NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2016
NOTE 1 – ORGANIZATION
Gain Cities Limited (formerly known as Remove-By-You, Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on November 25, 2014. The Company issued 3,000,000 (30,000 post reverse stock split effective February 27, 2017, see Note 10 – Subsequent Events) shares of common stock to its founder at inception in exchange for organizational costs which consisted of services. Following its formation, the Company issued 1,000,000 (10,000 post reverse stock split) shares of common stock to our founder, as consideration for the purchase of a business plan along with several product formulas and an assorted selection of micro-needle devices for use in a proprietary tattoo removal business. Our founder paid approximately $1,000 for this developed product formula, along with the micro-needle devices with which he personally developed a unique program and results. The acquisition was valued at $1,000.
The Company’s product formulas and tattoo removal service will use proprietary technology that will enable the user to safely remove his or her tattoo with minimal effort and discomfort. The Company’s product formula along with the micro-needle device program will safely remove the ink and design and allow the body to heal naturally without scarring.
On October 13, 2016, the Company experienced a change in control (“Change in Control”). With the Change in Control certain liabilities of the Company were forgiven and/or paid for on behalf of the Company by our founder, former president and chief executive officer. Total liabilities at the time approximated $165,000 which included legal fees owed to our legal counsel. The board of directors nominated Mr. James Oliver to the board of directors on October 13, 2016.
On October 18, 2016, the Company, reported on a Form 8-K that it had filed Articles of Merger with the Nevada Secretary of State, whereby it entered into a statutory merger with its wholly-owned subsidiary, with the effect being that the Company changed its name to from “Remove-By-You, Inc.” to “Gain Cities Limited” (the “Name Change”).
The Company filed an Issuer Company-Related Action Notification Form with FINRA requesting that the Name Change be effected in the market. The Company’s ticker symbol changed to “GCTY” to reflect the Name Change.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Accounting
The Company’s financial statements are prepared using the accrual method of accounting. The Company elected a November 30
th
, year-end.
b. Cash Equivalents
For purposes of the balance sheet and statement of cash flows, the Company considers all liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
c. Stock-based Compensation
The Company follows ASC 718-10,
Stock Compensation
, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. The Company has not adopted a stock option plan and has not granted any stock options.
d. Use of Estimates and Assumptions
Preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
e. Earnings (Loss) per Share
The basic earnings (loss) per share is calculated by dividing the Company’s net income available to common shareholders by the weighted average number of common shares during the period. The diluted earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. Diluted earnings (loss) per share are the same as basic earnings (loss) per share due to the lack of dilutive items in the Company.
f. Income Taxes
Income taxes are provided in accordance with ASC 740,
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.
No provision was made for Federal income tax.
g. Revenue Recognition
We will recognize revenues in accordance with ASC 605,
Revenue Recognition
, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. We will recognize revenue when: (i) persuasive evidence of an arrangement exists; (ii) shipment of products has occurred or services have been rendered; (iii) the sales price charged is fixed or determinable; and (iv) collection is reasonably assured. Our shipment terms will generally be FOB shipping point as outlined in our invoices or sales order.
h. Advertising
Advertising is expensed in the period in which it is incurred. There has been no advertising expense in the reporting periods presented.
i. Intangible Assets
Intangible assets with finite lives are amortized over their estimated useful life. The Company monitors conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization period. The Company tests its intangible assets with finite lives for potential impairment whenever management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable. The original estimate of an asset's useful life and the impact of an event or circumstance on either an asset's useful life or carrying value involve significant judgment. For the period November 25, 2014 (inception) through November 30, 2014 we recognized $1,000 in amortization expense.
j. Fair Value of Financial Instruments
ASC 820 defines fair value, establishes a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
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·
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Level 1 – Valuation based on quoted market prices in active markets for identical assets or liabilities.
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·
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Level 2 – Valuation based on quoted market prices for similar assets and liabilities in active markets.
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·
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Level 3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.
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In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments or interest rates that are comparable to market rates. These financial instruments include cash and accounts payable. The Company’s bank accounts are maintained with financial institutions of reputable credit, therefore, bear minimal credit risk and are carried at amortized costs which approximates the fair value.
k. Recently Issued Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The Company is currently in the process of evaluating the impact of the adoption on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance.
In January 2016, the FASB issued ASU 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.
In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement –Period Adjustments”. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. The Company is currently evaluating the impact of adopting this guidance.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” An entity should measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The standard is effective for annual reporting periods beginning after December 15, 2016 and related interim periods. Early adoption is permitted. The Company does not believe this standard will have a material effect on its financial position, results of operations, or cash flows.
There have been three new ASUs issued amending certain aspects of ASU 2014-09. ASU 2016-08 “Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),” was issued in March, 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU 2016-10 “Identifying Performance Obligations and Licensing” issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. Finally, ASU 2016-12, “Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients” provides amendments and practical expedients to the guidance in ASU 2014-09 in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09. The Company is currently evaluating the impact of the various guidance.
The Company 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.
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying financial statements, the Company had negative working capital of $5,553 and an accumulated deficit of $30,476 at November 30, 2016. As of November 30, 2016, the Company had not generated revenues and had no committed sources of capital or financing.
Management anticipates the Company will attain profitable status and improve liquidity through continued business development and additional debt or equity investment in the Company. Management is pursuing sources of financing. The Company’s continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance that the necessary debt or equity financing will be available, or will be available on terms acceptable to the Company, in which case the Company may be unable to meet its obligations. Should the Company be unable to realize its assets and discharge its liabilities in the normal course of business, the net realizable value of its assets may be materially less than the amounts recorded in the financial statements. The financial statements do not include any adjustments relating to the recoverability of recorded asset amounts that might be necessary should the Company be unable to continue in existence.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4 – SHARE CAPITAL
The Company is authorized to issue 100,000,000 shares of common stock ($0.001 par value) and 1,000,000 shares of preferred stock ($0.001 par value).
The Company upon inception issued 3,000,000 (30,000 post reverse stock split) shares of its common stock to its incorporator (our former chief executive officer and president), for organizational services. These services were valued at $3,000. Following its formation, the Company issued 1,000,000 (10,000 post reverse stock split) shares of common stock to its incorporator, as consideration for the purchase of a comprehensive business plan along with detailed product formula and commercially available micro-needle devices to be used with that product formula. Our incorporator, incurred approximately $1,000 in costs and or payments to develop and refine the tattoo removal process utilizing the product formula and micro-needle devices. The acquisition of the business plan, devices and product formula was valued at $1,000.
The Company on June 24, 2015 completed its offering pursuant to a registration statement filed on Form S-1. The Company issued 4,000,000 (40,000 post reverse stock split) shares of its common stock to 26 investors. The investors paid $0.01 ($1.00 post reverse stock split) per share for a total investment of $40,000.
The Change in Control (see Note 1 – Organization) and our founder, a former officer and director settling certain outstanding debts of the Company and the resulting forgiveness of that debt; the Company recognized a one-time increase to its additional paid in capital of $4,500. This occurred on or about October 13, 2016.
At November 30, 2016, there were 8,000,000 (80,000 post reverse stock split) shares of common stock issued and outstanding. There are no shares of preferred stock issued or outstanding.
NOTE 5 – LOAN - RELATED PARTY
For the twelve months ending November 30, 2016 the Company received $4,500 in loan proceeds from our founder, a former officer and director of the Company. The related party loan was entered into in order to pay for certain working capital expenses. This loan was unsecured and carried no interest rate or a repayment term.
The Company with its change in control transaction (see Note 1 – Organization) our founder negotiated and guaranteed the forgiveness of certain debts of the Company through the sale and the resulting forgiveness of that debt; the Company recognized an increase in additional paid in capital of $4,500. This transaction occurred on or about October 13, 2016.
NOTE 6 – LOAN - NONRELATED PARTY
For the twelve months ended November 30, 2016 the Company received $50,380 in loan proceeds from a nonrelated party. This resulted in approximately $75,000 in total debt being owed to this nonrelated party. We secured an interest free loan from the nonrelated party in order to fund working capital expenditures. This nonrelated party loan was unsecured and carried no interest rate or repayment term.
The Company with its change in control transaction (see Note 1 – Organization) our founder negotiated and guaranteed the forgiveness of certain debts of the Company. The Company recognized debt forgiveness of $75,410 from the unrelated party. This transaction occurred on or about October 13, 2016.
NOTE 7 – DEFERRED OFFERING COSTS
Deferred offering costs consist principally of accounting, legal and other fees incurred that were related to our direct public offering efforts. Deferred offering costs were offset against the net proceeds received from the offering. As of June 24, 2015, deferred offering costs of $23,577 were credited against additional paid in capital. Accounts payable include deferred offering costs of $2,500 owed to our legal counsel as of November 30, 2015. This amount was paid in full on October 13, 2016. As of November 30, 2016 we owed zero costs associated with our completed offering.
NOTE 8 – DEBT FORGIVENESS
In connection with the Change in Control transaction (see Note 1 – Organization) our founder negotiated and guaranteed the forgiveness of certain debts of the Company through the sale of his shares. The Company recognized debt forgiveness of $165,610. This transaction occurred on or about October 13, 2016.
The Company recognized a reduction in accounts payable from vendors of $90,200 and debt forgiveness from unrelated parties of $75,410. No consideration was paid for the debt forgiveness received by the Company.
NOTE 9 – INCOME TAXES
As of November 30, 2016, the Company had net operating loss carry forward of $30,476. This amount may be available to reduce future years’ taxable income.
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As of
November 30,
2016
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As of
November 30,
2015
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Deferred tax asset:
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Net operating tax carry-forward
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$
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10,667
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$
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26,637
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Other
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-
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-
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Gross deferred tax asset
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10,667
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26,637
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Valuation allowance
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(10,667
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)
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(26,637
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)
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Net deferred tax asset
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$
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-
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$
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-
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Realization of deferred tax asset is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forward is expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company recorded a valuation allowance.
Reconciliation between statutory rate and the effective tax rate for both periods and as of November 30, 2016 and 2015:
Federal statutory rate
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(35.0
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)%
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State taxes, net of federal benefit
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(0.00
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)%
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Change in valuation allowance
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35.0
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%
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Effective tax rate
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0.0
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%
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NOTE 10 – SUBSEQUENT EVENTS
The Company evaluated all events that occurred after the balance sheet date of November 30, 2016 through the date these financial statements were issued. The Company determined there were the following reportable subsequent events.
On February 27, 2017 the Company’s board of directors approved and on March 7, 2017 the Company filed an amendment to its Articles of Incorporation to effect a reverse stock split of its common stock. The reverse stock split exchanged one (1) share for every one hundred (100) shares issued and outstanding at the time. All share and per share amounts have been adjusted to reflect this reverse split.
As part of the reverse stock the Company adjusted additional paid in capital by the change in number of shares multiplied by its par value. The Company recognized an increase of $7,920 in additional paid in capital and reflected that for all periods presented.
The Company received an additional $10,708 in related party loans for the three months ended February 28, 2017 and an additional $7,000 in related party loans during the month of March 2017 for working capital purposes.