in this Annual Report to “dollars” or “$” refer to US dollars.
Business Strategy
During 2016, we will continue to complete the closing of transactions that were initiated in July 2015 through the reverse merger agreement. These transactions include ArrowVista Corporation and Xalles Singapore Pte Ltd. becoming wholly owned subsidiaries of Xalles Holdings Inc. during the first half of 2016. These 2 corporate entities would join Xalles Limited in becoming the first 3 wholly owned subsidiaries. Xalles Limited is the consulting and technology arm of Xalles, ArrowVista is primarily providing payment audit services, and Xalles Singapore holds shares in international holdings, currently its stake in Proxima Financeira S.A., a Brazilian corporation. During 2016, Co-Owners Rewards Inc. will become a partially owned subsidiary of Xalles Holdings.
We will continue fundraising efforts in 2016 and have target projects and companies to invest new funds in that will be synergistic with our existing portfolio of services. The synergy involves new sources of revenue and market penetration into new market segments such as prepaid cards in the U.S. and Brazil, eProcurement, eCommerce and B2B payment systems.
We will continue to seek acquisitions for our target business areas within Fintech. Specific areas of interest are government and business payment solutions, as well as consumer payment and rewards products and services.
We plan to expand our strategic partnerships beyond our existing business development and audit service relationships.
We expect during 2016 to add management staff including a Chief Revenue Officer and a Chief Financial Officer.
Our goals for 2016 are to expand Xalles revenue through expanded consulting and audit client engagements with government and business prospects, as well as expand the asset footprint through strategic acquisitions which will yield asset growth as well as recurring revenue.
Market Sizes
Below are some of the relevant marketplaces we intend to compete in and their market sizing data.
U.S. Prepaid Card Market
In 2014, retail purchases made with prepaid cards will top U.S. $200 billion dollars, equaling five percent of all retail spending in the U.S. The purchase volume numbers include prepaid debit, payroll cards, open and closed-loop gift cards, and open and closed-loop consumer incentive cards.
Brazil Prepaid/Debit Card Market
The debit card market in Brazil, currently valued at around BRL 250 billion, is expected to double in size by 2016. Debit cards have seen 25% annual growth rate over the past 5 years, as consumers have found this payment method easy to adopt, while debit card providers have marketed the security and convenience of their use.
| 4 |
Electronic Payments Market
The estimated number of noncash payments, excluding wire transfers, was 122.8 billion in 2012, with a value of $79.0 trillion. The number of noncash payments in the United States increased at a compound annual rate of 4.4 percent from 2009.
B2B eProcurement and eCommerce Market
According to recent research from Frost & Sullivan, Alibaba is a pioneer of B2B eCommerce with gross merchandise value of $27.28 billion, about 11 percent of their total; this dominant leadership position in a market expected to grow to $6.7 trillion in gross merchandise value by 2020. This trend will make the B2B eCommerce market two times bigger than the B2C market ($3.2 trillion) within that timeframe.
| Competition |
We expect to encounter significant competition from others seeking to acquire similar interests in Fintech companies and assets. This includes a likely increase in the number of competitors seeking to acquire the same or similar technologies or companies to those that we may seek to acquire. Most of our competitors have much longer operating histories, and significantly greater financial and human resources, than we do.
The following companies compete with Xalles in one or more domain areas:
Costas Inc. (OTC PINK: CSSI) - Holding company to acquire digital currency and Fintech companies
Perk.com (TSX: PER) - mobile rewards company similar to financial rewards community of Co-Owners
Cass Information Systems, Inc. (NASDAQ: CASS) - Freight and other B2B payment auditing services
Cognizant Technology Solutions Corporation (NASDAQ: CTSH) - Business process and IT consulting including logistics and financial services industries
Towers Watson (NASDAQ: TW) – Financial services consulting
We also compete with venture capital firms, strategic corporate buyers and various industry leaders for Fintech acquisitions. Many of these competitors may have more financial and human resources than we do. As we become more successful, we may find more companies entering the market for similar opportunities, which may reduce our market share in one or more marketplaces that we may then rely upon to generate future revenue.
Other companies may develop competing technologies services that offer better or less expensive alternatives to our product and service offerings. Many potential competitors may have significantly greater resources than we do. Technological advances or entirely different approaches developed by one or more of our competitors could render certain of our services offered by our operating subsidiaries obsolete and/or uneconomical.
Employees and Consultants
As of December 31, 2015, we did not have any full time or part time employees. Our Chief Executive Officer works full time on a personal services contract to the company. Other staff are independent contractors available on an as needed basis. We currently engage independent contractors in the areas of accounting, legal, auditing services and corporate development.
Item 1A. Risk Factors
Not required.
| 5 |
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The company is currently seeking office space for the corporate operations in the Washington DC metro area. Currently the mailing address is 2020 Pennsylvania Ave. NW, #527, Washington DC 20006.
Item 3. Legal Proceedings
We know of no material pending or active legal proceedings to which we are a party or concerning any of our properties. We are not aware of any legal proceedings contemplated by any governmental authority against us.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
There is a limited public market for our common shares. Our common shares are quoted on the OTC Pink Sheets under the symbol “XALL”. Trading in stocks quoted on the OTC Pink Sheets is often thin and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated to a company’s operations or business prospects. We cannot assure you that there will be a market in the future for our common stock.
OTC Pink Sheets securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTC Pink Sheets securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Pink Sheets issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
As of April 13, 2016 no shares of our common stock have traded.
Number of Holders
As of April 13, 2016, we had approximately 38 shareholders of record of our common stock.
Dividend Policy
We have not declared any cash dividends on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payments of dividends will depend on our earnings and financial position and such other facts, as the Board of Directors deems relevant.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
We did not sell any equity securities which were not registered under the Securities Act during the year ended December 31, 2015 that were not otherwise disclosed on our quarterly reports on Form 10-Q or our current reports on Form 8-K filed during the year ended December 31, 2015.
| 6 |
Equity Compensation Plan Information
We do not have in effect any compensation plans under which our equity securities are authorized for issuance and we do not have any outstanding stock options.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during our fourth quarter of our fiscal year ended December 31, 2015.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Safe Harbor
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including, "could" "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Annual Report.
Overview
RESULTS OF OPERATIONS
Working Capital
| December 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Current Assets | $ | 23 | $ | — | ||||
| Current Liabilities | $ | 283,554 | $ | (469 | ) | |||
| Working Capital (Deficit) | $ | (283,531 | ) | $ | (469 | ) | ||
Cash Flows
| Year ended December 31, 2015 | Period from October 23, 2014 (date of inception) to December 31, 2014 | |||||||
| Cash Flows (used in) Operating Activities | $ | (37,941 | ) | $ | (484 | ) | ||
| Cash Flows (used in) Investing Activities | $ | — | $ | — | ||||
| Cash Flows provided by Financing Activities | $ | 37,964 | $ | 484 | ||||
| Net Increase (decrease) in Cash During Period | $ | 23 | $ | — | ||||
| 7 |
Operating Revenues
During the years ended December 31, 2015 and 2014, we did not earn any revenues from operations.
Operating Expenses and Net Loss
During the year ended December 31, 2015, we incurred operating expenses of $116,039 compared with operating expenses of $484 during the period from October 23, 2014 (date of inception) to December 31, 2014.
For the year ended December 31, 2015, we incurred a net loss of $156,450 compared with a net loss of $484 during the period from October 23, 2014 (date of inception) to December 31, 2014.
Liquidity and Capital Resources
As at December 31, 2015, we had a cash balance of $23 and total assets of $989 compared with $nil of cash and total assets of $nil as at December 31, 2014.
As at December 31, 2015, we had total liabilities of $283,554 compared with total liabilities of $469 at December 31, 2014. The increase in total liabilities was attributed to increased operations.
As at December 31, 2015, we had a working capital surplus of $154,064 compared with a working capital deficit of $469 as at December 31, 2014. The increase in working capital was due to an increase in prepaid expenses.
Cash flow from Operating Activities
During the year ended December 31, 2015, we used cash of $37,941 for operating activities as compared to use of $nil during the year ended December 31, 2014. The increase in cash used for operating activities during the year was due to increased operations.
Cashflow from Investing Activities
During the year ended December 31, 2015 we used net cash of $nil in investing activities compared to $nil during the year ended December 31, 2014.
Cashflow from Financing Activities
During the year ended December 31, 2015, we received proceeds of $37,964 from financing activities compared with $484 during the year ended December 31, 2014.
Off-Balance Sheet Arrangements
We have no significant 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 stockholders.
| 8 |
Item 8. Financial Statements and Supplementary Data
XALLES HOLDINGS INC.
(Formerly STELLA BLU, INC.)
FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
| Report of Independent Registered Accounting Firm | F-1 | |||
| Consolidated Balance Sheets | F-2 | |||
| Consolidated Statements of Operations | F-3 | |||
| Consolidated Statement of Changes in Stockholders’ Equity | F-4 | |||
| Consolidated Statements of Cash Flows | F-5 | |||
| Notes to the Consolidated Financial Statements | F-6 |
| 9 |
D. Brooks and Associates CPA’s, P.A.
Certified
Public Accountants
Valuation Analysts
Advisors
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders of Xalles Holdings Inc.
We have audited the accompanying consolidated balance sheets of Xalles Holdings Inc. as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2015 and for the period from October 23, 2014 (inception) to December 31, 2014. Xalles Holdings Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Xalles Holdings Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the year ended December 31, 2015 and for the period from October 23, 2014 (inception) to December 31, 2014. in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has no revenues or assets. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
D. Brooks and Associates CPA’s, P.A.
West Palm Beach, Florida
April 14, 2016
| F- 10 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
CONSOLIDATED BALANCE SHEETS
(Expressed in US dollars)
| As of December 31, 2015 |
As of December 31, 2014 |
|||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 23 | $ | — | ||||
| Total current assets | 23 | — | ||||||
| License (Note 5) | 966 | — | ||||||
| TOTAL ASSETS | 989 | — | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued liabilities (Notes 6 and 7) | 32,910 | — | ||||||
| Convertible debenture (Note 6) | 60,000 | — | ||||||
| Stock-settled debt obligation (Note 6) | 40,000 | — | ||||||
| Due to related parties (Notes 7 and 8) | 150,644 | 469 | ||||||
| TOTAL CURRENT LIABILITIES | 283,554 | 469 | ||||||
| Commitments and Contingencies | ||||||||
| STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
|
Capital Stock
Preferred stock, 5,000,000 shares authorized, par value $0.001, 1,000,000 and nil shares issued and outstanding |
1,000 | — | ||||||
| Common stock, 500,000,000 shares authorized, par value $0.0001, 31,015,000 and 30,900,000 shares issued and outstanding | 3,102 | 3,090 | ||||||
| Additional paid-in capital | (129,733 | ) | (3,075 | ) | ||||
| Accumulated deficit | (156,934 | ) | (484 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | (282,565 | ) | (469 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 989 | $ | — | ||||
| F- 11 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in US dollars)
|
Year
ended
2015 |
For the Period from October 23, 2014 (inception) to December 31, 2014 |
|||||||
| REVENUE | $ | — | $ | — | ||||
| EXPENSES | ||||||||
| General and administrative | 16,931 | 484 | ||||||
| Consulting fees | 60,015 | — | ||||||
| Professional fees | 39,093 | — | ||||||
| Total operating expenses | 116,039 | 484 | ||||||
| Net loss before other expense | (116,039 | ) | (484 | ) | ||||
| Other Expense | ||||||||
| Interest expense | (40,411 | ) | — | |||||
| Net loss | $ | (156,450 | ) | $ | (484 | ) | ||
| BASIC AND DILUTED LOSS PER COMMON SHARE | $ | (0.01 | ) | $ | — | |||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 30,900,315 | 30,900,000 | ||||||
| F- 12 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Expressed in US dollars)
| Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
| # | # | |||||||||||||||||||||||||||
| Balance as of October 23, 2014 (inception) | — | $ | — | 30,900,000 | $ | 3,090 | $ | (3,075 | ) | $ | — | $ | 15 | |||||||||||||||
| Net loss for the period | — | — | — | — | — | (484 | ) | (484 | ) | |||||||||||||||||||
| Balance as of December 31, 2014 | — | — | 30,900,000 | 3,090 | (3,075 | ) | (484 | ) | (469 | ) | ||||||||||||||||||
| Recapitalization of Xalles Holdings, Inc. | — | — | 19,500,000 | 1,950 | (127,611 | ) | — | (125,661 | ) | |||||||||||||||||||
| Cancellation of common shares held by the former President of the Company | — | — | (19,500,000 | ) | (1,950 | ) | 1,950 | — | — | |||||||||||||||||||
| Preferred stock issued pursuant to share exchange agreement (Note 1) | 1,000,000 | 1,000 | — | — | (1,000 | ) | — | — | ||||||||||||||||||||
| Cancellation of preferred shares held by a former director of the Company which were reissued to a new director | — | — | — | — | — | — | — | |||||||||||||||||||||
| Common stock issued for future directors fees | — | — | 100,000 | 10 | (10 | ) | — | — | ||||||||||||||||||||
| Common stock issued for consulting services | — | — | 15,000 | 2 | 13 | — | 15 | |||||||||||||||||||||
| Net loss for the year | — | — | — | — | — | (156,450 | ) | (156,450 | ) | |||||||||||||||||||
| Balance as of December 31, 2015 | 1,000,000 | $ | 1,000 | 31,015,000 | $ | 3,102 | $ | (129,733 | ) | $ | (156,934 | ) | $ | (282,565 | ) | |||||||||||||
| F- 13 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US dollars)
| F- 14 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
NOTE 1 – GENERAL ORGANIZATION AND BUSINESS
Xalles Holdings, Inc. (“the Company”) was incorporated in the State of Nevada on December 14, 2009 under the name Stella Blu, Inc. On August 24, 2015, the Company changed its name to Xalles Holdings Inc.
On July 14, 2015, the Company entered into a Share Exchange Agreement (the “Agreement”) with Xalles Limited ("Xalles"), a Delaware corporation (incorporated in October 2014), Arrowvista Corporation ("Arrowvista"), a Delaware corporation, Xalles Singapore Pte. Ltd. ("Xalles Singapore"), a Singapore corporation, and the shareholders of Xalles, Arrowvista, and Xalles Singapore. Pursuant to the Agreement, Xalles, Arrowvista, and Xalles Singapore will become wholly-owned subsidiaries of the Company in exchange for the issuance of certain shares. Xalles became a wholly-owned subsidiary by the issuance of 19,500,000 shares of common stock on July 16, 2015 (the "First Tranche"). Please refer to Note 3. Arrowvista will become a wholly-owned subsidiary by the issuance of 4,500,000 shares of common stock on or before June 30, 2016. Xalles Singapore will become a wholly-owned subsidiary by the issuance of 2,250,000 shares of common stock on or before June 30, 2016. The consummation of the transactions set forth in the Agreement are subject to certain conditions.
On July 1, 2015, prior to the closing of the First Tranche of the Agreement, Arrowvista transferred a note receivable and a license to Xalles in consideration of a note payable in the amount of $97,211. The amount owed is unsecured, non-interest bearing, and due on demand. Please refer to Note 7(d).
On August 19, 2015, the Company effected a 3-for-1 forward stock split of its common stock. All common share and per common share amounts in these consolidated financial statements have been retroactively restated to reflect the stock split.
The Company is engaged in the patent monetization business. The Company’s principal operations will include the acquisition, licensing, and enforcement of patented technologies. The Company will develop portfolios from patents whose rights are obtained from third parties. The Company expects to generate revenues and related cash flows from the subsequent sale, licensing and enforcement of those patents.
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. There is no guarantee that the Company will be successful in these efforts. As of December 31, 2015, the Company has not commenced its planned operations, has a working capital deficit of $283,531, and has accumulated losses of $156,934 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| F- 15 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
These consolidated financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. These financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States. The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 fiscal year end.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Xalles Limited. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year. The Company regularly evaluates estimates and assumptions related to valuation of license, stock-based compensation, and deferred income tax asset valuation allowances.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
License
The Company acquired a license from a company controlled by our CEO on July 1, 2015 in consideration for a note payable of $97,211. License has been capitalized in accordance with ASC 350-30 “Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill.” Amortization commenced on July 1, 2015 when the license was acquired and became ready for its intended use. Amortization is calculated on a straight-line basis over its estimated useful life of 15 years.
If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the excess of the carrying value over the fair value of the asset.
| F- 16 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Instruments and Fair Value Measures
ASC 820, “ Fair Value Measurements and Disclosures ” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, convertible debenture, stock-settled debt obligation, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial statements.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718 “Compensation – Stock Compensation” and ASC 505, “Equity Based Payments to Non-Employees”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measureable.
| F- 17 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss per Share
The Company computes net loss per share in accordance with ASC 260, “Earnings per Share” , which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statements of operations. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2015, the Company has 10,000,000 (2014 – nil) potentially dilutive shares outstanding.
Comprehensive Loss
ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. As at December 31, 2015 and 2014, the Company had no items representing comprehensive income or loss.
Income Taxes
A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
When required, the Company records a liability for unrecognized tax positions, defined as the aggregate tax effect of differences between positions taken on tax returns and the benefits recognized in the financial statements. Tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet this threshold. The Company has no uncertain tax positions that require the Company to record a liability. The Company’s tax years ended December 31, 2009, 2010, 2011, 2012, 2013, 2014, and 2015 remain subject to examination by Federal and state jurisdictions.
The Company recognizes penalties and interest associated with tax matters as part of the income tax provision and includes accrued interest and penalties with the related tax liability in the balance sheet. The Company had no accrued penalties and interest as of December 31, 2015 and 2014.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| F- 18 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
NOTE 3 – ACQUISITION OF XALLES LIMITED
On July 14, 2015, the Company entered into an Agreement with Xalles Limited ("Xalles"), a Delaware corporation, Arrowvista Corporation ("Arrowvista"), a Delaware corporation, Xalles Singapore Pte. Ltd. ("Xalles Singapore"), a Singapore corporation, and the shareholders of Xalles, Arrowvista, and Xalles Singapore. Pursuant to the Agreement, Xalles, Arrowvista, and Xalles Singapore will become wholly-owned subsidiaries of the Company in exchange for the issuance of certain shares. Xalles became a wholly-owned subsidiary by the issuance of 19,500,000 shares of common stock on July 16, 2015. Arrowvista will become a wholly-owned subsidiary by the issuance of 4,500,000 shares of common stock on or before June 30, 2016. Xalles Singapore will become a wholly-owned subsidiary by the issuance of 2,250,000 shares of common stock on or before June 30, 2016. The consummation of the transactions set forth in the Agreement are subject to certain conditions. The original shareholders of the Company agreed to fund $300,000 to support the current operations and continued development of the business. Refer to Note 12.
The share purchase agreement was a capital transaction in substance and therefore has been accounted for as a reverse capitalization. Under reverse capitalization accounting, Xalles was considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical amounts. These consolidated financial statements include the accounts of the Company since the effective date of the recapitalization and the historical accounts of Xalles since inception.
NOTE 4 – NOTE RECEIVABLE
As at December 31, 2015, the Company is owed $45,642 (2014 - $nil) in a promissory note receivable from a non-related party, which was transferred from a company controlled by our CEO. Under the terms of the note, the amount is unsecured, bears interest at 8% per annum, and is due on demand. As at December 31, 2015, the Company recorded a reserve of $45,642 (2014 - $nil) on the estimated uncollectible note receivable and the accrued interest receivable of $16,656 (2014 - $nil) has been written off as a reduction of additional paid-in capital prior to the recapitalization of Xalles Holdings, Inc., due to the related party nature.
NOTE 5 – LICENSE
| License | $ | 1,000 | ||
| Accumulated depreciation | 34 | |||
| Carrying value as at December 31, 2015 | $ | 966 |
On July 1, 2015, the Company acquired the license from a company controlled by our CEO. The license was recorded at the historical cost incurred by the related party and amortized over its estimated useful life of 15 years.
NOTE 6 – CONVERTIBLE DEBENTURE
On August 28, 2015, in consideration for future consulting services, the Company issued a $60,000 convertible note which is unsecured, bears interest at 2% per annum and was due on November 28, 2015. The note is convertible into shares of common stock 90 days after the date of issuance (November 26, 2015) at a conversion rate of 60% of the average of the three lowest closing bid prices of the Company’s common stock for the twenty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. If, at the time of conversion, the lowest trading prices during the applicable 20 trading day period is equal to or less than $0.0001, then the conversion price shall equal the lesser of the (1) variable conversion price or (2) $0.00001.
| F- 19 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
NOTE 6 – CONVERTIBLE DEBENTURE (continued)
In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company recognized the intrinsic value of the conversion feature of $40,000 as a stock-settled debt obligation and an equivalent discount which was charged to operations over the term of the convertible debenture from the effective date to the convertible date. During the year ended December 31, 2015, the Company accreted $40,000 of the debt discount which was recorded as interest expense. As of December 31, 2015, the carrying value of the debenture was $60,000 (2014 - $nil). As of December 31, 2015, accrued interest of $411 (2014 - $nil) has been recorded in accounts payable and accrued liabilities.
NOTE 7 – RELATED PARTY TRANSACTIONS
| a) | On January 9, 2015, the Company entered into an agreement whereby a director of the Company paid $11,629 to service providers on behalf of the Company. The amount was recorded as additional paid-in-capital prior to the recapitalization. |
| b) | As of December 31, 2015, the Company owed $52,600 (2014 - $nil) to a former director of the Company. The amounts are unsecured, non-interest bearing and are due on demand. |
| c) | As of December 31, 2015, the Company owed $833 (2014 - $nil) to the CEO of the Company. The amount is unsecured, non-interest bearing and is due on demand. |
| d) | As of December 31, 2015, the Company owed $97,211 (2014 - $nil) to a company controlled by the CEO of the Company. The amount is unsecured, non-interest bearing and is due on demand. |
NOTE 8 – NOTES PAYABLE
| a) | As of December 31, 2015, the Company owed $52,600 (2014 - $nil) to a former director of the Company. The amounts are unsecured, non-interest bearing and are due on demand. |
| b) | As of December 31, 2015, the Company owed $833 (2014 - $nil) to the CEO of the Company. The amount is unsecured, non-interest bearing and is due on demand. |
| c) | As of December 31, 2015, the Company owed $97,211 (2014 - $nil) to a company controlled by the CEO of the Company. The amount is unsecured, non-interest bearing and is due on demand. |
Debt maturity schedule:
| 2016 | $ | 150,644 |
| F- 20 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
NOTE 9 – STOCKHOLDERS’ EQUITY
Authorized:
The Company is authorized to issue 500,000,000 shares of $0.0001 par value common stock and 5,000,000 shares of preferred stock, par value $0.001. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.
On August 3, 2015, the Company filed a Certificate of Designation of Series A Preferred Stock (the "Certificate of Designation”) with the Nevada Secretary of State designating 1,000,000 of the Company's previously authorized preferred stock. The holders of the Series A Preferred Stock are granted 51% voting power on all matters to be voted on by the holders of the Company’s common stock and is not convertible into any shares of the Company's common stock. With respect to rights on liquidation, dissolution or winding up, shares of Series A Preferred Stock rank on a parity with the Company's common stock.
Issued and Outstanding:
| a) | On July 16, 2015, the Company issued 19,500,000 shares of common stock pursuant to the Share Exchange Agreement with Xalles Limited, a Delaware corporation, to effect the acquisition and reverse capitalization. Refer to Note 3. |
| b) | On July 16, 2015, the Company cancelled 19,500,000 shares of common stock held by the former President of the Company. |
| c) | On August 19, 2015, the Company effected a 3-for-1 forward stock split of its common stock. All common share and per common share amounts in these consolidated financial statements have been retroactively restated to reflect the stock split. |
| d) | On October 7, 2015, the Company issued 1,000,000 shares of Series A preferred stock to the CEO of the Company and a former director of the Company. The issuance of the Series A preferred stock was made pursuant to the share exchange agreement, and recorded as contributed capital. Refer to Note 1. |
| e) | On December 30, 2015, the Company issued 15,000 shares of common stock with a fair value of $15 to a consultant for services performed pursuant to an agreement dated August 28, 2015. |
| f) | On December 30, 2015, a former director cancelled 500,000 shares of Series A preferred stock, which were reissued to a new director. |
| g) | On December 30, 2015, the Company issued 500,000 shares of Series A preferred stock to a new director of the Company. The issuance of the Series A Preferred Stock was made pursuant to the share exchange agreement, and recorded as contributed capital. |
As valuable consideration, the Company also issued 100,000 shares of common stock to this director.
| F- 21 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
NOTE 10 – CONFLICTS OF INTEREST
The officer and director of the Company is involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such person may face a conflict in selecting between the Company and his other business interests. The Company has not formulated a policy for the resolution of such conflicts.
NOTE 11 - INCOME TAXES
The Company is subject to income taxes at a combined rate of 35% (2014 – 43.7%). The reconciliation of the provision for income taxes at the combined statutory rate compared to the Company’s income tax expense as reported is as follows:
|
2015
$ |
2014 $ |
|||||||
| Income tax expense (recovery) at statutory rate | (54,754 | ) | (212 | ) | ||||
| Permanent difference and other | 5 | — | ||||||
| Difference in tax rates between foreign jurisdictions | (1,249 | ) | — | |||||
| Valuation allowance change | 55,998 | 212 | ||||||
| Provision for income taxes | — | — | ||||||
The significant components of deferred income tax assets and liabilities as at December 31, 2015 and 2014, after applying enacted income tax rates, are as follows:
|
2015
$ |
2014 $ |
|||||||
| Net operating losses carried forward | 56,224 | 212 | ||||||
| License | (14 | ) | — | |||||
| Valuation allowance | (56,210 | ) | (212 | ) | ||||
| Net deferred income tax asset | — | — | ||||||
The Company has net operating losses carried forward of $156,952 which may be carried forward to apply against future year taxable income, subject to the final determination by taxation authorities, expiring in the following years:
| $ | ||||||
| 2034 | 484 | |||||
| 2035 | 156,468 | |||||
| 156,952 | ||||||
| F- 22 |
XALLES HOLDINGS INC.
(Formerly Stella Blu, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
(Expressed in US dollars)
NOTE 12 – SUBSEQUENT EVENTS
On January 4, 2016, the Company entered into a consulting agreement for a term of six months (the "Initial Term"), which would automatically extend for a subsequent six-months term (the "Renewal Term") unless terminated with written notice. In consideration for future services, the Company is to issue a $90,000 convertible note for the Initial Term and for each Renewal Term.
On January 4, 2016, the Company issued a convertible note in the amount of $90,000 pursuant to the agreement. The note is unsecured, bears interest at 6% per annum, and due on April 4, 2016. The note is convertible into shares of common stock during the period from 90 days after the date of issuance (April 2, 2016) to three years from the date of issuance (January 4, 2019), at a conversion rate of 60% of the average of the three lowest intraday trading prices of the Company’s common stock for the twenty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company.
On February 29, 2016, the Company closed an Asset Purchase Agreement dated July 14, 2015 and amended December 2, 2015 (the “Agreement”) with Co-Owners Inc. ("Co-Owners"), a Florida corporation, and the shareholders of Co-Owners. Pursuant to the Agreement, the Company agreed to purchase certain assets and assume certain liabilities of Co-Owners and transfer these assets and liabilities to a newly incorporated company, named Co-Owners Rewards Inc. (“Subco”). In consideration, Subco will issue 2,200,000 shares of common stock to the Company and 2,330,000 shares of common stock to certain shareholders of Co-Owners.
Subsequent to December 31, 2015, the Company received $33,000 from the original shareholders of the Company prior to the acquisition of Xalles. The proceeds received were pursuant to the agreement as described in Note 3.
Xalles Holdings Inc. (“the Company”) was incorporated in the State of Nevada on December 14, 2009 under the name Stella Blu, Inc. On August 24, 2015, the Company changed its name to Xalles Holdings Inc.
On July 14, 2015, the Company entered into a Share Exchange Agreement (the “Agreement”) with Xalles Limited ("Xalles"), a Delaware corporation (incorporated in October 2014), Arrowista Corporation ("Arrowvista"), a Delaware corporation, Xalles Singapore Pte. Ltd. ("Xalles Singapore"), a Singapore corporation, and the shareholders of Xalles, Arrowvista, and Xalles Singapore. Pursuant to the Agreement, Xalles, Arrowvista, and Xalles Singapore will become wholly-owned subsidiaries of the Company in exchange for the issuance of certain shares. Xalles became a wholly-owned subsidiary by the issuance of 19,500,000 shares of common stock on July 16, 2015 (the "First Tranche"). Please refer to Note 3. Arrowvista will become a wholly-owned subsidiary by the issuance of 4,500,000 shares of common stock on or before June 30, 2016. Xalles Singapore will become a wholly-owned subsidiary by the issuance of 2,250,000 shares of common stock on or before June 30, 2016. The consummation of the transactions set forth in the Agreement are subject to certain conditions.
On July 1, 2015, prior to the closing of the First Tranche of the Agreement, Arrowvista transferred a note receivable and a license to Xalles in consideration of a note payable in the amount of $97,211. The amount owed is unsecured, non-interest bearing, and due on demand. Please refer to Note 7(d).
On August 19, 2015, the Company effected a 3-for-1 forward stock split of its common stock. All common share and per common share amounts in these consolidated financial statements have been retroactively restated to reflect the stock split.
| F- 23 |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2015 (the “Evaluation Date”). Based upon the evaluation of our disclosure controls and procedures as of the Evaluation Date, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective because of the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting and Management has concluded that the Company’s internal controls over financial reporting are ineffective as of December 31, 2015. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
| 10 |
The material weakness relates to the lack of segregation of duties in our financial reporting process and we utilize outside third party consultants. We do not have a separately designated audit committee. This weakness is due to our lack of excess working capital to hire additional staff. To remedy this material weakness, we intend to engage an internal accountant to assist with financial reporting as soon as our finances will allow.
D. Brooks and Associates CPA’s, P.A., our registered independent public accounting firm, was not required to and has not issued a report concerning the effectiveness of our internal control over financial reporting as of December 31, 2015.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control and Financial Reporting
During the quarter ended December 31, 2015 there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
| 11 |
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Officers
Our bylaws allow the number of directors to be fixed by the Board of Directors. Our Board of Directors has fixed the number of directors at one.
Our current directors and officers are as follows:
| Name | Age | Position |
| Thomas Nash | 50 | Director, President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer |
| Mati Baumel | 55 | Director |
The directors will serve as directors until our next shareholder meeting or until a successor is elected who accepts the position. Officers hold their positions at the will of the Board of Directors. There are no arrangements, agreements or understandings between non-management shareholders and management under which non-management shareholders may directly or indirectly participate in or influence the management of our affairs.
Thomas Nash, President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director
Thomas W. Nash has expertise is in the Financial Supply Chain and payment services. Mr. Nash has provided strategic business advice to more than 200 firms worldwide from small firms to large organizations such as U.S. Bank, MasterCard, and Citibank. He also led the implementation of financial systems deployment within the U.S. Government’s Department of Defense and Department of Homeland Security. Mr. Nash has also advised the Governments of Brazil, China, Hungary, Romania, and others. Mr. Nash has helped launch successful startup ventures in the payment, eCommerce and IT fields.
From October 2014 to present, Mr. Nash has been a Director and Officer of Xalles Limited, a private company. From December 2012 to Present, Mr. Nash has been a Director of Genuine Metrics, Inc., a private company. From February 2008 to present, Mr. Nash has been a Director and Officer of Xalles Singapore Pte. Ltd., a private company. From June 2007 to Present, Mr. Nash has been a Director and Officer of Co-Owners Inc., a private company. From March 2003 to Present, Mr. Nash has been a Director and Officer of ArrowVista Corporation, a private company. From July 2002 to Present, Mr. Nash has been a Director and Officer of Xalles Limited (Ireland), a private company. From September 1996 to Present, Mr. Nash has been a Director and Officer of Triumph Implementation Consulting Corporation, a private company
Mr. Nash does not currently serve on the boards of other public companies.
| 12 |
Mati Baumel, Director
Mr. Baumel is a Mathematician and Software Developer, Industrial Management Engineer who developed the Polymath NHE platform with a mission of leveraging Artificial Intelligence to innovate and improve the accuracy and efficiency of diagnoses in global healthcare.
In 2003, Mr. Baumel launched T&R International B.V in Amsterdam Netherlands, a programming and development firm focused on Video Motion Detection, Artificial Intelligence technologies and RFID tags and cards. Some of its projects include: Security systems in London airports, Copenhagen, Glasgow and many others. His technical consulting work continued with projects including Medical Performance under War platform for countries and for the World Health Organization on epidemic reaction on, “No Time to Lose” project. From 2003 to Present Mr. Baumel is the Inventor and Founder at T&R International B.V –Holland, a private company. From 2012 to Present, Mr. Baumel is the Inventor and Founder at New Health Era S.A- Switzerland, a private company.
Mr. Baumel does not currently serve on the boards of other public companies.
Significant Employees
There are no individuals other than our executive officer who make a significant contribution to our business.
Family Relationships
There are no family relationships among our officers or directors.
Legal Proceedings
None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five 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 offenses); |
| · | 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 involvement in any type of business, securities or banking activities; or |
| · | being found by a court of competent jurisdiction (in a civil action), the SEC 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. |
| 13 |
Section 16(a) Beneficial Ownership Compliance Reporting
Section 16(a) of the Securities Exchange Act of 1934 requires a company’s directors and officers, and persons who own more than ten-percent (10%) of the company’s common stock, to file with the Securities and Exchange Commission reports of ownership on Form 3 and reports of change in ownership on Forms 4 and 5. Such officers, directors and ten-percent stockholders are also required to furnish the company with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms received by us and on written representations from certain reporting persons, we believe that all Section 16(a) reports applicable to our officers, directors and ten-percent stockholders with respect to the fiscal year ended December 31, 2015 were filed.
Code of Ethics
We have not yet adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions because we have not yet finalized the content of such a code. Companies whose equity securities are listed for trading on the OTC Pink Sheets are not currently required to implement a code of ethics.
Director Nominees
As of December 31, 2015 there have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
Audit Committee
The functions of the Audit Committee are currently carried out by our Board of Directors. Our Board of Directors has determined that we do not presently need an audit committee financial expert on our Board of Directors carrying out the duties of the Audit Committee. Our Board of Directors has determined that the cost of hiring a financial expert to act as one of our directors and to be a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on the Audit Committee.
Item 11. Executive Compensation.
The following Summary Compensation Table sets forth the total annual compensation paid or accrued by us to or for the account of the Principal Executive Officer (“PEO”) and our Principal Financial Officer (“PFO”). None of our other executive officers received compensation in excess of $100,000 during the fiscal year ended December 31, 2015.
Summary Compensation
| Name and Principal Position | Year |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Non-qualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
|||||||||||||||||||||||||||
|
Thomas Nash, President, CEO, CFO, Secretary, Treasurer and Director |
2014 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| 2015 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
| Mati Baumel , Director | 2014 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| 2015 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Mr. Nash spends approximately 100% of his time on our business.
Our executive officers and directors did not receive any other compensation as directors or officers or any benefits.
Outstanding Equity Awards at Fiscal Year End
As of December 31, 2015, we did not have any unexercised stock options held by any of our shareholders.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth the ownership, as of October 3, 2015, of our common stock by each of our directors, and by all executive officers and directors as a group, and by each person known to us who is the beneficial owner of more than 5% of any class of our securities. As of October 3, 2015, there were 31,015,000 common shares issued and outstanding. All persons named have sole voting and investment power with respect to the shares, except as otherwise noted. The number of shares described below includes shares which the beneficial owner described has the right to acquire within 60 days of the date of this Annual Report.
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class (2) | |||||||||
| Common |
Thomas Nash (1)
2020 Pennsylvania Ave. NW, #527 Washington DC 20006 |
19,500,000 | 62.9 | % | ||||||||
| Common |
Mati Baumel
2020 Pennsylvania Ave. NW, #527 Washington DC 20006 |
100,000 | (3 | ) | ||||||||
| All Executive Officers and Directors as a Group | 19,600,000 | 62.9 | % | |||||||||
| (1) | Thomas Nash is our President CEO, CFO Secretary, Treasurer and a Director. |
| (2) | Calculated based on issued and outstanding shares of 31,015,000 as April 13, 2016. |
| (3) | Less than 1% |
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.
Compensation Committee
We currently do not have a compensation committee of the Board of Directors or a committee performing a similar function. It is the view of the Board that it is appropriate for us not to have such a committee because of our size and because the Board as a whole determines executive compensation. Each of our directors is also is a senior officer of the company.
Compensation Committee Report
Our Board of Directors as a whole has revised and discussed the compensation discussion and analysis disclosed in this Form 10-K and based on this review and discussion, has determined that the disclosure be included in this annual report.
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Compensation of Directors
We do not pay our directors any fees for attendance at Board meetings or similar remuneration or reimburse them for any out-of-pocket expenses incurred by them in connection with our business.
Change of Control
As of December 31, 2015 we had no pension plans or compensatory plans or other arrangements which provide compensation in the event of a termination of employment or a change in our control.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Director Independence
The OTC Pink Sheets on which our common shares are listed on does not have any director independence requirements. We also do not have a definition of independence as our directors also hold positions executive officer positions with us. Once we engage further directors and officers, we plan to develop a definition of independence and scrutinize our Board of Directors with regards to this definition.
Item 14. Principal Accounting Fees and Services
Audit, Audit-Related and Non-Audit Fees
The following table represents fees for the professional audit services and fees billed for other services rendered by our auditors, D. Brooks and Associates CPA’s, P.A. for the years ended December 31, 2015 and December 31, 2014 and any other fees billed for other services rendered during that period.
| Description of Service |
Year ended December 31, 2015 ($) |
Year ended December 31, 2014 ($) |
||||||
| Audit fees | 3,500 | 3,500 | ||||||
| Audit-related fees | — | — | ||||||
| Tax fees | — | — | ||||||
| All other fees | — | — | ||||||
| Total | 3,500 | 3,500 | ||||||
Audit Committee Approval
Since our inception, our Board of Directors, performing the duties of the audit committee, has reviewed all audit and non-audit related fees at least annually. The Board, acting as the audit committee, pre-approved all audit related services for the year ended December 31, 2015
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PART IV
Item 15. Exhibits, Financial Statement Schedules
The financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or related notes thereto.
Exhibits
|
Exhibit Number |
Exhibit Description |
| 31.1 | Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| EX-101.INS | XBRL Instance Document |
| EX-101.SCH | XBRL Taxonomy Extension Schema |
| EX-101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
| EX-101.LAB | XBRL Taxonomy Extension Label Linkbase |
| EX-101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
| EX-101.DEF | XBRL Taxonomy Extension Definition Linkbase |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.
| XALLES HOLDINGS INC. | ||
| Date: June 15, 2016 | By: | /s/ Thomas Nash |
| Thomas Nash | ||
| President, Chief Executive Officer, Secretary, Treasurer, Chief Financial Officer and Director | ||
Pursuant to the requirements of the Exchange Act this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
|
/s/ Thomas Nash Thomas Nash |
President, Chief Executive Officer, Secretary, Treasurer, Chief Financial Officer and Director | June 15, 2016 |
|
/s/ Mati Baumel Mati Baumel |
Director | June 15, 2016 |
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