UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________to ____________________
333-194748
Commission file number
GigWorldHapi Metaverse Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 45-4742558 | |
(State or other jurisdiction
| (I.R.S. Employer Identification No.) | |
| 4800 Montgomery Lane, Suite 210 Bethesda MD | 20814 | |
| (Address of principal executive offices) | (Zip Code) |
301-971-3940
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each the registrant’s classes of common stock, as of the latest practicable date. As of May 9, 2022,12, 2023, there were shares outstanding of the registrant’s common stock $0.0001 par value.
Throughout this Report on Form 10-Q, the terms “Company,” “we,” “us” and “our” refer to GigWorldHapi Metaverse Inc. and “our board of directors” refers to the board of directors of GigWorldHapi Metaverse Inc.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can be based only on facts and factors of which we are currently aware. Consequently, forward-looking statements are inherently subject to risks and uncertainties. Actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.
Forward-looking statements can be identified by the use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. Such forward-looking statements are based on our management’s current plans and expectations and are subject to risks, uncertainties and changes in plans that may cause actual results to differ materially from those anticipated in the forward-looking statements. You should be aware that, as a result of any of these factors materializing, the trading price of our common stock may decline. These factors include, but are not limited to, the following:
| ● | the availability and adequacy of capital to support and grow our business; |
| ● | economic, competitive, business and other conditions in our local and regional markets; |
| ● | actions taken or not taken by others, including competitors, as well as legislative, regulatory, judicial and other governmental authorities; |
| ● | competition in our industry; |
| ● | changes in our business and growth strategy, capital improvements or development plans; |
| ● | the availability of additional capital to support development; and |
| ● | other factors discussed elsewhere in this annual report. |
The cautionary statements made in this quarterly report are intended to be applicable to all related forward-looking statements wherever they may appear in this report.
We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.
| 2 |
TABLE OF CONTENTS
| 3 |
PART I FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
| 4 |
GIGWORLDHAPI METAVERSE INC. (FORMERLY KNOWN AS HOTAPP BLOCKCHAINGIGWORLD INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 20222023 AND DECEMBER 31, 20212022 (UNAUDITED)
| March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||
| Cash and cash equivalents | $ | 210,576 | $ | 245,780 | $ | 410,134 | $ | 514,260 | ||||||||
| Prepaid expenses and other receivable | 1,542 | 1,870 | ||||||||||||||
| Investment in Securities | 1,495,000 | 1,950,000 | ||||||||||||||
| Prepaid expenses and other current assets | 104,721 | 118,933 | ||||||||||||||
| Prepaid expenses and other current assets – related party | 27,871 | 2,802 | ||||||||||||||
| Investment in Securities – related party | 1,308,735 | 2,341,948 | ||||||||||||||
| TOTAL CURRENT ASSETS | 1,707,118 | 2,197,650 | 1,851,461 | 2,977,943 | ||||||||||||
| Property and Equipment, net | 1,549 | 1,713 | 4,958 | 10,305 | ||||||||||||
| Other non-current assets | 102 | 102 | ||||||||||||||
| 1,400,000 | - | |||||||||||||||
| Goodwill | 59,954 | 60,343 | ||||||||||||||
| Operating lease right-of-use assets, net | 264,817 | 129,478 | ||||||||||||||
| TOTAL ASSETS | $ | 1,708,769 | $ | 2,199,465 | $ | 3,581,190 | $ | 3,178,069 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||
| Accounts payable and accrued expenses | $ | 27,552 | $ | 14,609 | $ | 85,759 | $ | 24,601 | ||||||||
| Accounts payable and accrued expenses – related party | 7,679 | 7,838 | ||||||||||||||
| Accrued taxes | 7,742 | 7,742 | 1,109 | 3,816 | ||||||||||||
| Amount due to related parties | 2,432,390 | 2,383,698 | 4,955,031 | 4,886,507 | ||||||||||||
| 1,400,000 | - | |||||||||||||||
| Operating lease liabilities-Current | 108,398 | 71,899 | ||||||||||||||
| TOTAL CURRENT LIABILITIES | 2,467,684 | 2,406,049 | 6,557,976 | 4,994,661 | ||||||||||||
| NON- CURRENT LIABILITIES: | ||||||||||||||||
| Operating lease liabilities - Non-current | $ | 159,233 | $ | 59,196 | ||||||||||||
| TOTAL NON-CURRENT LIABILITIES | 159,233 | 59,196 | ||||||||||||||
| TOTAL LIABILITIES | 2,467,684 | 2,406,049 | 6,717,209 | 5,053,857 | ||||||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||||||||||
| Preferred stock, $ par value, shares authorized, issued and outstanding as of March 31, 2022 and December 31, 2021 | - | - | ||||||||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding, as of March 31, 2022 and December 31, 2021 | 50,690 | 50,690 | ||||||||||||||
| Preferred stock, $ par value, shares authorized, issued and outstanding as of March 31, 2023 and December 31, 2022 | - | - | ||||||||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding, as of March 31, 2023 and December 31, 2022 | 50,690 | 50,690 | ||||||||||||||
| Additional paid-in capital | 4,604,191 | 4,604,191 | 4,679,498 | 4,679,498 | ||||||||||||
| Accumulated other comprehensive loss | (282,474 | ) | (299,398 | ) | (333,323 | ) | (315,241 | ) | ||||||||
| Accumulated deficit | (5,129,699 | ) | (4,560,449 | ) | (7,530,845 | ) | (6,288,884 | ) | ||||||||
| TOTAL GIGWORLD INC STOCKHOLDERS’ DEFICIT | (757,292 | ) | (204,966 | ) | ||||||||||||
| TOTAL HAPI METAVERSE INC STOCKHOLDERS’ DEFICIT | (3,133,980 | ) | (1,873,937 | ) | ||||||||||||
| NON-CONTROLLING INTERESTS | (1,623 | ) | (1,618 | ) | (2,039 | ) | (1,851 | ) | ||||||||
| TOTAL STOCKHOLDERS’ DEFICIT | (758,915 | ) | (206,584 | ) | (3,136,019 | ) | (1,875,788 | ) | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 1,708,769 | $ | 2,199,465 | $ | 3,581,190 | $ | 3,178,069 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
GIGWORLDHAPI METAVERSE INC. (FORMERLY KNOWN AS HOTAPP BLOCKCHAINGIGWORLD INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE THREE MONTHS ENDED MARCH 31, 20222023 AND 20212022 (UNAUDITED)
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Food & Beverage | $ | 48,523 | $ | - | ||||||||||||
| Services Rendered – related party | 14,040 | - | ||||||||||||||
| Total of Revenue | 62,563 | - | ||||||||||||||
| Cost of revenues | ||||||||||||||||
| Food & Beverage - Depreciation | $ | (4,813 | ) | $ | - | |||||||||||
| Food & Beverage - Cost of revenues | (14,167 | ) | - | |||||||||||||
| Services Rendered – Cost of revenues | (4,568 | ) | - | |||||||||||||
| Total Cost of Revenue | (23,548 | ) | - | |||||||||||||
| Gross profit | $ | 39,015 | $ | - | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Depreciation | $ | 165 | $ | - | $ | 471 | $ | 165 | ||||||||
| General and administrative | 104,156 | 30,128 | 253,853 | 103,505 | ||||||||||||
| Total operating expenses | 104,321 | 30,128 | 254,324 | 103,670 | ||||||||||||
| Loss from operations | (104,321 | ) | (30,128 | ) | (215,309 | ) | (103,670 | ) | ||||||||
| Other income (loss): | ||||||||||||||||
| Interest income | 1 | - | $ | 11,056 | $ | 1 | ||||||||||
| Foreign exchange (loss) | (9,941 | ) | (36,471 | ) | ||||||||||||
| Other Income | 1 | - | ||||||||||||||
| Interest expense | (11,047 | ) | - | |||||||||||||
| Foreign exchange gain (loss) | 6,347 | (9,941 | ) | |||||||||||||
| Unrealized (loss) on Securities Investment | (455,000 | ) | - | (1,033,212 | ) | (455,000 | ) | |||||||||
| Total other (loss) | (464,940 | ) | (36,471 | ) | (1,026,855 | ) | (464,940 | ) | ||||||||
| (Loss) before taxes | (569,261 | ) | (66,599 | ) | (1,242,164 | ) | (568,610 | ) | ||||||||
| Income tax provision | - | - | - | - | ||||||||||||
| Net (loss) | $ | (569,261 | ) | $ | (66,599 | ) | $ | (1,242,164 | ) | $ | (568,610 | ) | ||||
| Loss from discontinued operations, net of tax | - | (651 | ) | |||||||||||||
| Net (loss) attributable to Non-controlling interests | (11 | ) | - | (203 | ) | (11 | ) | |||||||||
| Net (loss) applicable to common shareholders | $ | (569,250 | ) | $ | (66,599 | ) | $ | (1,241,961 | ) | $ | (569,250 | ) | ||||
| Net (loss) per share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||
| Weighted number of shares outstanding - | ||||||||||||||||
| Basic and diluted | 506,898,576 | 506,898,576 | ||||||||||||||
| Comprehensive Income (Loss): | ||||||||||||||||
| Net (loss) | $ | (569,261 | ) | $ | (66,599 | ) | $ | (1,242,164 | ) | $ | (569,261 | ) | ||||
| Foreign currency translation gain | 16,930 | 63,278 | (18,067 | ) | 16,930 | |||||||||||
| Total comprehensive (loss) | $ | (552,331 | ) | $ | (3,321 | ) | $ | (1,260,231 | ) | $ | (552,331 | ) | ||||
| Comprehensive Income (Loss): | ||||||||||||||||
| Net (loss) per share – basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||
| Weighted number of shares outstanding - | ||||||||||||||||
| Basic and diluted | 506,898,576 | 506,898,576 | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
GIGWORLDHAPI METAVERSE INC. (FORMERLY KNOWN AS HOTAPP BLOCKCHAINGIGWORLD INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT)DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 AND 2021 (UNAUDITED)
| Common Shares | Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total GigWorld Inc Stockholders’ Deficit | Non-Controlling Interests | Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||
| Balance December 31, 2021 | 506,898,576 | $ | 50,690 | $ | 4,604,191 | $ | (299,398 | ) | $ | (4,560,449 | ) | $ | (204,966 | ) | $ | (1,618 | ) | $ | (206,584 | ) | ||||||||||||
| Net loss for the period | - | - | - | - | (569,250 | ) | (569,250 | ) | (11 | ) | (569,261 | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | 16,924 | - | 16,924 | 6 | 16,930 | ||||||||||||||||||||||||
| Balance March 31, 2022 | 506,898,576 | $ | 50,690 | $ | 4,604,191 | $ | (282,474 | ) | $ | (5,129,699 | ) | $ | (757,292 | ) | $ | (1,623 | ) | $ | (758,915 | ) | ||||||||||||
| Common Shares | Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Hapi Metaverse Inc Stockholders’ Deficit | Non-Controlling Interests | Stockholders’ Equity Deficit | |||||||||||||||||||||||||
| Balance December 31, 2022 | 506,898,576 | $ | 50,690 | $ | 4,679,498 | $ | (315,241 | ) | $ | (6,288,884 | ) | $ | (1,873,937 | ) | $ | (1,851 | ) | $ | (1,875,788 | ) | ||||||||||||
| Net loss for the period | - | - | - | - | (1,241,961 | ) | (1,241,961 | ) | (203 | ) | (1,242,164 | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | (18,082 | ) | - | (18,082 | ) | 15 | (18,067 | ) | |||||||||||||||||||||
| Balance March 31, 2023 | 506,898,576 | $ | 50,690 | $ | 4,679,498 | $ | (333,323 | ) | $ | (7,530,845 | ) | $ | (3,133,980 | ) | $ | (2,039 | ) | $ | (3,136,019 | ) | ||||||||||||
| Common Shares | Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss) | Accumulated Deficit | Total GigWorld Inc Stockholders’ Deficit | Non-Controlling Interests | Stockholders’ Equity (Deficit) | Common Shares | Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss) | Accumulated Deficit | Total Hapi Metaverse Inc Stockholders’ Deficit | Non-Controlling Interests | Stockholders’ Equity Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2020 | 506,898,576 | $ | 50,690 | $ | 4,604,191 | $ | (378,361 | ) | $ | (5,666,250 | ) | $ | (1,389,730 | ) | $ | - | $ | (1,389,730 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2021 | 506,898,576 | $ | 50,690 | $ | 4,604,191 | $ | (299,398 | ) | $ | (4,560,449 | ) | $ | (204,966 | ) | $ | (1,618 | ) | $ | (206,584 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance | 506,898,576 | $ | 50,690 | $ | 4,604,191 | $ | (299,398 | ) | $ | (4,560,449 | ) | $ | (204,966 | ) | $ | (1,618 | ) | $ | (206,584 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | (66,599 | ) | (66,599 | ) | - | (66,599 | ) | - | - | - | - | (569,250 | ) | (569,250 | ) | (11 | ) | (569,261 | ) | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | 63,278 | - | 63,278 | - | 63,278 | - | - | - | 16,924 | - | 16,924 | 6 | 16,930 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2021 | 506,898,576 | $ | 50,690 | $ | 4,604,191 | $ | (315,083 | ) | $ | (5,732,849 | ) | $ | (1,393,051 | ) | $ | - | $ | (1,393,051 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2022 | 506,898,576 | $ | 50,690 | $ | 4,604,191 | $ | (282,474 | ) | $ | (5,129,699 | ) | $ | (757,292 | ) | $ | (1,623 | ) | $ | (758,915 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance | 506,898,576 | $ | 50,690 | $ | 4,604,191 | $ | (282,474 | ) | $ | (5,129,699 | ) | $ | (757,292 | ) | $ | (1,623 | ) | $ | (758,915 | ) | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
GIGWORLDHAPI METAVERSE INC. (FORMERLY KNOWN AS HOTAPP BLOCKCHAINGIGWORLD INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 20222023 AND 20212022 (UNAUDITED)
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net (Loss) | $ | (569,261 | ) | $ | (66,599 | ) | ||||||||||
| Adjustments to reconcile net loss to cash used in operations: | ||||||||||||||||
| Net (Loss) from operation including non-controlling interests | $ | (1,242,164 | ) | $ | (569,261 | ) | ||||||||||
| Adjustments to reconcile net (loss) to cash used in operations: | ||||||||||||||||
| Depreciation | 165 | - | 5,284 | 165 | ||||||||||||
| Amortization of operating lease right-of-use assets | 21,493 | - | ||||||||||||||
| Interest expenses - Lease | 2,014 | - | ||||||||||||||
| Unrealized loss on securities investment | 455,000 | - | 1,033,213 | 455,000 | ||||||||||||
| Change in operating assets and liabilities: | ||||||||||||||||
| Deposit, prepaid expenses and other receivable | 327 | - | ||||||||||||||
| Accounts payable and accrued expenses | 12,944 | 12,229 | ||||||||||||||
| Prepaid expenses and other current assets | 14,213 | 327 | ||||||||||||||
| Prepaid expenses and other current assets – related party | (25,069 | ) | - | |||||||||||||
| Accounts payable, other payable and accrued expenses | 58,451 | 13,595 | ||||||||||||||
| Accounts payable, other payable and accrued expenses-related parties | (159 | ) | - | |||||||||||||
| Change in Operating Lease Liability | (22,310 | ) | - | |||||||||||||
| Net cash used in operating activities | $ | (155,034 | ) | $ | (100,174 | ) | ||||||||||
| Net cash used in Discontinued Operating Activities | - | (651 | ) | |||||||||||||
| Net cash used in operating activities | $ | (100,825 | ) | $ | (54,370 | ) | $ | (155,034 | ) | $ | (100,825 | ) | ||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Advance from related parties | 55,946 | 14,470 | 122,719 | 55,946 | ||||||||||||
| Net cash provided by financing activities | $ | 55,946 | $ | 14,470 | $ | 122,719 | $ | 55,946 | ||||||||
| NET (DECREASE) IN CASH | (44,879 | ) | (39,900 | ) | (32,315 | ) | (44,879 | ) | ||||||||
| Effects of exchange rates on cash | 9,675 | 36,580 | (71,811 | ) | 9,675 | |||||||||||
| CASH AND CASH EQUIVALENTS at beginning of period | 245,780 | 158,057 | 514,260 | 245,780 | ||||||||||||
| CASH AND CASH EQUIVALENTS at end of period | $ | 210,576 | $ | 154,737 | $ | 410,134 | $ | 210,576 | ||||||||
| Supplemental schedule of non-cash investing and financing activities | ||||||||||||||||
| Convertible promissory note - related party, issued in exchange with convertible promissory note payable - related party | $ | 1,400,000 | $ | - | ||||||||||||
| Initial Recognition of Operating Lease Right-Of-Use Asset and Lease Liability | $ | 157,647 | $ | - | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
GIGWORLDHAPI METAVERSE INC. (FORMERLY KNOWN AS HOTAPP BLOCKCHAINGIGWORLD INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. THE COMPANY HISTORY AND NATURE OF THE BUSINESS
GigWorldHapi Metaverse Inc., formerly HotApp Blockchain,GigWorld Inc. (the “Company” or “Group”) was incorporated in the State of Delaware on March 7, 2012 and established a fiscal year end of December 31. The Company’s business is focused on serving business-to-business (B2B) needs in e-commerce, collaboration and social networking functions.
Going Concern
These financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. Since inception, the Company has incurred net losses of $5,129,6997,530,845 and has net working capital deficit of $760,5664,706,619 at March 31, 2022.2023. Management has concluded that due to the conditions described above, there is substantial doubt about the entities ability to continue as a going concern through May 9, 2023. We have evaluated the significance of the conditions in relation to ourthe Company’s ability to meet ourits obligations and believebelieves that ourits current cash balance along with ourits current operations will not provide sufficient capital to continue operation through 2022. Ouras a going concern. The Company’s ability to continue as a going concern is dependent upon achieving sales growth, management of operating expenses and ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due, and upon profitable operations.
Our majority shareholder has advised us not to depend solely on them for financing. We haveThe Company has increased ourits efforts to raise additional capital through equity or debt financings from other sources. However, wethe Company cannot be certain that such capital (from ourits shareholders or from third parties) will be available to us or whether such capital will be available on terms that are acceptable to us.the Company. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These condensed consolidated financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 20212022 filed on March 15, 2022.29, 2023. Results of operations for the three months ended March 31, 20222023 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2021.2023. The consolidated balance sheet at December 31, 2022 was derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed consolidated financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise.
Basis of consolidation
The condensed consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated.
| 9 |
The Company’s condensed consolidated financial statements include the financial position, results of operations and cash flows of the following entities as of March 31, 20222023 and December 31, 2021,2022, as follows:
SCHEDULE FOR SUBSIDIARY’S CONSOLIDATION OF FINANCIAL STATEMENTS
| Attributable interest as of, | Attributable interest as of, | |||||||||||||||||||
| Name of subsidiary consolidated under GigWorld Inc. | State or other jurisdiction of incorporation or organization | March 31, 2022 | December 31, 2021 | |||||||||||||||||
| Name of subsidiary consolidated under Hapi Metaverse Inc. | State or other jurisdiction of incorporation or organization | March 31, 2023 | December 31, 2022 | |||||||||||||||||
| % | % | % | % | |||||||||||||||||
| HotApp BlockChain Pte.Ltd. (f.k.a. HotApps International Pte. Ltd.) | Singapore | 100.0 | 100.0 | Singapore | 100.0 | 100.0 | ||||||||||||||
| HotApp International Limited | Hong Kong | 100.0 | 100.0 | Hong Kong | 100.0 | 100.0 | ||||||||||||||
| Gig Stablecoin Inc. (f.k.a. Crypto Exchange Inc.) | United States of America | 100.0 | 100.0 | Nevada | 100.0 | 100.0 | ||||||||||||||
| HWH World Inc. | United States of America | 100.0 | 100.0 | Delaware | 100.0 | 100.0 | ||||||||||||||
| HWH World Pte. Ltd. | Singapore | 100.0 | 100.0 | |||||||||||||||||
| Smart Reward Express Limited | Hong Kong | 50.0* | 50.0* | Hong Kong | 50.0* | 50.0* | ||||||||||||||
| Hapi Café Limited | Hong Kong | 100.0** | 100.0** | |||||||||||||||||
| MOC HK Limited | Hong Kong | 100.0*** | 100.0*** | |||||||||||||||||
| Shenzhen Leyouyou Catering Management Co., Ltd. | People’s Republic of China | 100.0**** | 100.0**** | |||||||||||||||||
| Hapi Metaverse Inc. | Texas | 100.0***** | 100.0***** | |||||||||||||||||
| Dongguan Leyouyou Catering Management Co., Ltd. | People’s Republic of China | 100.0****** | - | |||||||||||||||||
| * | Smart Reward Express Limited (“Smart Reward”) was incorporated in Hong Kong on July 13, 2021 with an issued and paid-up share capital of HK$10,000 comprising ordinary shares. |
Smart Reward plans to be principally engaged in the business of developing a platform allowing small and medium sized merchants to set-up their own reward program, with the aim of creating a loyalty exchange program for participating merchants.
HotApp International Limited is the owner of 50% of the issued and outstanding shares of Smart Reward. The remaining 50% of the issued and outstanding shares of Smart Reward are held by Value Exchange Int’l (China) Limited, a wholly-owned subsidiary of VEII.
HotApp International Limited holds 5,000 shares of Smart Reward, representing 50% of the total issued and outstanding shares of Smart Reward. HotApp International Limited is a wholly-owned subsidiary of HotApp BlockChain Pte. Ltd., which is a wholly-owned subsidiary of GigWorldHapi Metaverse Inc. The remaining 5,000 shares of Smart Reward, representing 50% of the total issued and outstanding shares of Smart Reward, are held by Value Exchange Int’l (China) Limited, a wholly-owned subsidiary of Value Exchange International Inc. GigWorldHapi Metaverse Inc. owns 1838.1% of the total issued and outstanding shares of Value Exchange International Inc.
Accordingly, the Company in total holds more than 50% of Smart Reward, and SwartSmart Reward is consolidated in the Company’s financial statements.
| ** | Hapi Cafe Limited (“HCHK”) was incorporated in Hong Kong on July 5, 2022 with an issued and paid-up share capital of HK$2 comprising ordinary shares. HCHK plans to be principally engaged in the food and beverage business in Hong Kong. |
HotApp BlockChain Pte. Ltd. is the owner of 100% of the issued and outstanding shares of HCHK. This business was acquired on September 5, 2022.
| *** | MOC HK Limited (“MOC”) was incorporated in Hong Kong on February 16, 2020 with an issued and paid-up share capital of HK$10 comprising ordinary shares. MOC plans to be principally engaged in the food and beverage business in Hong Kong Hapi Cafe Ltd. is the owner of 100% of the issued and outstanding shares of MOC. This business was acquired on October 5, 2022. And during the acquisition, a goodwill $60,343 had been generated for the Company. |
| **** | Shenzhen Leyouyou Catering Management Co., Ltd. (“HCCN”) was incorporated in People’s Republic of China on October 10, 2022. HCCN plans to be principally engaged in the food and beverage business in Mainland China. |
Hapi Cafe Ltd. is the owner of HCCN. This business was acquired on October 10, 2022.
| ***** | Hapi Metaverse Inc. was incorporated in Texas on November 28, 2022 with an issued and paid-up share capital of $0.1 comprising ordinary shares. |
| ****** | Dongguan Leyouyou Catering Management Co., Ltd. (“HCDG”) was incorporated in People’s Republic of China on March 1, 2023. HCDG plans to be principally engaged in the food and beverage business in Mainland China. |
HCCN is the owner of HCDG. This business was acquired on March 1, 2023.
Use of estimates
The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues, cost and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s condensed consolidated financial statements include revenue recognition, the useful lives and impairment of property and equipment, valuation allowance for deferred tax assets.
| 10 |
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. There were 0no cash equivalents as of March 31, 20222023 and December 31, 2021.2022.
Leases
The Company follows Accounting Standards Update (“ASU”) 2016-02 (FASB ASC Topic 842) in accounting for its operating lease right-of-use assets and operating lease liabilities. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is or contains a lease, the Company assess whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset. The right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease expenses on a straight-line basis over the lease term.
Right-of-use of assets
The right-of-use of asset is measured at cost, which comprises the amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received.
Lease liabilities
Lease liability is measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise mainly fixed lease payments.
Foreign currency risk
Because of its foreign operations, the Company holds cash in non-US dollars. As of March 31, 2022,2023, cash and cash equivalents of the Group includes, on an as converted basis to US dollars, $51,337255,503, $10,724 and $10,6256,079 in Hong Kong Dollars (“HK$”) and, Singapore Dollars (“S$”) and Chinese Yuan (“¥”), respectively. As of December 31, 2021,2022, cash and cash equivalents of the Group include,includes, on an as converted basis to US dollars, $86,398359,266, and $10,75710,719, in Hong Kong Dollars (“HK$”), and Singapore Dollars (“S$”), respectively.
Investment Securities
Investments represent equity investments with readily determinable fair values.
The Company account for investments in equity securities that have readily determinable fair values are measured at fair value, with unrealized gains and losses from fair value changes recognized in net income in the condensed consolidated statements of comprehensive income.
Equipment
Property and equipment are recorded at cost, less depreciation. Repairs and maintenance are expensed as incurred. Expenditures incurred as a consequence of acquiring or using the asset, or that increase the value or productive capacity of assets are capitalized (such as removal, and restoration costs). When property and equipment is retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Depreciation is computed by the straight-line method (after considering their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
SCHEDULE OF ESTIMATED USEFUL LIVES OF ASSETS
| Computer equipment | 3 years | |
| Leasehold improvement | 3 years |
Concentrations
Financial instruments that potentially expose the Group to concentration of credit risk consist primarily of cash. Although the cash at each particular bank in the United States is insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), the Group exposesis exposed to risk due to its concentration of cash in foreign countries. The Group places its cash with financial institutions with high-credit ratings and quality.
Fair value
Fair Value of Financial Instruments
The carrying value of cash, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the condensed consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
| ● | Level 1 - quoted prices in active markets for identical assets and liabilities; | |
| ● | Level 2 - observable market based inputs or unobservable inputs that are corroborated by market data; and | |
| ● | Level 3 - significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
Revenue recognition
Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services or catering service to customers. The Company adopted this new standard on January 1, 2018 under the modified retrospective method. The adoption did not have a material effect on our financial statements.
Revenue is recognized when (or as) the Company transfers promised goods or services or catering service to its customers in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services, which occurs when (or as) the Company satisfies its contractual obligations and transfers over control of the promised goods or services or catering service to its customers. Costs to obtain or fulfill a contract are expensed as incurred.
The Company began generating revenue from f&b business by providing quality catering service and a project providing services to Value Exchange Int’l (Hong Kong) Limited, a subsidiary of Value Exchange International, Inc. (“VEII”) located in Hong Kong, on a monthly basis in 2022. VEII is a related party of the Company. Upon receipt of purchase order from this customer, we issue the corresponding invoice and provide the service accordingly. Any payment received from this customer in advance is presented within other payables on the Company’s condensed consolidated balance sheets.
Income taxes
Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the condensed consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as non-current based on their characteristics.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Group did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the period ended March 31, 20222023 or 2021,2022, respectively.
Foreign currency translation
Items included in the financial statements of each entity in the group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”).
The functional and reporting currency of the Company is the United States dollar (“U.S. dollar”). The financial records of the Company’s subsidiaries located in Singapore, and Hong Kong and Mainland China are maintained in their local currencies, the Singapore Dollar (S$) and, Hong Kong Dollar (HK$) and Chinese Yuan (CN ¥), which are also the functional currencies of these entities.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the functional currency during the year are converted into functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the statement of operations.
| 12 |
The Company’s entities with functional currency of Singapore Dollar, Hong Kong Dollar and Singapore Dollar,Chinese Yuan, translate their operating results and financial positions into the U.S. dollar, the Company’s reporting currency. Assets and liabilities are translated using the exchange rates in effect on the balance sheet date. Revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of comprehensive income (loss).
For the three months ended March 31, 2023, the Company recorded other comprehensive loss from translation loss of $18,067 in the condensed consolidated financial statements. For the three months ended March 31, 2022, the Company recorded other comprehensive income from translation gain of $16,930 in the condensed consolidated financial statements. For the three months ended March 31, 2021, the Company recorded other comprehensive income from translation gain of $63,278 in the condensed consolidated financial statements.
Comprehensive income (loss)
Comprehensive income (loss) includes gains (losses) from foreign currency translation adjustments. Comprehensive income (loss) is reported in the condensed consolidated statements of operations and comprehensive loss.
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to stockholders by the weighted average number of shares outstanding during the year.
As of March 31, 2022,2023, there are no potentially dilutive securities that were excluded from the computation of diluted EPS.
Non-controlling interests
Non-controlling interests represent the equity in a subsidiary not attributable, directly or indirectly, to owners of the Company, and are presented separately in the condensed consolidated statements of operation and comprehensive income, and within equity in the Condensed Consolidated Balance Sheets, separately from equity attributable to owners of the Company.
On March 31, 20222023 and December 31, 2021,2022, the aggregate non-controlling interests in the Company were $(1,623(2,039)) and $(1,618(1,851)), respectively.
Recent accounting pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
Note 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued expenses and other current liabilities consisted of the following:
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| March 31, | December 31, | March 31, | December 31, | |||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Accrued payroll | $ | 626 | $ | 321 | $ | 2,491 | $ | 3,309 | ||||||||
| Accrued professional fees | 24,710 | 11,185 | 61,726 | 18,905 | ||||||||||||
| Other | 2,216 | 3,103 | ||||||||||||||
| Other account payable and accrued expenses | 21,542 | 2,387 | ||||||||||||||
| 7,679 | 7,838 | |||||||||||||||
| Total | $ | 27,552 | $ | 14,609 | $ | 93,438 | $ | 32,439 | ||||||||
Note 4. PROPERTY AND EQUIPMENT, NET
Property and Equipment, net consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Cost | ||||||||
| Leasehold improvement | $ | 11,266 | $ | 11,266 | ||||
| Computer equipment | 5,685 | 5,685 | ||||||
| Total cost | $ | 16,951 | $ | 16,951 | ||||
| Less: accumulated depreciation # | ||||||||
| Leasehold improvement # | $ | 9,691 | $ | 4,840 | ||||
| Computer equipment # | 2,302 | 1,806 | ||||||
| Total accumulated depreciation # | $ | 11,993 | $ | 6,646 | ||||
| NBV at the end of year | ||||||||
| Leasehold improvement | $ | 1,575 | $ | 6,426 | ||||
| Computer equipment | 3,383 | 3,879 | ||||||
| Total NBV | $ | 4,958 | $ | 10,305 | ||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Computer equipment | $ | 1,990 | $ | 1,990 | ||||
| Less: accumulated depreciation | 441 | 277 | ||||||
| Total | $ | 1,549 | $ | 1,713 | ||||
| # | –Total of depreciation expenses charged for the three months ended March 31, 2023 and 2022 were $5,284 and $165,respectively.Property and equipment, net, is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. |
Note 5. INVESTMENT IN RELATED PARTY
TheIn April of 2021, the Company acquired shares of Value Exchange International, Inc.’s common sharesstock for an aggregate subscription price of $650,000. On October 17, 2022, the Company entered into a Stock Purchase Agreement (the “Agreement”) with Chan Heng Fai, who is the Chairman of the Company’s Board of Directors and the Chairman, Chief Executive Officer and largest stockholder of Alset Inc., the Company’s majority stockholder. Pursuant to the Agreement, the Company bought an aggregate of shares of Value Exchange International, Inc. with an aggregate purchase price of $1,743,734.12. Financial assets measured at fair value on a recurring basis are summarized below and disclosed on the condensed consolidated balance sheet as of March 31, 2023 and December 31, 2022:
SCHEDULE OF INVESTMENT
| Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||||||||||||||
| Fair Value Measurement Using | Amount at | Fair Value Measurement Using | Amount at | |||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||||||||
| March 31, 2023 | ||||||||||||||||||||||||||||||||
| Asset | ||||||||||||||||||||||||||||||||
| Investment Securities – Fair Value | $ | 1,495,000 | $ | - | $ | - | $ | 1,495,000 | $ | 1,308,735 | $ | - | $ | - | $ | 1,308,735 | ||||||||||||||||
| Total Investment in securities at Fair Value | $ | 1,495,000 | $ | - | $ | - | $ | 1,495,000 | $ | 1,308,735 | $ | - | $ | - | $ | 1,308,735 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| December 31, 2021 | ||||||||||||||||
| Asset | ||||||||||||||||
| Investment Securities – Fair Value | $ | 1,950,000 | $ | - | $ | - | $ | 1,950,000 | ||||||||
| Total Investment in securities at Fair Value | $ | 1,950,000 | $ | - | $ | - | $ | 1,950,000 | ||||||||
The change in fair value of investment securities during the three months ended March 31, 2022 was $455,000, and was recorded as unrealized (loss) on securities investment in the condensed consolidated statements of operations and comprehensive loss.
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| December 31, 2022 | ||||||||||||||||
| Asset | ||||||||||||||||
| Investment Securities – Fair Value | $ | 2,341,948 | $ | - | $ | - | $ | 2,341,948 | ||||||||
| Total Investment in securities at Fair Value | $ | 2,341,948 | $ | - | $ | - | $ | 2,341,948 | ||||||||
Note 6. RELATED PARTY BALANCES AND TRANSACTIONS
Effective as of September 1, 2020, Chan Heng Fai resigned as the Acting Chief Executive Officer of the Company, and the Company’s Board of Directors appointed Lee Wang Kei (“Nathan”) as the Company’s Chief Executive Officer. Alset International Limited (“AIL”) is the Company’s former majority stockholder. On August 30, 2022, Alset International Limited entered into a stock purchase with its controlling stockholder, Alset Inc. (formerly known as Alset EHome International Inc.) in relation to the disposal of shares of the Company’s common stock, representing approximately 99.69% of the total issued and paid-up share capital of the Company, to Alset Inc. After this transaction, Alset Inc. became our largest stockholder. Chan Heng Fai, the Executive Chairman of the Company’s Board of Directors, is also the Chief Executive Officer and a memberChairman of AIL’sAlset Inc.’s Board, of Directors, as well as the majority stockholder of AIL.Alset Inc. Lui Wai Leung Alan, the Company’s Chief Financial Officer, is also the Executive Director and ChiefCo-Chief Financial Officer of AIL. BothAlset Inc. Chan Heng Fai is compensated by Alset Inc. and Alset International Limited. Lui Wai Leung Alan areis compensated by AIL, the Company’s majority stockholder.Alset International Limited. Our Chief Executive Officer, Lee Wang Kei, is paid $2,000 per month by HotApp International Limited, a subsidiary of the Company. AILAlset Inc. has provided staff to our Company without charge since becoming our majority stockholder.
The Company sold one of its subsidiaries, HWH World Pte. Limited, to Health Wealth Happiness Pte. Ltd (a subsidiary of former majority stockholder Alset International Limited) for consideration of S$ on April 18, 2022. The Company has acquired a company, Hapi Cafe Limited, from Chan Heng Fai (the majority stockholder of Alset Inc.) for consideration of S$ on September 5, 2022. Hapi Cafe is a coffee shop chain initiative in China, Hong Kong and Taiwan consisting of a four-in-one concept, comprising a coffee shop, co-working place, travel, and metaverse show case. Hapi Metaverse technology will be utilized by the Hapi Cafe membership program.
The Company has a project with an affiliate (a subsidiary of Value Exchange International, Inc.) that commenced in 2022. Value Exchange International, Inc. provides IT services and solutions for customers in Asia, covering Helpdesk, Managed Operations, Systems Integration, and Consulting Services. The project has generated unpaid revenue under account receivable of $14,040, an interest receivable from VEII for $11,047, a receivable including customer’s deposit and prepayment of $2,784 and a payable of $7,679 from the affiliate. As of March 31, 2022,2023, the Company has an amount due to AILAlset Inc. of $, Alset International Limited of $, an amount due to fellow subsidiaries of $, an amount due to director of $ plus an amount due to an associated company of AILAlset International Limited of $. As of December 31, 2021,2022, the Company has an amount due to AILAlset Inc. of $, Alset International Limited of $, an amount due to fellow subsidiaries of $, an amount due to director of $ plus an amount due to an associated company of AILAlset International Limited of $. The above amounts due to related parties were interest free and no repayment schedule and deadline have been adopted.
| 14 |
On January 27, 2023, the Company and New Electric CV Corporation (together with the Company, the “Lenders”) entered into a Convertible Credit Agreement (the “Credit Agreement”) with Value Exchange International, Inc. (“Value Exchange”), a Nevada corporation. The Credit Agreement provides Value Exchange with a maximum credit line of $1,500,000 (“Maximum Credit Line”) with simple interest accrued on any advances of the money under the Credit Agreement at 8%. The principal amount of any advance of money under the Credit Agreement (each being referred to as an “Advance”) is due in a lump sum, balloon payment on the third annual anniversary of the date of the Advance (“Advance Maturity Date”). Accrued and unpaid interest on any Advance is due and payable on a semi-annual basis with interest payments due on the last business day of June and last business day of December of each year. A Lender may demand that any portion or all of the unpaid principal amount of any Advance as well as accrued and unpaid interest thereon may be paid by shares of Value Exchange Common Stock in lieu of cash payment. As of March 31, 2023, $1,400,000.00 credit was advanced, and interest income of $11,047 is included in interest income for the three months ended March 31, 2023. Alset Inc acted as an intermediary to pay the money directly to VEII, A corresponding note payable to Alset Inc. was entered into in connection with this transaction. See the following paragraph for a description of the note payable to Alset Inc.
On February 23, 2023, the Company and Alset Inc., a Texas corporation (NASDAQ: AEI) (“Alset”) entered into a Subscription Agreement (the “Subscription Agreement”). Pursuant to the Subscription Agreement, the Company has borrowed $1,400,000.00 (the “Loan Amount”) from Alset in exchange for a Convertible Promissory Note (the “Note”). The term of the Note is three years with simple interest at a rate of 8% percent per annum. Alset may require repayment upon 30 days’ notice. The Company shall be entitled to repay all or any portion of the Loan Amount to Alset early and without penalty. As of March 31, 2023, $1,400,000.00 remains unpaid, and interest expense of $11,047 is included in interest expense for the three months ended March 31, 2023.
Note 7. DISCONTINUED OPERATIONS
Director’s resolutions of HotApp Blockchain Pte Limited passed on April 18, 2022 for the disposal of its investments of shares in HWH World Pte. Limited, representing 100% of the share capital of HWH World Pte. Limited, for a consideration amount of S$. The shares were disposed to Health Wealth Happiness Pte. Ltd, a subsidiary of Alset International Limited.
There were no assets or liabilities included in discontinued operations as of March 31, 2023 and December 2022.
The aggregate financial results of discontinued operations were as follows:
SCHEDULE OF AGGREGATE FINANCIAL RESULT DISCONTINUED OPERATION
Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |||||||
| Operating expenses: | ||||||||
| General and administrative | $ | - | $ | 651 | ||||
| Total operating expenses | - | 651 | ||||||
| Income (Loss) from operations | (651 | ) | ||||||
| Income (Loss) from discontinued operations | $ | - | $ | (651 | ) | |||
Note 8. GOODWILL
The Company continually evaluates potential acquisitions that align with the Company’s plans, namely, starting the f&b business in Asia. Starting an f&b business in Hong Kong, China, and Taiwan can be an excellent opportunity due to the large consumer market, diverse food culture, high demand for international cuisine, favorable business environment, skilled labor force, and opportunities for growth. On October 4, 2022, The Company has completed its first f&b business acquisition of MOC HK Limited, a f&b business started in Hong Kong. The accompanying consolidated financial statements include the operations of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date.
As a result of the acquisition of MOC, goodwill of $60,343 generated in a business combination represents the purchase price of $70,523 in excess of identifiable tangible and intangible assets. Goodwill and intangible assets that have an indefinite useful life are not amortized. Instead they are reviewed periodically for impairment.
| 15 |
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed during the period resulted in no impairment losses.
The table below reflects the Company’s estimates of the acquisition date fair value of the assets acquired and liabilities assumed for the 2022 acquisition
SCHEDULE OF FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
| MOC | ||||
| Purchase Price | ||||
| Cash | $ | 70,523 | ||
| Total purchase consideration | 70,523 | |||
| Purchase Price Allocation | ||||
| Assets acquired | ||||
| Current assets | 32,700 | |||
| Property and Equipment, net | 11,266 | |||
| Operating lease right-of-use assets, net | 114,232 | |||
| Total assets acquired | 158,198 | |||
| Liabilities assumed: | ||||
| Current liabilities | (33,437 | ) | ||
| Operating lease liability | (114,232 | ) | ||
| Accrued taxes | (349 | ) | ||
| Total liabilities assumed | (148,018 | ) | ||
| Net assets acquired | 10,180 | |||
| Goodwill | 60,343 | |||
| Total purchase consideration | $ | 70,523 | ||
The following table summarizes changes in the carrying amount of goodwill at March 31, 2023 and December 31, 2022
SCHEDULE OF GOODWILL
| March 31, 2023 | December 31, 2022 | |||||||
| Balance as beginning of the period/year | $ | 60,343 | $ | - | ||||
| Acquisitions | - | 60,343 | ||||||
| Foreign currency exchange adjustment | (389 | ) | - | |||||
| Balance as of end of the period/year | $ | 59,954 | $ | 60,343 | ||||
Note 9. LEASES
The Company has operating leases for its f&b stores and warehouse in Hong Kong. The related lease agreements do not contain any material residual value guarantees or material restrictive covenants. Since the Company’s leases do not provide an implicit rate that can be readily determined, management uses a discount rate based on the incremental borrowing rate. The Company’s weighted-average remaining lease term relating to its operating leases are 1.72 years, with a weighted-average discount rate of the 2.9%.
The current portion of operating lease liabilities and the non-current portion of operating lease liabilities are presented on the balance sheets. Total lease expenses amounted to $2,014 and $0 which was included in general and administrative expenses in the statements of operations for the three months ended March 31, 2023 and 2022, respectively. Total cash paid for operating leases amounted to $18,918 and $0 for the three months ended March 31, 2023 and 2022, respectively. Supplemental balance sheet information related to operating leases was as follows (in $):
SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO OPERATING LEASES
| March 31, 2023 | December 31, 2022 | |||||||
| Right-of-use assets | $ | 264,817 | $ | 129,478 | ||||
| Lease liabilities - current | 108,398 | 71,899 | ||||||
| Lease liabilities - non-current | 159,233 | 59,196 | ||||||
| Total lease liabilities | $ | 267,631 | $ | 131,095 | ||||
As of March 31, 2023, the aggregate future minimum rental payments under non-cancelable agreement are as follows (in $):
SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS UNDER NON-CANCELABLE AGREEMENT
| Maturity of Lease Liabilities | Total | |||
| 12 months ended March 31, 2024 | $ | 117,118 | ||
| 12 months ended March 31, 2025 | 165,983 | |||
| Total undiscounted lease payments | 283,101 | |||
| Less: Imputed interest | (15,470 | ) | ||
| Present value of lease liabilities | $ | 267,631 | ||
| Operating lease liabilities - Current | 108,398 | |||
| Operating lease liabilities - Non-current | $ | 159,233 | ||
Note 7.10. SUBSEQUENT EVENTS
Directors’ resolutionsOn April 24, 2023, the Company completed the issuance of HWH World Pte. Ltd passed on April 18, 2022shares of the Company’s common stock to certain individuals for services rendered to the approval of transfer of shares from Hotapp Blockchain Pte. LtdCompany. The share-based compensation related to Health Wealth Happiness Pte. Ltd for a consideration price of S$this share issuance is approximately $.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:
1. our future operating results;
2. our business prospects;
3. any contractual arrangements and relationships with third parties;
4. the dependence of our future success on the general economy;
5. any possible financings; and
6. the adequacy of our cash resources and working capital.
These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of filing of this Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.
The coronavirus or other adverse public health developments could have a material and adverse effect on our business operations, financial condition and results of operations
In December 2019, a novel strain of coronavirus (COVID-19) was first identified in Wuhan, Hubei Province, China, and has since spread to a number of other countries, including the United States. The COVID-19 pandemic’s far-reaching impact on the global economy could negatively affect various aspects of our business. The extent to which the COVID-19 pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted.
The COVID-19 pandemic may adversely impact our potential to expand our business activities. The COVID-19 pandemic has impacted, and may continue to impact, the global supply of certain goods and services in ways that may impact the sale of products to consumers that we, or companies we may partner with, will attempt to make. The COVID-19 pandemic may prevent us from pursuing otherwise attractive opportunities.
In addition, the COVID-19 pandemic could directly impact the ability of our management and service providers to continue to work, and our ability to conduct our operations in a prompt and efficient manner. Our management has shifted to mostly working from home since March 2020, but this has had minimal impact on our operations to date. However our management’s ability to travel has been significantly limited, and limitations on the mobility of our management may slow down our ability to enter into new transactions and expand existing projects.
Background and business
GigWorldHapi Metaverse Inc., formerly known as HotApp BlockchainGigWorld Inc. (the “Company” or “Group”), was incorporated in the State of Delaware on March 7, 2012. The Company’s initial business plan was to be a financial acquisition intermediary which would serve buyers and sellers for companies that are in highly fragmented industries. Our Board determined it was in the best interest of the Company to expand our business plan. On October 15, 2014, through a sale and purchase agreement, the Company acquired all the issued and outstanding stock of HotApp BlockChain Pte. Ltd., formerly known as HotApps International Pte Ltd (“HIP”) from Alset International Limited (“AIL”), formerly known as Singapore eDevelopment Limited. AIL is presently our former largest stockholder. HIP owned certain intellectual property relating to instant messaging for portable devices (referred to herein as the “HotApp Application”). On August 30, 2022, Alset International Limited entered into a stock purchase with its controlling stockholder, Alset Inc. (formerly known as Alset EHome International Inc.) in relation to the disposal of 505,341,376 shares of the Company’s common stock, representing approximately 99.69% of the total issued and paid-up share capital of the Company, to Alset Inc. After this transaction, Alset Inc. became our largest stockholder.
The HotApp Application is a cross-platform mobile application that incorporates instant messaging and ecommerce. This application can be used on any mobile platform (i.e. IOS Online or Android). The HotApp Application offered messaging and calling services for HotApp Application users (text, photo, audio); however, the messaging and calling services we offered were terminated in 2017.
In December of 2017, the Company’s name was changed from “HotApp International, Inc.” to “HotApp Blockchain Inc.” to reflect the Board of Directors’ determination that it was in the best interest of the Company to expand its activities to include the development and commercialization of blockchain-related technologies. One area we are presently exploring is providing technology consulting for security token offerings (“STO”). Such services, which have not yet commenced commercially, would include STO white paper development, technology design and web development. We intend to outsource certain aspects of these projects to potential partners we have identified. We have no plans to launch our own token offering, but rather may develop technologies that could facilitate such offerings by other companies.
In 2018, one of our main developments was a broadening of our scope of planned operations into a digital transformation technology business. As a digital transformation technology business, we are committed to enabling enterprises we work with to engage in a digital transformation by providing consulting, implementation and development services with various technologies, including instant messaging, blockchain, e-commerce, social media and payment solutions. We continue to advise businesses in network marketing and brands in block chain services and mobile collaboration.
We are focused on serving business-to-business (B2B) needs in e-commerce, collaboration and supply chains. We will help enterprises and community users to transform their business model with digital economy in a more effective manner. With our platform, users can discover and build their own communities and create valuable content. Enterprises can in turn enhance the user experience with premium content, all of which are facilitated by the transactions of every stakeholder via e-commerce.
| 17 |
Our technology platform consists of instant messaging systems, social media, e-commerce and payment systems, network marketing platforms and e-real estate. We are focused on business-to-business solutions such as enterprise messaging and workflow. We have successfully implemented several strategic platform developments for clients, including a mobile front-end solution for network marketing, a hotel e-commerce platform for Asia and a real estate agent management platform in China. We have also enhanced our technological capability from mobile application development to include blockchain architectural design, allowing mobile-friendly front-end solutions to integrate with software platforms. Our main digital assets at the present time are our applications. We continue to strengthen our technology architecture and develop Application Development Interface (API) for collaboration partners such as network marketing back end service providers. In addition we are continuing our development activities in blockchain preparingin order to prepare for future clientsclient opportunities.
In January 2017, we entered into a revenue-sharing agreement with iGalen, a network marketing company selling health products (AIL, our former majority stockholder, was a significant stockholder of iGalen). Under the agreement, we customized a secure app for iGalen’s communication and management system. The app enables mobile friendly backendback-end access for iGalen Inc. members, among other functions. We are continuing to improve this secure app. In particular, we intend to utilize blockchain supply logistics to improve its functions (the original iGalen app did not utilize the latest distributed ledger technology). Once the improvements to this technology are completed, and initially utilized by iGalen, We intend to then attempt to sell similar services to other companies engaged in network marketing, as members of our management have a particular experience offering services to that industry and we believe our solutions are particularly suited to that industry’s needs. This app can be modified to meet the specific needs of any network marketing company. We believe that these technologies will, among other benefits, make it easier for network marketing companies to securely and effectively manage their systems of compensation. Our current plan is to commence sales of this technology in 2022.2023.
In February of 2021, the Company’s name was changed to “GigWorld Inc.”
The direct selling industry has been adopting gig economy practices and relying heavily on digital marketing technology in team development and customer engagement. We have positioned ourselves to serve the growing demand in the transformation of the direct selling industry towards the gig economy.
The Group has relied significantly on AIL, our former majority stockholder, as its principal sources of funding during the period. AIL, hasand later, our current majority stockholder, Alset Inc., advised us not to depend solely on it for financing. We have increased our efforts to raise additional capital through equity or debt financings from other sources. However, we cannot be certain that such capital (from our stockholders or from third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such, financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth.
On April 8, 2021, the Company entered into a Securities Purchase Agreement with Value Exchange International, Inc., a Nevada corporation (“VEII”) pursuant to which the Company purchased 6.5 million restricted shares of VEII Common Stock from VEII for an aggregate purchase price of $650,000. The closing of the transaction occurred on April 12, 2021. The Company presently owns approximately 18% of the total issued and outstanding shares of Value Exchange International Inc. Pursuant to this Securities Purchase Agreement, the Company was entitled to appoint one nominee to the Board of Directors of VEII. The Company appointed Mr. Lum Kan Fai as its nominee. Mr. Lum is the Vice Chairman of the Company’s Board of Directors. VEII is a provider of customer-centric technology solutions for the retail industry in Hong Kong and certain regions of China and Philippines. On October 17, 2022, the Company entered into a Stock Purchase Agreement (the “Agreement”) with Chan Heng Fai, who is the Chairman of the Company’s Board of Directors and the Chairman, Chief Executive Officer and largest stockholder of Alset Inc., the Company’s majority stockholder. Pursuant to the Agreement, the Company bought an aggregate of 7,276,163 shares of VEII. The Company presently owns approximately 38.1% of the total issued and outstanding shares of Value Exchange International Inc.
In July of 2021, the Company’s indirect subsidiary HotApp International Limited incorporated Smart Reward Express Limited (“Smart Reward”) in Hong Kong. Smart Reward plans to be principally engaged in the business of developing a platform allowing small and medium sized merchants to set-up their own reward program, with the aim of creating a loyalty exchange program for participating merchants.
HotApp International Limited is the owner of 50% of the issued and outstanding shares of Smart Reward. The remaining 50% of the issued and outstanding shares of Smart Reward are held by Value Exchange Int’l (China) Limited, a wholly-owned subsidiary of VEII.
| 18 |
In September of 2022, the Company’s subsidiary HotApp BlockChain Pte. Ltd. acquired Hapi Cafe Ltd. (“HCHK”) in Hong Kong and plans to be principally engaged in the food and beverage business in Hong Kong and Mainland China. Afterward HCHK acquired MOC HK Ltd. (“MOC”) in Hong Kong and incorporated Shenzhen Leyouyou Catering Management Co., Ltd. (“HCCN”) in Mainland China respectively in October 2022, MOC focused on operating café business and HCCN targeting develop f&b business in Mainland China.
In March of 2022, the Company’s indirect subsidiary HCCN acquired Dongguan Leyouyou Catering Management Co., Ltd. (“HCDG”) in People’s Republic of China, running its first café in Mainland China.
In March of 2023, the Company’s name was changed to “Hapi Metaverse Inc.”
Trends in the Market and Our Opportunity
The gig economy has become very appealing to those seeking flexibility in how and when they work. Technology has been a key driver along with reducing complexity to simplicity in how work is done and how the worker is compensated.
Technology has changed pretty much every aspect of a business, opening up work opportunities for those who want to work in the gig economy. This change has also helped employers increase profitability because they only have to only hire workers when they need them.
While there is no universal definition of a gig worker, making them a difficult cohort to categorize, some estimates predict that gig workers represent around 35 percent of the U.S. workforce in 2020, up from between 14 and 20 percent in 2014.
That means roughly 57 million Americans currently engage in some type of gig work that contributes more than $1 trillion to the U.S. economy annually. Those figures are only expected to grow, with some predicting that freelance workers will make up more than half of the U.S. workforce by 2023.
Based upon the above trends, we believe significant opportunities exist for:
| ● | As the world starts to more fully embrace the new way of working after the pandemic, talent leaders must plan for this inevitable shift and find new ways to support workers to ensure the gig economy’s long-term viability. |
| ● | Technology has made the workforce digital, and jobs are changing to compensate. People who work as gig workers often don’t work at a company’s site and instead work at home, in coffee shops, and other places. They communicate with potential employers mostly via email, messaging apps and collaboration tools. These workers find potential gigs on job boards or through their networking efforts. |
| ● | Industries such as Network Marketing, affiliate marketing and Hospitality and Franchising businesses are utilizing Mobile friendly solutions to reach out effectively to their marketing network on a global basis. |
| ● | Loyalty programs integrated with Point of Sales systems, retail applications and smart vending machines |
Our Plan of Operations and Growth Strategy
We believe that we have significant opportunities to further enhance the value we deliver to our users. We intend to pursue the following growth strategy:
| ● | focus in developing technologies enabling enterprise to capture the gig economy |
| ● | partner with technology providers offer services for membership management, ecommerce, loyalty reward management, |
| ● | identify solutions and licensing opportunities in accelerating the digital transformation for direct selling, affiliate marketing, travel membership and O2O (online-to-offline) eCommerce operations. |
Results of Operations
Summary of Key Results
For the unaudited three months period ending March 31, 20222023 and 20212022
Revenue
The Company had no revenue duringRevenue consists primarily of the services rendered to customers in the amount of $14,040 and $0, respectively, for the three months ended March 31, 20222023 and 2021.2022.The Company began generating revenue from a project providing AI chatbot services to Value Exchange Int’l (Hong Kong) Limited, a related company of the company and a subsidiary of VEII located in Hong Kong, on a monthly basis in 2022. Additional revenue also generated from f&b business, MOC and HCDG, HCDG acquired on March 1, 2023 was $48,523. Total revenues were $62,563 and $0, respectively, for the three months ended March 31, 2023 and 2022.
Cost of revenue
Cost of revenue consists primarily of outside service fees incurred directly to the project. The cost from f&b revenue were $18,980 and $0 respectively, for the three months ended March 31, 2023 and 2022, of which $4,813 and $0 were depreciation for leasehold improvement respectively. Total cost of revenue for the three months ended March 31, 2023 and 2022 were $23,548 and 2021 were $0.
| 19 |
General and AdministrativeOperating Expenses
General and administrativeOperating expenses consist primarily of salary and benefits, professional fees, consulting feeexpenses and maintenance expenses of existing software framework. We expect our general and administrative expenses to maintain our operating expenses with moderate changes in line with business activities. Total general and administrativeoperating expenses for the three months ended March 31, 2023 and 2022 were $254,324 and 2021 were $104,321 and $30,128,$103,670, of which $471 and $165 were depreciation expenses and $21,493 and $0 were depreciationrent expense, respectively. The increase was mainly due to the increase in consulting expenses respectively.for the exploration of new project and new market.
Other (Expense) / Income
For the three months ended March 31, 20222023 and 2021,2022, we have incurred $(9,941)$6,347 and $(36,471)$(9,941) in foreign exchange gain / (loss), $(455,000)$11,056 and $1 in interest income, $11,047 and $0 in interest expenses and $ (1,033,212) and $(455,000) in unrealized (loss) on securities investment and $1 and $0 in interest income respectively.
Liquidity and Capital Resources
At March 31, 2022,2023, we had cash of $210,576$410,134 and working capital deficit of $760,566.$(4,706,619).
We had a total stockholders’ deficit of $758,915$3,136,019 and an accumulated deficit of $5,129,699$7,530,845 as of March 31, 20222023 compared with a total stockholders’ deficit of $206,584$1,875,788 and an accumulated deficit of $4,560,449$6,288,884 as of December 31, 2021.2022. This difference is primarily due to the unrealized loss on securities investment during the period.
For the three months ended March 31, 2023, we recorded a net loss of $1,242,164.
We had net cash used in operating activities of $155,034 for the three months ended March 31, 2023. We had a positive change of $10,879 in deposit, prepaid expenses and other receivable, and a positive change of $58,292 due to accounts payable and accrued expenses.
For the three months ended March 31, 2022, we recorded a net loss of $569,261.
We had net cash used in operating activities of $100,825 for the three months ended March 31, 2022. We had a positive change of $327 in deposit, prepaid expenses and other receivable, and a positive change of $12,944 due to accounts payable and accrued expenses.
For the three months ended March 31, 2021, we recorded a net loss of $66,599.
We had net cash used in operating activities of $54,370 for the three months ended March 31, 2021. We had a positive change of $12,229 due to accounts payable2023 and accrued expenses.
For the three months ended March 31, 2022, and 2021, we had no investing activities for the period respectively.
For the three months ended March 31, 2023, we had net cash provided by financial activities of $122,719, of which $122,719 was due to advances from related parties. For the three months ended March 31, 2022, we had net cash provided by financial activities of $55,946, due to advances from related parties.
For the three months ended March 31, 2021, we had net cash provided by financial activities of $14,470which $55,946 was due to advances from related parties.
As of March 31, 2022,2023, we do not have anythe fixed operating office lease agreements.agreements in Hong Kong and the People’s Republic of China.
We will need to raise additional capital through equity or debt financings.financing. However, we cannot be certain that such capital (from AILour largest shareholder or from third parties)party) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing shareholders and could result in significant financial and operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business and pursue our business plan.
Consistent with Section 144We have included disclosures which discuss the matters which create substantial doubt as to whether we will be able to continue to operate as a going concern including the facts that the Company has incurred net operating losses of $7,530,845 from inception though March 31, 2023 and has not yet established an ongoing source of revenue sufficient to cover its operating costs. The ability of the Delaware General Corporation Law,Company to continue as a going concern is dependent on the Company obtaining the adequate capital to fund operating losses until it becomes profitable. If the Company is our current policy that all transactions between us and our officers, directors and their affiliates willunable to obtain adequate capital, it could be entered into only if such transactions are approved by a majority of the disinterested directors, are approved by vote of the stockholders, or are fairforced to us as corporation as of the time it is authorized, approved or ratified by the board. We will conduct an appropriate review of all related party transactions on an ongoing basis.cease operations.
Critical Accounting Policies
Our discussion and analysis of the financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, allowance for doubtful accounts, inventory reserves and income taxes. These policies require that we make estimates in the preparation of our financial statements as of a given date.
| 20 |
Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
Revenue recognition
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The Company adopted this new standard on January 1, 2018 under the modified retrospective method to all contracts not completed as of January 1, 2018 and the adoption did not have a material effect on our financial statements but we expanded our disclosures related to contracts with customers below.
Revenue is recognized when (or as) the Company transfers promised goods or services or catering service to its customers in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services or catering service, which occurs when (or as) the Company satisfies its contractual obligations and transfers over control of the promised goods or services or catering service to its customers. Costs to obtain or fulfill a contract are expensed as incurred.
The Company had nobegan generating revenue forfrom f&b business by providing quality catering service and a project providing services to Value Exchange Int’l (Hong Kong) Limited, a subsidiary of Value Exchange International, Inc.(“VEII”) located in Hong Kong, on a monthly basis in 2022. VEII is a related party of the period ended March 31, 2022Company. Upon receipt of purchase order from this customer, we issue the corresponding invoice and 2021.
Contract assets and contract liabilities
Basedprovide the service accordingly. Any payment received from this customer in advance is presented within other payables on our contracts, we normally invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our contracts do not give rise to contract assets or liabilities under ASC 606. Accounts receivable are recorded when the right to consideration becomes unconditional.Company’s condensed consolidated balance sheets.
Income taxes
Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the condensed consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as non-current based on their characteristics.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Group did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the period ended March 31, 20222023 or 2021,2022, respectively.
Off-Balance Sheet ArrangementsInvestment in Securities - related party
AsThe Company entered into Securities Purchase Agreements with pursuant to which the Company purchased 6,500,000 and 7,276,163 shares of Value Exchange International, Inc., a Nevada corporation (“VEII”) on April 8, 2021 and October 17, 2022 respectively, which are recorded in fair value of $1,308,735 and $2,341,948 at March 31, 2023 and December 31, 2022, respectively. $1,033,212 and $455,000 in unrealized loss were recognized at the Company did not have any off-balance sheet arrangements.three months ended March 31, 2023 and 2022, respectively.
On January 27, 2023, the Company and New Electric CV Corporation (together with the Company, the “Lenders”) entered into a Convertible Credit Agreement (the “Credit Agreement”) with VEII. The Credit Agreement provides VEII with a maximum credit line of $1,500,000 (“Maximum Credit Line”) with simple interest accrued on any advances of the money under the Credit Agreement at 8%. The principal amount of any advance of money under the Credit Agreement (each being referred to as an “Advance”) is due in a lump sum, balloon payment on the third annual anniversary of the date of the Advance (“Advance Maturity Date”). Accrued and unpaid interest on any Advance is due and payable on a semi-annual basis with interest payments due on the last business day of June and last business day of December of each year. A Lender may demand that any portion or all of the unpaid principal amount of any Advance as well as accrued and unpaid interest thereon may be paid by shares of VEII Common Stock in lieu of cash payment.
VEII must request Advances from the Lenders. Either Lender may elect to separately, fully fund the Advance, or both Lenders may jointly elect to fund the Advance based on Lenders’ agreement on the portion of the Advance to be funded by each Lender. Lenders may severally or jointly reject any request for an Advance and neither Lender has an obligation to fund any Advance under the Credit Agreement. Accordingly, the Company will determine how much to loan to VEII pursuant to the Credit Agreement.
| 21 |
The Credit Agreement grants conversion rights to each Lender. Each Advance shall be convertible, in whole or in part, into shares of VEII Common Stock at the option of the Lender who made that Advance (being referred to as a “Conversion”), at any time and from time to time, at a price per share equal the “Conversion Price” (as defined below). The Conversion Price for a Conversion shall be the average closing price of the VEII Common Stock for the three (3) consecutive trading days prior to date of the Notice of Conversion. The Lenders shall also have certain conversion rights upon a change of control of VEII, or a breach of the Credit Agreement by VEII.
In the event that a Lender elects to convert any portion of an Advance into shares of VEII Common Stock in lieu of cash payment in satisfaction of that Advance, then VEII would issue to the Lender five (5) detachable warrants for each share of VEII Common Stock issued in a Conversion (“Warrants”). Each Warrant will entitle the Lender to purchase one (1) share of Common Stock at a per-share exercise price equal to the Conversion Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant.
Our Chairman, Chan Heng Fai, and another member of our Board of Directors, Lum Kan Fai, are both members of the Board of Directors of VEII. In addition to Mr. Chan, two other members of the Board of Directors of our majority stockholder, Alset Inc., are also members of the Board of Directors of VEII (Mr. Wong Shui Yeung and Mr. Wong Tat Keung). The Company currently owns a total of 13,776,163 shares (representing 38.1%) of VEII.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10(f)(1) of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of our Quarterly Report on Form 10-Q, an evaluation was carried out by management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of March 31, 2022.2023. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
During evaluation of disclosure controls and procedures as of March 31, 20222023 conducted as part of our preparation of our interim financial statements, management conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective. Management determined that at March 31, 2022,2023, we had a material weakness in our internal control over financial reporting because our small accounting team, currently furnished by a related-party, manages both bookkeeping and accounting functions and therefore prevents us from segregating duties within our internal control system.
Changes in the Company’s Internal Controls overOver Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any legal proceedings. Management is not aware of any legal proceedings proposed to be initiated against us. However, from time to time, we may become subject to claims and litigation generally associated with any business venture operating in the ordinary course.
ITEM 1A. RISK FACTORS
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.
None.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Convertible Loan from Alset Inc.
On February 23, 2023, the Company and Alset Inc., a Texas corporation (NASDAQ: AEI) (“Alset”) entered into a Subscription Agreement (the “Subscription Agreement”). Pursuant to the Subscription Agreement, the Company has borrowed $1,400,000.00 (the “Loan Amount”) from Alset in exchange for a Convertible Promissory Note (the “Note”). The term of the Note is three years with simple interest at a rate of 8% percent per annum. Alset may require repayment upon 30 days’ notice. The Company shall be entitled to repay all or any portion of the Loan Amount to Alset early and without penalty.
The Note grants Alset conversion rights. Alset may convert the unpaid principal and interest balance of the Note in whole or in part into shares of the Company’s Common Stock at a conversion rate equal to $0.50 per share, at any time prior to the maturity date under the Note. The Company borrowed the Loan Amount to fund loans to Value Exchange International, Inc., pursuant to the Credit Agreement described above.
Share Issuances
On April 24, 2023, the Company completed the issuance of 711,750 shares of the Company’s common stock to certain individuals for services rendered to the Company. In connection with the issuance of these securities, the Company relied upon the exemption from registration provided by Regulation S under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
None.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS
Exhibit Number Description
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ||
| Date: May | By: | /s/ Lee Wang Kei |
| Lee Wang Kei | ||
Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May | By: | /s/ Lui Wai Leung, Alan |
| Lui Wai Leung, Alan | ||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |