1. BASIS OF PRESENTATION GOING CONCERN
The Company specializes in providing e-commerce solutions and services that facilitate multi-channel B2C (business-to-consumer) and B2B (business-to-business) transactions. Its solutions and services enable e-commerce transactions with speed and efficiency, and allow an interactive and engaging customer experience as well as targeted marketing and advertising.
The Companys revenues are generated from one-time integration fees for the implementation of e-commerce solutions as well as recurring license and service fees. The Company currently hosts two e-commerce solutions.
These financial statements of Seratosa Inc. (the Company) have been prepared on a going-concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.
The Company experienced losses during fiscal year ended December 31, 2014 amounting to $255,693, which raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to meet its commitments as they become payable is dependent on the ability of the Company to obtain necessary financing or achieving a profitable level of operations. There are no assurances that the Company will be successful in achieving these goals.
The Company believes that it can continue to receive revenues from its customers. The Company expects to continue utilizing its cost structure by sourcing personnel in Asia for servicing its customers. In order to accelerate the growth of the Company, it will also consider raising additional funding from investors.
These financial statements do not give effect to adjustments to the amounts and classifications to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
We have prepared the unaudited condensed financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) for interim periods. The unaudited condensed financial statements included herein reflect all normal recurring adjustments, which are, in the opinion of our management, necessary to state fairly the results of operations and financial position for the periods presented. The results for the three month period ended March 31, 2015 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2015 or for any interim or future period.
These unaudited condensed financial statements should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and notes thereto included in our Annual Report on Form 10-KA for the fiscal year ended December 31, 2014.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the Companys financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Actual results could differ from those estimates.
CERTAIN RISKS AND UNCERTAINTIES
The Company relies on leased hardware and software from third parties to offer its e-commerce solutions and services. Management believes that alternate sources are available; however, disruption or termination of these relationships could adversely affect our operating results in the near-term. The Company currently has two customers who provide all of the Companys recurring revenue. Loss of any one of these customers would have a significant impact on the Companys revenue.
CASH AND CASH EQUIVALENTS
Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased.
Equipment is carried at cost less a provision for depreciation on a straight-line basis over their estimated useful lives. Estimated useful life of the computer equipment is 3 years.
Certain prior year amounts have been reclassified to conform with current year presentation.
The Company accounts for stock based compensation by recognizing the fair value of stock compensation as an expense in the calculation of net income (loss). The Company recognizes stock compensation expense in the period in which the employee is required to provide service, which is generally over the vesting period of the individual equity instruments. Stock options issued in lieu of cash to non-employees for services performed are recorded at the fair value of the options at the time they are issued and are expensed as service is provided.
LOSS PER SHARE
Basic earnings (loss) per share of common stock is computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share of common stock is computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period, including vested and unvested stock options that are in the money.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companys financial instruments consist of cash, accounts payable, interest payable, shareholder loans and other current liabilities. The carrying values of financial instruments reflected in these financial statements approximate their fair values due to the short-term maturity of the instruments.
The Company recognizes revenue from providing hosting and integration services and licensing the use of its technology platform to its customers. The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer (for licensing, revenue is recognized when the Companys technology is used to provide hosting and integration services); (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of fees is probable. We account for our multi-element arrangements, such as instances where we design a custom website and separately offer other services such as hosting, which are recognized over the period for when services are performed.
COST OF SERVICE
Cost of service results from sourcing technical and engineering personnel in Asia on an hourly or project basis in order to develop e-commerce solutions and provide ongoing hosting services to individual customers. The Company utilizes an outsourced staffing firm with offices in China.
CAPITALIZATION OF SOFTWARE
The Company accounts for internal-use software and website development costs, including the development of its partner marketplaces in accordance with ASC 350-50 ( Intangibles Website cost ). The Company capitalizes internal costs consisting of payroll and direct payroll-related costs of employees who devote time to the development of internal-use software, as well as any external direct costs. It amortizes these costs over their estimated useful lives, which typically range between three to five years. The Companys judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on managements judgment as to the product life cycle. Development cost of various platforms is being expensed. The Company cannot separate internal cost on a reasonably cost-effective basis between maintenance and upgrades, and cannot assess the ongoing value of its various projects, thus all project costs are expensed as such costs are incurred.
Income taxes are provided for using the asset and liability method whereby deferred tax assets and liabilities are recognized using current tax rates on the difference between the
financial statement carrying amounts and the respective tax basis of the assets and liabilities. The Company provides a valuation allowance on deferred tax assets when it is more likely than not that such assets will not be realized.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this standard, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognized interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying statements of operation. Accrued interest and penalties are included within the related tax liability in the balance sheets.
NEW ACCOUNTING PRONOUNCEMENTS
There were various other accounting standards and interpretations recently issued, none of which is expected to have a material impact on the Company's financial position, operations or cash flows.
3. STOCKHOLDERS DEFICIT
Authorized common shares of the Company consist of 10,000,000,000 shares with a par value of $0.00001 each.
As the terms of conversion to equity of the convertible debentures outstanding at December 31, 2014 of $22,080 have lapsed, these have been reclassified as Other payables.
Employee Stock Option Plan
The Company has a stock option and incentive plan, the Stock Option Plan. The exercise price for all equity awards issued under the Stock Option Plan is based on the fair market value of the common share price which is the closing price quoted on the Pink Sheets on the last trading day before the date of grant. The stock options generally vest on a monthly basis over a two-year to three-year period, and have a five year life.
The Stock Option Plan allows for the issuance of stock options, stock awards, or other incentives. An aggregate of 25,000,000 shares are authorized under the Stock Option Plan. As of March 31, 2015, there are 24,590,000 shares reserved for future grants under the Stock Option Plan.
All options outstanding are fully vested as of December 31, 2014 and have all expired at March 31, 2015. No new options were granted in during the three months ended March 31, 2015.
4. RELATED PARTY TRANSACTIONS
Accounts payable and other accruals include $5,000 of accrued salaries due to the Companys Chief Executive Officer as of March 31, 2015 compared to $22,000 due to the former Chief Executive Officer as of December 31, 2014.
5. SUBSEQUENT EVENTS
In accordance with ASC Topic 855, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, we have evaluated significant events and transactions that occurred after March 31, 2015 through the date of the condensed consolidated financial statements were issued and filed with this Form 10-Q. During the period, the Company did not have any material recognizable subsequent events.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
This quarterly report on Form 10-Q and other reports that we file with the SEC contain statements that are considered forward-looking statements. Forward-looking statements give the Companys current expectations, plans, objectives, assumptions or forecasts of future events. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding the Companys future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as anticipate, estimate, plans, potential, projects, ongoing, expects, management believes, we believe, we intend, and similar expressions. These statements are based on the Companys current plans and are subject to risks and uncertainties, and as such the Companys actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. Any or all of the forward-looking statements in this periodic report may turn out to be inaccurate and as such, you should not place undue reliance on these forward-looking statements. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions due to a number of factors, including:
dependence on key personnel;
degree of success of research and development programs;
the operation of our business; and
general economic conditions in the Asia-Pacific Region.
These forward-looking statements speak only as of the date on which they are made, and except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this periodic report.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:
· Seratosa the Company, we, us, or our, are to the business of Seratosa Inc., a Delaware corporation;
· SEC are to the Securities and Exchange Commission;
· Securities Act are to the Securities Act of 1933, as amended;
· Exchange Act are to the Securities Exchange Act of 1934, as amended;
· U.S. dollars, dollars and $ are to the legal currency of the United States.
You should read the following plan of operation together with our financial statements and related notes appearing elsewhere in this quarterly report and the most recent Form 10-K and Form 10-Q. This plan of operation contains forward-looking statements that involve risks, uncertainties, and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors.
Seratosa specializes in providing e-commerce solutions and services that facilitate multi-channel B2C (business-to-consumer) and B2B (business-to-business) transactions. Its solutions and services enable e-commerce transactions with speed and efficiency, and allow an interactive and engaging customer experience as well as targeted marketing and advertising.
The Companys revenues are generated from one-time integration fees for the implementation of e-commerce solutions as well as recurring license and service fees. The Company currently hosts the following existing e-commerce solutions:
1. 4-GS, Ltd. is a B2B e-commerce platform that optimizes supply chain sourcing for international enterprise customers through B2B Search Engine Optimization (SEO), e-catalog and inventory management systems and a transaction platform.
2. ZBL Cybermarketing, Ltd. is a Search Engine Marketing (SEM) and Search Engine Optimization (SEO) provider and utilizes the Companys e-commerce solutions to identify and engage targeted consumer segments and optimize purchase conversions.
3. iMedia, Ltd. is a mobile advertising platform that enables online vendors to reach and engage its customer audience through mobile ads and apps.
Liquidity and Capital Resources
Our registered independent auditors for the year ended December 31, 2014 have issued a going concern opinion as per our most recent Form 10-K and the Company experienced losses during fiscal year 2014 amounting to $255,693. This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital or generate revenues to pay our bills. We believe that we can generate revenues as a provider of e-commerce solutions and services. Our other source for cash at this time is investments by others in the Company. We may need to raise cash to fully implement our projects and stay in business. These financial statements do not give effect to adjustments to the amounts and classifications to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
On March 31, 2015, we had negative working capital of $223,142 compared with negative working capital of $213,768 on December 31, 2014. The decrease in working capital is due to our net loss for the period. Operating activities used nil in cash in the three months ended March 31, 2015 as the operations were on open account basis. There was no movement in Investing activities or Financing activities in the three months ended March 31, 2015.
We may not have enough working capital to complete our plan of operations. If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements or loans. There is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms. If we require additional capital and are unable to raise it, we may have to suspend or cease operations.
We earned revenue from providing hosting and integration services to 4-GS, Ltd., ZBL Cybermarketing, Ltd. and i-Media, Ltd. For all customers, we provide e-commerce solutions with our engineering team and personnel in Asia. We charge 4-GS, ZBL Cybermarketing and i-Media monthly integration and hosting fees plus additional professional fees for project management and consulting. The fee arrangement with those three companies is covered under the strategic partnership agreement with Soconison Technology Ventures, dated July 11, 2011. Soconison Technology Ventures is a shareholder in 4-GS, ZBL Cybermarketing and i-Media.
Results of Operation
Service Revenue was $480,000 and $789,020 for the three months ended March 31, 2015 and 2014, respectively. The decrease is due to recognizing lower revenue from our customers.
Cost of Service
Cost of Service was $475,000 and $542,895 for the three months ended March 31, 2015 and 2014, respectively. The decrease was caused by lower personnel costs required for the development and hosting of e-commerce solutions for our customers.
General and administrative: General and administrative expenses were $14,375 and $278,409 for the three months ended March 31, 2015 and 2014, respectively. The decrease was caused by lower personnel costs required for the development and hosting of e-commerce solutions for our customers.
The Company had a net loss of $9,375 and net income of $ 32,284 for the three months ended March 31, 2015 and 2014, respectively. The net loss for the period was due to the Companys operating expenses.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.