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EX-32.2 - KinerjaPay Corp.ex32-2.htm
EX-32.1 - KinerjaPay Corp.ex32-1.htm
EX-31.2 - KinerjaPay Corp.ex31-2.htm
EX-31.1 - KinerjaPay Corp.ex31-1.htm

 

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2017

 

Commission File Number: 0-55081

 

KinerjaPay Corp.

(Exact name of small business issuer as specified in its charter)

 

Delaware   42-1771817
(State of Incorporation)   (I.R.S. Employer Identification No.)

 

Jl. Multatuli, No.8A, Medan, Indonesia   20151
(Address of Principal Executive Offices)   (ZIP Code)

 

Registrant’s Telephone Number, Including Area Code: +62-819-6016-168

 

Securities Registered Pursuant to Section 12(g) of The Act: Common Stock, $0.0001, par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Check this box to indicate whether the company has submitted electronically and posted on its corporate website every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the company was required to submit and post such files). Yes [X] No [  ]

 

On June 30, 2017, the aggregate market value of the 8,611,036 shares of common stock held by non-affiliates of the Registrant was approximately $10,333,243 based on the last trade of the Registrants common stock at $1.20 on June 30, 2017. On April 19, 2018, the Registrant had 13,542,207 shares of common stock outstanding.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act) or a smaller reporting company.

 

Large accelerated filer [  ] Accelerated filer [  ] Non-Accelerated filer [  ] Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

 

 

   
 

 

TABLE OF CONTENTS

 

    Page
PART I
Item 1 Business 3
Item 1A Risk Factors 9
Item 1B Unresolved Staff Comments 19
Item 2 Properties 19
Item 3 Legal Proceedings 19
Item 4 Mine Safety Disclosure 19
PART II  
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19
Item 6 Selected Financial Data 22
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation 22
Item 7A Quantitative and Qualitative Disclosures About Market Risk. 24
Item 8 Financial Statements and Supplementary Data 25
Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 26
Item 9A(T) Controls and Procedures 26
Item 9B Other Information 26
PART III  
Item 10 Directors, Executive Officers and Corporate Governance 27
Item 11 Executive Compensation 28
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 29
Item 13 Certain Relationships and Related Transactions, and Director Independence 29
Item 14 Principal Accountant Fees and Services 30
PART IV  
Item 15 Exhibits and Financial Statement Schedules 31

 

2

 

 

PART I

 

Item 1. Business.

 

As used in this Annual Report on Form 10-K (this “Report”), references to the “Company,” the “Registrant,” “we,” “our,” “us” or “KinerjaPay Corp”, unless the context otherwise indicates.

 

Forward-Looking Statements

 

This Report contains forward-looking statements. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “continue” or the negative of these similar terms.

 

Corporate Developments Since Inception

 

The Company was incorporated in Delaware on February 12, 2010 under the name Solarflex Corp. for the purpose of developing, manufacturing and selling a solar photovoltaic element, a device that converts light into electrical flow (also known as a photovoltaic cell) based on certain proprietary technology to enable an increase in solar energy conversion and provide energy at a lower cost.

 

Its business plan was to use the Equipment to: (i) develop a working prototype of its photovoltaic cell for testing and evaluation; (ii) enter into arrangements with third parties for a manufacturing process to produce the photovoltaic elements for sale to solar panel producers; and (iii) enter into distribution agreements for the commercial sale of our products.

 

From the date of the Asset Purchase Agreement through mid 2015, the Equipment was not in working order, nor was there any estimated timeline for our ability to use the Equipment to manufacture of photovoltaic cells exploiting our solar panel technology. As a result, it is determined that it was not in the best interests of the Company or its shareholders to continue to devote resources towards efforts to commercially exploit its photovoltaic cell technology through the use of the Equipment or otherwise.

 

The Company did not generate any revenues from the sale of any solar photovoltaic element, nor did we successfully manufacturer or construct a working prototype.

 

On November 10, 2015, the Company entered into an Asset Purchase Rescission Agreement with IEC (the “Rescission Agreement”) pursuant to which: (i) we transferred and assigned all right, title and interest in the Equipment back to IEC; (ii) IEC returned 333,333 of the 2,000,000 Shares back to the Company; (iii) IEC transferred and assigned the remaining 1,666,667 Shares to Mr. Edwin Witarsa Ng, a resident of Indonesia, who was appointed as Chairman of our Board of Directors, in consideration for a cash payment by Mr. Ng of $20,000 to IEC. The rationale for the Rescission Agreement was based upon the Registrant’s determination not to pursue the use and commercial exploitation of the Equipment in furtherance of its former solar energy business plan.

 

Recent Developments

 

On December 1, 2015, the Company entered into a license agreement (the “License Agreement”) with PT Kinerja Indonesia, an entity organized under the laws of Indonesia and controlled by Mr. Ng (“PT Kinerja”), for an exclusive, world-wide license to use and commercially exploit certain technology and intellectual property (the “KinerjaPay IP”) and its website, KinerjaPay.com. Pursuant to the License Agreement, the Company was granted the exclusive, world-wide rights to the KinerjaPay IP, an e-commerce platform that provides users with the convenience of e-wallet service for bill transfer and online shopping having advanced functionality features, among others, and is among the first portals to allow users the convenience to top-up phone credit.

 

In furtherance of its business plan, The Company agreed in the License Agreement to: (i) change the name of the Company to KinerjaPay Corp.; (ii) implement a reverse split of the Company’s shares of common stock on a one-for-thirty (1:30) basis; and (iii) raise equity capital in the minimum offering amount of $500,000 and the maximum offering amount of $2,500,000 through the offering of units at a price of $0.50, each Unit, each consisting of 1 share of common stock and 1 class A warrant exercisable for a period of 24 months to purchase 1 additional share of common stock at $1.00. The Unit Offering is only being made to “accredited investors” who are not U.S. Persons pursuant to Regulation S promulgated by the SEC under the Securities Act of 1933, as amended (the “Act”). On January 20, 2016, the Company closed the Minimum Offering after it received subscription proceeds in excess of $500,000. To date, the Company has raised $1,105,000 pursuant to the Unit Offering, which is continuing.

 

On March 10, 2016, the Company’s name changed to KinerjaPay Corp. and its one-for-thirty (1:30) reverse stock split became effective.

 

On August 31, 2016, the Registrant and its wholly-owned Indonesian subsidiary, PT. Kinerja Pay Indonesia, entered into a Cooperation and Service Agreement with Black Grace Investment Ltd, organized under the laws of the British Virgin Island (“Black Grace”) and its affiliate, PT. Pay Secure Online Indonesia, organized under the laws of Indonesia. Pursuant to this Agreement, PT/ PaySec granted PT. Kinerja Pay the right to use the PT. PaySec’s payment services (“Payment Services”) under a revenue sharing arrangement. As consideration for the use of the Payment Services, the Registrant agreed to issue 200,000 restricted shares to Black Grace or its designee. As further consideration for the use of the Payment Services, the Parties agreed that to share the net revenues generated from the use of the Payment Services and e-wallet and payment gateway technology on a 50/50 basis.

 

3

 

 

On September 8, 2016, the Company entered into a second Cooperation and Service Agreement with PT. Indonesia EnamDua, organized under the laws of Indonesia (“PT.IED”), which owns 62hall.co.id, an integrated wholeseller and online shop that sells online a wide range of products and services, an online search engine and extensive customer services. Pursuant to this Agreement, the parties agreed to share resources in connection with the development of PT, Kinerja Pay’s new e-commerce portal, KinerjaMall.com. In consideration for PT.IED’s services, the parties agreed to allocate the profits, defined as an item’s selling price on KinerjaMall.com minus the cost price of the item sold 90% to the Company and 10% to PT.IED. The Company has not generated revenues as a result of this Corporation and Service Agreement.

 

At the end of March 2017, we started, in cooperation with third parties, providing monthly billing services to PLN customers which could serve potentially 10 millions accounts nation-wide. During April 2017, we expanded our payment channel by cooperation with large state-companies in Indonesia such as PT Pos Indonesia and PT Pegadaian, as well as leading multi finance companies including Columbia Cash & Credit, Mega Auto Finance and WOM Finance. In addition, beginning of May 2017, we also extended our payment channel to include minimart chains such as Indomaret and Alfamart, as well as PT 24 Jam Online. We believe that by expanding our network of payment channels, we will serve unbanked Indonesian customers and businesses to shop and pay bills quicker, safer, and more conveniently.

 

At the end of May 2017, David Weild, former Vice Chairman of NASDAQ, joined KinerjaPay’s Advisory Board. In July 2017, the Company also recruited as CEO for its wholly-owns subsidiary PT KinerjaPay Mr. Deddy Oktomeo who will manage the company’s growth of its e-commerce. Along with these managerial changes, the Company launchedseveral new initiatives including the expansion of our e-commerce platform by launching KinerjaGames, and secured the partnership with leading Indonesian charity institution supporting local social welfare, among others Baznas, Rumah Zakat and Dompet Dhuafa.

 

At the end of July 2017, the Company entered into a Cooperation and Service Agreement with Ace Legends, Pte. Ltd, organized under the laws of Singapore (“ACE”). Pursuant to the agreement, ACE, a game developer, will develop games for the Company. As of December 31, 2017, the gaming system is still in its development stage.

 

During the third quarter of 2017, the Company continued developing its digital payment and e-commerce platform. In October 2017, we entered into a partnership with a global smartphone-enabled ‘Ride Hailing’ service, Uber Technologies, Inc. These partnerships are expected to generate new users and increase sales transactions on our KinerjaPay platform.

 

On November 3, 2017, the Company signed an investment agreement with Tangiers Global, LLC (“Tangiers”), of which Tangiers shall invest up to $10,000,000 by purchasing the Company’s Common Stock.

 

Our E-Commerce Portal KinerjaPay.com

 

Indonesia represents one of the largest opportunities in the e-commerce sector. It is the fourth largest country in the world in term of the population size with GDP just slightly under $1 trillion, yet its citizens are largely underserved by the banking industry and less than 10% have credit cards. The Company believes to have has found a way to bridge this gap, for both consumers and businesses.

 

The Company’s principal products and services are: (i) electronic payment service (the “EPS”); and (ii) virtual marketplace (the “Marketplace”) both of which are available on its portal under the domain name KinerjaPay.com (the “Portal”). The Android-based mobile app does not only serve as an extension of desktop or laptop access to the website, but has additional in-app services that cater to mobile users, such as social engagement and digital entertainment (the “Mobile App”). The Company believe that in combining its EPS function (“PAY”) with the ability to buy and sell products via its virtual marketplace (“Buy”) enhanced by a gamification component (“Play”) its customers and merchants are enticed to return more often and increase their loyalty to its services.

 

From December 1, 2015, the date KinerjaPay Corp acquired the exclusive license, until April 11, 2016, the date that its Indonesian subsidiary was formed and we opened a bank account to conduct its operations in Indonesia, weengaged in capital raising activities to fund our e-commerce business operations, but generated no revenues. While the Company began operating activities in May 2016, it did not have in place the infrastructure to conduct billing and collections. The Company began generating revenues from sales of its Portal services in 2017.

 

4

 

 

 

 

On August 22, 2016, the Registrant’s wholly-owned Indonesian subsidiary, PT Kinerja Pay Indonesia, entered into an addendum (the “Addendum”), effective as of July 1, 2016, between the Registrant and its subsidiary, on the one hand, and PT. Kinerja Indonesia. Pursuant to the Addendum, the Registrant’s subsidiary agreed to utilize certain payment services of PT. Kinerja Indonesia as described below. The reason for entering into the Addendum was due to the fact that the PT. Kinerja Indonesia has already successfully established the requisite infrastructure for billing, collections, payments and related payment services (the “Payment Services”) in the furtherance of its various businesses, including its e-Wallet and Web Portal business that were the subject of the License Agreement between the Registrant and PT Kinerja Indonesia dated December 1, 2015. In lieu of the Company devoting the time, efforts and resources to develop its own Payment Services, which the Registrant recently determined would not only delay its ability to timely commence billing and collections as well as be unnecessarily duplicative of the Payment Service infrastructure in place at PT Kinerja, this would also require incurring costs in hiring and maintaining additional personnel.

 

Pursuant to the terms of the Addendum, in consideration for the payment of an administrative fee of $200 per month, PT Kinerja Indonesia, our licensor, shall: (i) collect payments from the users of the licensed web portal, Kinerjapay.com, including cash deposits, bank transfers, debit cards payments, credit cards payments, and other forms of payment for transactions related to purchases or payments made for the use of PT. Kinerja licensed web portal; and (ii) distribute the appropriate payments to vendors, less the commissions chargeable for all transactions generated by the users while using the licensed web portal, kinerjappay.com, following receipt of payments made by the vendors, which commissions shall then be paid to our subsidiary, PT. Kinerja Pay Indonesia.

 

We recognize our revenuespursuant to ASC 605at net revenues since we are an agent and not a principal to the various transactions with other financial institutions and or technology companies through our leased portal. We have eight different revenue streams. Gross revenue from the various steams were as follows: Mobile phone prepaid $2,291,067, Kinerja Store $463, Payment Gateway Services $9, Instant Pay Fees Collection $68,431, Marketplace Merchant Partners $203, Marketplace Merchant Users $11, Remittance $29,180, and Unipin $3,179. Gross cost of goods sold exceeded gross revenues for the year ended December 31, 2017. We recognize revenue when the four criteria of revenue have been met which includes:(1) Persuasive evidence of an arrangement, (2) services and or delivery being rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured.

 

Our Electronic Payment Service

 

Through our Portal and Mobile App, operated by PT Kinerja Indonesia, we will provide EPS to consumers and merchants. Our EPS provides an affordable, secure and reliable method to consumers and merchants, as well as friends and family, to pay and transfer money using electronic devices (e.g., mobile, tablets and personal computers). In addition, consumers, merchants and businesses of all sizes can accept payments from merchant websites and mobile devices. Our EPS service enables consumers to conveniently pay utility bills, phone bills, credit card payments and add credit to their cell phone accounts. The Company developed a proprietary digital e-wallet software, which provides users with the ability to complete EPS transactions safely and conveniently. The e-wallet acts as an escrow account as payments will only be released to the seller once the buyer has received the product.

 

5

 

 

Based upon published information, we believe that at present, approximately 35% of the Indonesian population has no bank account and these persons represent a significant target market of potential users for our EPS.

 

Based on data from Alexa.com, a website analytics provider, customers for our Portal spend an average of 30 minutes on our Portal, which we believe is partly due to our unique gamification features. The Company believe this opens potentially significant opportunities for additional monetization and enhanced revenues. The Company plans to expand our Portal functionality to offer advertising packages to our merchants and partners. The Company also intends to engage mobile publishers such as Google and Facebook to use our Portal as a channel for advertising.

 

The Company provides its customers with the option of using their account at our Portal to both purchase and be paid for goods, as well as transfer and withdraw funds. Our business plan is to provide our customers with the capability of funding a purchase using a bank account, a credit or debit card account. We also plan to offer merchants an end-to-end payments solution that provides authorization and settlement capabilities. Our services provide merchants with the ability to connect with their customers and manage and hopefully minimize their collection risk. For the safety of our customers, we have introduced an application-generated token to confirm outgoing payments for more secure transactions.

 

Our Virtual Marketplace

 

We launched our virtual marketplace during 2017 as a free platform for buyers to explore and discover products and sellers to establish a low-cost online presence for their product. We link buyers and sellers of various products from our local Indonesian markets. We organized and designed our Marketplace using our proprietary software to enable sellers to offer their products for sale and buyers to find and buy it virtually at a great value anytime. Our Marketplace includes a “Max 3-Steps” concept to streamline the shopping experience. Users just choose an item, check out and make a payment using an e-wallet function aimed accelerating the check out procedure and making the shopping experience more convenient.

 

We believe that our Marketplace will provide our customers with a safe and convenient way to purchase whatever they are looking for in their local vicinity or nationwide.

 

Users may access our Marketplace anytime, anywhere through traditional devices such as desktop and laptop computers or from devices such as Smartphones and tablets using our Mobile App or our mobile-optimized website.

 

In addition to a typical online marketplace that offers a broad range of products, we try to differentiate ourselves by focusing on computer related products as well as mobile phone prepaid vouchers utilized by approximately 98% of Indonesia mobile users representing a prepaid voucher market size of approximately US$4B, according to research conducted by AdPlus, a leading digital media network in Indonesia.

 

Our EPS service and Marketplace combine enhanced functionality and gamification, which incorporates game-design elements and game principles in non-game contexts for the purpose of keeping our users more often and longer engaged with our services.

 

We plan to expand our Marketplace to include more items and more creative ways to attract customers in purchasing and exchanging their goods. More proprietary games will be offered with more attractive bonuses that can later be used to redeem in our Marketplace. We believe that our gamification component will entice consumers to return and increase their loyalty to our Portal and Marketplace.

 

Our Market Opportunity in Indonesia

 

Indonesia, the world’s fourth most-populous country, having a population estimated to be 266 million people, is rapidly becoming the major economic power in the Southeast Asia region. Over 50% of its population is below the age of 30 and as a result, we believe that the young Indonesian population is highly adaptive to new technology. Indonesia’s e-commerce growth rate has built-in factors such as fast increase in year-to-year internet users and rapidly growing discretionary spending among the middle class. In addition, the rise of inexpensive Smartphones and tablets is rapidly broadening internet access and pushing the Indonesian e-commerce market toward a critical point in terms of scale and profitability, in spite of significant challenges due to poor infrastructure and payment systems.

 

We believe that due to the aforementioned factors, among others, Indonesia will experience significant growth in e-commerce transactions. The number of internet users is excepted to surpass 125 million by 2017 and Smartphone ownership is to approximately 40 to 50% in the same period.

 

The e-commerce market in Indonesia, where our business operates and where our initial marketing efforts will be focused, is reported to be the fastest growing in the Southeast Asian region. According to a joint report released by idEA, Google Indonesia, and Taylor Nelson Sofres (TNS),

 

We believe that Indonesia provides many opportunities for e-commerce business as compared to other emerging Asian economies. At present, this archipelago nation’s e-market is projected to reach $130 billion by 2020 only surpassed by China and India. With an estimated annual growth rate of 50% in e-commerce and strong mobile-first initiatives, retailers have a unique opportunity in Indonesia to focus on developing truly mobile platforms to help facilitating e-commerce market growth, particularly in the Consumer Packaged Goods (CPGs) sectors.

 

6

 

 

Indonesia’s current e-commerce market is similar to that of early-stage Chinese e-commerce market, with a large pool of entrepreneurial sellers providing goods to be purchased based strongly on social media recommendations. Similarly, e-commerce in Indonesia also mimics the early-stage US e-commerce market, which was marked by customers who are anxious to trust online payments and retailers. We believe that Indonesia’s e-commerce market is enormous potentials by combining a hybrid of opportunities as found in the US and China’s e-commerce economies, which we believe will propel Indonesia’s e-commerce market onto the global stage.

 

Sales and Marketing

 

Our primary marketing focus will be to emphasize our key differentiator which we believe is combining our EPS option PAY with the ability to buy and sell products via our Marketplace BUY enhanced by a gamification component PLAY, which entices consumers to return and increase their loyalty to our Portal and Marketplace.

 

We expect to commence a nationwide marketing campaign to promote the Kinerjapay.com Portal and Marketplace to Indonesian consumers and merchants during the second quarter of 2017. We intend to use marketing techniques including advertising on Facebook®, YouTube®, Twitter®, AdWords®, AdChoices® and Instagram®. Early January 2017, the holiday campaigns held by KinerjaPay was able to help securing a milestone of reaching 100,000 users.

 

We developed a referral program called MGM - Member Get Member, which is aimed at incentivizing current members to refer our platform to friends and family. In addition, we used venues such as online business workshops, promotional stands in shopping malls to acquire new merchants.

 

The Company will focus its sales and marketing efforts in the following areas:

 

  - KPAY: on payment gateway, electronic wallet and payment with QR Code.
  - KMALL: on e-commerce marketplace especially on B2B and C2C.
  - KGAMES: on game portal promoting local game developer.

 

Proprietary Technology, Domain Name and Licenses

 

We entered into a License Agreement with PT Kinerja Indonesia, a company incorporated under the laws of Indonesia and controlled by Mr. Ng, our CEO and controlling shareholder.

 

Pursuant to the License Agreement, we have been granted the license on an exclusive, world-wide basis to commercially exploit the KinerjaPay IP and its e-commerce payment portal website, www.KinerjaPay.com, which contains application codes, infrastructure architecture, infrastructure design and processes/sub-processes. Specifically, our proprietary technologies and intellectual property includes: integrated proprietary payment solutions, built-in marketplace and gamification concepts and modules. The License is in perpetuity but may be terminated by either the Company or PT Kinerja Indonesia if there is a material breach of any representation, warranty, covenant or agreement and the other party is not in material breach.

 

The success of our business is depended on the effectiveness of this License Agreement. We are a licensee and expect to be a licensee in the future.

 

We will endeavor to protect our propriety technology, domain name, customer base and trade secrets to the extent reasonably and commercially practicable because such protection may be considered as critical to our success. To that end, we will rely principally on the laws in Indonesia and, to a lesser extent on available international protection, if any.

 

We plan to register our domain name both domestically and internationally, but have not yet done so, nor can there be any assurance that we will be able to do so or that such registration will be adequate. As we expand our markets, we may seek to further protect our proprietary rights, to the extent that they may exist, a process that can be both expensive and time consuming and may not be successful. If we are unable to register or protect our domain name, we could be adversely affected in any jurisdiction in which our trademarks and/or domain names are not registered or protected.

 

From time to time, third parties may claim that we have infringed their intellectual property rights. The listing or sale by our users of items that allegedly infringe the intellectual property rights of rights owners, including pirated or counterfeit items, may harm its business.

 

Sources and availability of required equipment and bandwidth

 

The Company’s wholly-owned subsidiary, PT Kinerja Pay Indonesia has engaged PT Kinerja Indonesia, our Licensor, to provide all necessary R&D, technical support, servers, procurement/logistic and IT operational services, equipment bandwidth and other technology support.

 

Dependence on one or a few major customers

 

Our e-commerce portal is primarily used by individual customers. The Company is 100% dependent on PT Kinerja Indonesia to conduct all collections from individual, and to maintain the licensed portal.

 

7

 

 

Research and Development

 

In 2015, through PT Kinerja Indonesia, our Licensor, we began developing a proprietary Beta version utilizing software programmers in Indonesia. Our research and development resulted in our launching of the beta version of our KinerjaPay website, in addition to an android-based mobile version. We continue to improve the functionality of our KinerjaPay website and expect to incur costs related to expanding our servers’ capacity, network infrastructure, data center, and other security products.

 

Competition

 

We face intense competition in our business from numerous venues. We will need to continue to invest significant resources in technology and marketing to compete effectively. These expansions will require substantial expenditures, which may reduce our margins and may have a material adverse effect on our business, financial position, operating results and cash flows and reduce the market price of our common stock. Some competitors may have other alternative revenue sources and may therefore be able to allocate more resources to marketing, adopt more competitive fees and devote more resources to website, mobile platforms and applications and systems development than we can. Our competitors may be able to innovate faster and more efficiently, and new technologies may increase the competitive pressures if competitors offer more efficient or lower-cost services.

 

We believe that we have a better understanding of the local culture and commerce in Indonesia than foreign competitors. We also believe that one of our unique competitive advantage is to better be able to operate under local regulatory authorities.

 

Customers can use competing online, mobile and offline channels including but not limited to, retailers, catalog and classifieds. Online shopping comparison websites (e. g. Shopping.com, Rakuten, Nextag.com, Pricegrabber.com, Shopzilla,) allow consumers to search the Internet for specified products. We plan to use search engines and paid search advertising to help potential customers find our website, but those sites may also send users to other shopping destinations.

 

We mainly compete on the basis of price, product selection and services. In addition, we face the following principal competitive factors:

 

ability to attract, retain and engage buyers and sellers;
volume of transactions and price and selection of goods;
trust in our electronic payment service;
customer service;
website, Mobile App and application ease-of-use and accessibility;
reliability and security of our technology and system;
reliability of payment; and
level of service fees.

 

The e-commerce market in Indonesia has become very active only during the past several years with a few major companies that were funded by big institutional investors. To a lesser extent, there are local and a few regional companies that have entered the e-commerce market. The products being offered in the marketplace have typically been physical items across few different categories such as electronics and gadgetry, fashion items and household goods. These e-commerce entities typically are charging transaction fees of from 2% to 5% per transaction.

 

There has been a recent surge in competitors that focus on specific items or industries such as travel, fashion or consumable goods. At present, there are relatively few competitors operating in the market segments we operate, especially in mobile phone prepaid top up vouchers, a segment in which we may be one of the first and hope to be able to maintain our market dominate. We believe our fee structure to be very competitive.

 

We also face intense competition for our electronic payment solution service from alternative payment gateways and comparable payment solution services that are provided by banks or telecommunication companies. These are typically stand-alone providers and depend on other marketplace platform to generate their payment or transaction service. We believe to differentiate ourselves by offering online transaction services with e-wallet features and our own Marketplace.

 

We may be unable to compete successfully against current and future competitors. Some current and potential competitors have longer operating histories, larger customer bases and greater brand recognition in other business and Internet sectors than we do.

 

Government Regulation

 

There are currently few laws or regulations in Indonesia that are specifically related to the sale of goods and services on the Internet. We currently are subject to Indonesian regulations in our role as a money transfer agent and are therefore subject to Indonesian electronic fund transfer and money laundering regulations. We received the requisite GeoTrust Certificate in March 2014 in which entire user transactions have been protected by 256-bit encryption. This is understood to provide a safe platform for online transaction. We believe to be in compliance with all existing Indonesian governmental regulations applicable to e-commerce operator that facilitate online transactions between sellers and buyers.

 

Any application of existing laws and regulations related to banking, currency exchange, online gaming, electronic contracting, consumer protection and privacy is at present unclear. Our potential liability in case our customers are in violation of any applicable laws on pricing, taxation, impermissible content, intellectual property infringement, unfair or deceptive practices or quality of services is also unclear. In addition, we may become subject to new laws and regulations directly applicable to the Internet or our specific e-commerce activities. Any existing or potential new legislation applicable to specific e-commerce activities could expose us to substantial liability, including significant expenses necessary to comply with these laws and regulations, and reduce and/or limit the use of the Internet on which we depend.

 

8

 

 

An increase in the taxation of e-commerce transactions may make the Internet less attractive for consumers and businesses, which could have a material adverse effect on our business, results of operations and financial condition.

 

To date, we have not incurred any expenses related to us being in compliance with any governmental laws in Indonesia pertaining to the use of our e-commerce portal as a payment option for online shopping and other transactions.

 

Employees

 

Mr. Edwin Witarsa Ng, CEO and Chairman and Windy Johan, our CFO, constitute our management team, together with Mr. Deddy Oktomeo, CEO of our wholly-owned Indonesian subsidiary. They are not obligated to contribute any specific number of hours per week to our operations and intent to devote only as much time as they deem necessary to the Company’s affairs until such time that we generate significant revenues. We have not entered into employment agreements with Messrs. Ng, Johan or Oktomeo.

 

PT Kinerja Indonesia, our Licensor and controlled by Mr. Ng, provides all necessary R&D, technical support, procurement/logistic and IT operational services and other technology support needed to operate our Portal. In addition, PT KinerjaPay, our Indonesian subsidiary, is expected to hire more employees, principally dedicated to our sales, marketing and billing and collection activities. The Company believes, based upon the availability of highly-skilled technical and sales people in Indonesia, that its Licensor will encounter no difficulties to hire and retain the personnel required to fulfill these positions.

 

Our employees and the employees of our contractor PT Kinerja Indonesia are not subject to any collective bargaining agreement.

 

Transfer Agent

 

Our stock transfer agent is Transfer Online, Inc., with offices located at 512 SE Salmon Street, Portland, OR 97214. Their telephone number is (503) 227 2950, their fax number is (503) 227 6874, and their website is transferonline.com.

 

Item 1A. Risk Factors.

 

You should consider carefully the risks described below, together with all of the other information in this Form 10-K, before making a decision to invest in our common stock. If any of the following risks actually occurs, our business, financial condition and results of operations could suffer. In this case, the trading price of our common stock could decline and you may lose all or part of your investment in our common stock.

 

Risks Associated With Our Business

 

Our Independent Registered Public Accounting Firm expressed substantial doubt as to our ability to continue as a going concern in 2017.

 

The audited financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we cease to continue as a going concern. We believe that in order to continue as a going concern, including the costs of being a public company, we will need approximately $30,000 per year simply to cover the administrative, legal and accounting fees. We plan to fund these expenses primarily through cash flow, the sale of restricted shares of our Common Stock, and the issuance of convertible notes.

 

During the year ended December 31, 2017, we raised $952,000 from the private sale of equity securities. We expect to raise an additional $4.5 million during 2018. There can be no assurance that we will continue to be successful in raising equity capital and have adequate capital resources to fund our operations or that any additional funds will be available to us on favorable terms or in amounts required by us. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some or all of our plan of operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.

 

On November 3, 2017, the Company signed an investment agreement with Tangiers Global, LLC (“Tangiers”), of which Tangiers shall invest up to $10,000,000 by purchasing the Company’s Common Stock. To date, the Company has not filed a rgistration statement with the SEC with respect to the investment agreement.

 

Our limited operating history does not afford investors a sufficient history on which to base an investment decision.

 

On December 1, 2015, we were granted an exclusive, world-wide license by PT Kinerja Indonesia, our licensor, to KinerjaPay IP and its website, KinerjaPay.com, an e-commerce Portal that provides users with the convenience of EPS for bill transfer and our Marketplace. The Portal was first launched by PT Kinerja Indonesia in February 2015 and only has a limited operating history. See the disclosure under “Description of Business” and in the additional disclosure under “Risk Factors” below. As a result of its limited operating history, the Portal may not generate revenues for us or become profitable in the near future, if at all. If we are unable to reach profitability, our stock price would decline and our ability to continue to raise capital, either equity or debt, may be adversely effected. The long-term revenue and income prospects of our business and the market for electronic online payments have not been proven. We will encounter risks and difficulties commonly faced by early-stage companies in new and rapidly evolving markets.

 

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We plan to make significant investments using our recently raised equity capital in our wholly-owned Indonesian subsidiary, PT Kinerja Pay Indonesia, which entity will conduct all of our business activities related to out Portal. Notwithstanding our ability to having raised equity capital to date and our expectation to be able to raise up to an additional $4.5 million during the next twelve months, we may not be able to achieve profitability in the foreseeable future, if at all. Our ability to achieve profitability will depend on, among other things, market acceptance of our Portal and our ability to generate revenues and compete effectively with other e-commerce businesses operating in Indonesia and potentially in the wider Southeast Asian market. We cannot assure you that the relatively new market for our EPS and our Marketplace will remain viable in Indonesia. We expect to make substantial investments during the next 12 months to:

 

Drive consumer and merchant awareness to our EPS and Marketplace;

Persuade consumers and merchants to sign up for and use our EPS product and use our Marketplace;

Improve our system infrastructure to handle seamless processing of transactions;

Continue to develop our Portal; and

Broaden our customer base.

 

We may fail to implement successfully these objectives. This would adversely impact our ability to generate revenues. There can be no assurance at this time that we will be able to generate significant revenues and operate profitably or that we will have adequate working capital to meet our obligations as they become due. Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. Such risks include the following:

 

competition;

need for acceptance of our Portal;

ability to develop a brand identity;

ability to anticipate and adapt to a competitive market;

ability to effectively manage rapidly expanding operations;

amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and

dependence upon key personnel to market our product and the loss of one of our key managers may adversely affect the marketing of our product.

 

We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely effected.

 

Our revenues will be dependent upon acceptance of our Portal by the Indonesian Consumers. The failure of such acceptance will cause us to curtail or cease operations.

 

Uncertainty exists as to whether our Portal will be accepted by the Indonesian consumer. A number of factors may limit the market acceptance of our Portal, including the availability of alternative electronic payment portals and the fees for our services relative to alternative electronic payment services and other virtual marketplaces. There is a risk that potential customers and merchants will be encouraged to continue to use other portals and/or electronic payment services instead.

 

We recognize our revenues pursuant to ASC 605at net revenues since we are an agent and not a principal to the various transactions with other financial institutions and or technology companies through our leased portal. We have eight different revenue streams. Gross revenue from the various steams were as follows: Mobile phone prepaid $2,291,067, Kinerja Store $463, Payment Gateway Services $9, Instant Pay Fees Collection $68,431, Marketplace Merchant Partners $203, Marketplace Merchant Users $11, Remittance $29,180, and Unipin $3,179. Gross cost of goods sold exceeded gross revenues for the year ended December 31, 2017. We recognize revenue when the four criteria of revenue have been met which includes:(1) Persuasive evidence of an arrangement, (2) services and or delivery being rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured.

 

We expect to continue to incur operating losses until such time as our revenues reach a mature level and we are able to generate sufficient cash flow to meet our operating expenses. There can be no assurance that the market will adopt our Portal. In the event that we are not able to successfully market and significantly increase the number of Portal users, or if we are unable to charge the necessary fees, our financial condition and results of operations will be materially and adversely affected.

 

Software failures, breakdowns in the operations of the servers and communications systems upon which we must rely or glitches or malfunctions in our Portal technology could hurt our reputation, revenues and profitability.

 

Our success depends on the efficient and uninterrupted operation of the servers and communications systems owned and operated by PT Kinerja Indonesia, an entity controlled by our controlling shareholder and CEO, Mr. Ng. We have entered into an agreement with PT Kinerja Indonesia to operate all of the servers, as well as provide hosting and maintenance services and the infrastructure systems, upon which we rely. A failure of these systems and services could impede our business by delays in processing of data, delivery of databases and services, client data and day-to-day management of our business. While all of our operations will have disaster recovery plans in place, they might not adequately protect us. Despite any precautions we undertake and PT Kinerja Indonesia already has in place, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at their computer facilities could result in interruptions in the flow of data to our customers. In addition, any failure by the computer environment to provide our required data communications capacity could result in interruptions in our service. In the event of a server failure, we could be required to transfer our client/customer data operations to an alternative provider of server hosting services. Such a transfer could result in delays in our ability to deliver our services to our customers.

 

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To the extent that glitches or errors cause our Portal to malfunction and our customers’ use of our Portal is interrupted, our reputation could suffer and our potential revenues could decline or be delayed until such glitches or errors are remedied, which will not be within our control. We may also be subject to liability for the glitches and malfunctions. There can be no assurance that, despite the expertise of PT Kinerja Indonesia, glitches and/or errors in our service or new releases or upgrades will not occur, resulting in loss of future revenues or delay in market acceptance, diversion of development resources, damage to our reputation, potential litigation, or increased service costs, any of which would have a material adverse effect upon our business, operating results and financial condition.

 

Long-term disruptions in the Portal infrastructure provided by PT Kinerja Indonesia caused by events such as natural disasters, the outbreak of war, the escalation of hostilities and acts of terrorism, particularly involving locations in Indonesia for which we will have no control, could adversely effect our e-commerce business. Although, we plan to carry property and business interruption insurance for our business operations, our coverage might not be adequate to compensate us for all losses that may occur.

 

We face risks related to the storage of customers’ confidential and proprietary information.

 

Our Portal, which is maintained by PT Kinerja Indonesia, is designed to maintain the confidentiality and security of our customers’ confidential and proprietary data that are stored on their server systems, which may include sensitive personal data. However, any accidental or willful security breaches or other unauthorized access to these data could expose us to liability for the loss of such information, time-consuming and expensive litigation and other possible liabilities as well as negative publicity which may be expected to adversely effect our business and operations. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are difficult to recognize and react to. We rely on PT Kinerja Indonesia, which may be unable to anticipate these techniques or implement adequate preventative or reactionary measures.

 

We might incur substantial expense to further develop and commercially exploit our Portal which may never become sufficiently successful.

 

Our growth strategy requires the successful expansions of our e-commerce business. Although management will take every precaution to ensure that our Portal will, with a high degree of likelihood, achieve market acceptance and therefore commercial success, there can be no assurance that this will be the case. The causes for commercial failure can be numerous, including:

 

market demand for our EPS and Marketplace proves to be smaller than we expect;

competitive e-commerce providers, either presently operating in the Indonesian market or who are to join our market may have superior features, more competitive prices and/or fees, better performance and, as a result, greater market acceptance;

further Portal development turns out to be more costly than anticipated or takes longer;

our Portal requires significant adjustment to changing market conditions, rendering the Portal uneconomic or extending considerably the likely investment return period;

additional regulatory requirements are imposed which increase the overall costs of running our Portal;

Customers may be unwilling to adopt and/or use our Portal.

 

Card association rules may change or certain practices could negatively affect our business and, if we do not comply with these rules, could result in our inability to accept credit cards. If we are unable to accept credit cards, our competitive position would be critically damaged.

 

We are not a bank and as a result we are barred from belonging to and directly access the credit card associations or the bank payment network. We must therefore rely on banks and their service providers to process our transactions. We must comply with the operating rules of the credit card associations and bank payment networks as they apply to merchants. The associations’ member banks set these rules, and the associations interpret the rules. Some of those member banks compete with us. Credit card associations could adopt new operating rules or interpretations of existing rules which we may find difficult or even impossible to comply with, in which case we could lose our ability to give customers the option of using credit cards to support their payments. If we were unable to accept credit cards our competitive position would be critically damaged.

 

We face considerable risks of loss due to fraud and/or disputes between senders and recipients. If we are unable to deal effectively with losses from fraudulent transactions, our losses from fraud would increase, and our business would be materially adversely effected.

 

We face significant risks of loss due to fraud and disputes between senders and recipients, including:

 

unauthorized use of credit cards and bank account information and identity theft;

merchant fraud and other disputes;

system security breaches;

fraud by employees; and

use of our system for illegal purposes.

 

When a sender pays a merchant for goods or services through our Portal using a credit card and the cardholder is defrauded or otherwise disputes the charge, the full amount of the disputed transaction gets charged back to us and our credit card processor levies additional fees against us, unless we can successfully challenge the chargeback. Chargebacks may arise from the unauthorized use of a cardholder’s card number or from a cardholder’s claim that a merchant failed to perform. If our chargeback rate becomes excessive, credit card associations also can require us to pay fines and could terminate our ability to accept their cards for payments. We cannot assure you that chargebacks will not arise in the future.

 

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We have taken measures to detect and reduce the risk of fraud, but we cannot assure you of these measures’ effectiveness. If these measures do not succeed, our business will be adversely effected.

 

We may incur chargebacks and other losses from merchant fraud, payment disputes and insufficient funds, and our liability from these items could have a material adverse effect on our business and result in our losing the right to accept credit cards for payment as a result of which our ability to compete could be impaired, and our business would suffer.

 

We may incur losses from merchant fraud, including claims from customers that merchants have not performed, that their goods or services do not match the merchant’s description or that the customer did not authorize the purchase. Our liability for such items could have a material adverse effect on our business, and if they become excessive, could result in our losing the right to accept credit cards for payment.

 

Unauthorized use of credit cards and bank accounts could expose us to substantial losses. If we are unable to detect and prevent unauthorized use of cards and bank accounts, our business would suffer.

 

The highly automated nature of our Portal makes us an attractive target for fraud. In configuring our Portal technology, we face an inherent trade-off between customer convenience and security. We believe that several of our current and former competitors in the electronic payments business have gone out of business or significantly restricted their businesses largely due to losses from this type of fraud. We expect that technically knowledgeable criminals will continue to attempt to circumvent our anti-fraud systems. There can be no assurance that we will not incur chargebacks in the future.

 

Security and privacy breaches in our Portal may expose us to additional liability and result in the loss of customers, either of which events could harm our business and cause our stock price to decline.

 

Our inability, or the inability of PT Kinerja Indonesia, as the case may be, to protect the security and privacy of our electronic transactions could have a material adverse effect on our profitability. A security or privacy breach could:

 

expose us to additional liability;

increase our expenses relating to resolution of these breaches; and

discourage customers from using our product.

 

The type and scale of electronic payments that we handle for our customers makes us vulnerable to employee fraud or other internal security breaches and, as a result, our business would suffer. We cannot assure you that our internal security systems will prevent material losses from employee fraud and that our system applications designed for data security will effectively counter evolving security risks or address the security and privacy concerns of existing and potential customers. Any failures in our security and privacy measures could have a material adverse effect on our business, financial condition and results of operations.

 

Our Portal might be used for illegal or improper purposes, which could expose us to additional liability and harm our business.

 

Despite measures we have taken to detect and prevent identify theft, unauthorized uses of credit cards and similar misconduct, our electronic online payment portal remains susceptible to potentially illegal or improper uses. These may include illegal online gaming, fraudulent sales of goods or services, illicit sales of prescription medications or controlled substances, software and other intellectual property piracy, money laundering, bank fraud, child pornography trafficking, prohibited sales of alcoholic beverages and tobacco products and online securities fraud. Despite measures we have taken to detect and lessen the risk of this kind of conduct, we cannot assure you that these measures will succeed. Our business could suffer if customers use our system for illegal or improper purposes.

 

In addition, we classify merchants who historically have experienced significant chargeback rates as higher risk. The legal status of many of these higher risk accounts is uncertain, and if these merchants are prohibited or restricted from operating in the future, our revenue from fees generated from these accounts would decline. Proposed legislation has been introduced in Indonesia that operation of an Internet gaming business, sales of alcoholic beverages and other activities violates Indonesian law, and to prohibit payment processors such as us from processing payments for those activities. If merchants accept these illegal activities, we could be subject to civil and criminal lawsuits, administrative action and prosecution for, among other things, money laundering or for aiding and abetting violations of law. We would lose the revenues associated with these accounts and could be subject to material penalties and fines, both of which would seriously harm our business.

 

We face substantial and increasing competition in the Indonesian e-commerce market.

 

The market in which we operate is intensely competitive. We currently and potentially compete with a wide variety of electronic payment providers and online and offline companies marketplaces providing goods and services to consumers and merchants . The Internet and mobile networks provide new, rapidly evolving and intensely competitive channels for electronic payment services and marketplaces to sell all types of goods and services. We compete in two-sided markets, and must attract both buyers and sellers to use our Marketplace. Consumers who purchase or sell goods through our Marketplace have more and more alternatives, and merchants have more channels to reach consumers. We expect competition to continue to intensify. Online and offline businesses increasingly are competing with each other and our competitors include a number of online and offline retailers with significant resources, large user communities and well-established brands. Moreover, the barriers to entry into these channels can be low, and businesses easily can launch online sites or mobile platforms and applications at nominal cost by using commercially available software or partnering with any of a number of successful e-commerce companies. As we respond to changes in the competitive environment, we may, from time to time, make pricing, service or marketing decisions or acquisitions that may be controversial with and lead to dissatisfaction among users, which could reduce activity on our Portal and harm our profitability.

 

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Some of our competitors are well known, more established and better capitalized than us and we may be unable to establish market share. As such, they may have at their disposal greater marketing strength and economies of scale and, as they may have additional products and/or services at more competitive price. They may also have more resources to expend to create more innovative payment processing products in competition with ours. Accordingly, we may not be successful in competing effectively for market share.

 

The market we operate in emerging, intensely competitive and characterized by rapid technological change. We compete with existing electronic payment services and virtual marketplaces, including, among others:

 

Tokopedia

● Bukalapak

Lazada

Zalora

OLX

● Blibli

Payment processors such as Doku and Veritrans

 

Our competitors may respond to new technologies and changes in customer requirements faster and more effectively than we can. These competitors have offered, and may continue to offer, their services for free in order to gain market share and we may be forced to lower our prices in response.

 

Our status under certain Indonesian and international financial services regulation is unclear. Violation of or compliance with present or future regulation could be costly, expose us to substantial liability, force us to change our business practices or force us to cease offering our current product.

 

We operate in an industry subject to government regulation. We currently are subject to Indonesian regulations in our role as money transfer agent and are therefore subject to Indonesian electronic fund transfer and money laundering regulations. In the future, we might be subjected to:

 

banking regulations;

additional money transmitter regulations and money laundering regulations;

● international banking or financial services regulations or laws governing other regulated industries; or

● U.S. and international regulation of Internet transactions.

 

If we are found to be in violation of any current or future regulations, we could be:

 

● exposed to financial liability, including substantial fines which could be imposed on a per transaction basis and disgorgement of our profits;

● forced to change our business practices; or

● forced to cease doing business altogether or with the residents of one or more states or countries.

 

However, we cannot assure you that the steps we have taken to address any regulatory concerns will be effective. If we are found to be engaged in an unauthorized banking business, we might be subject to monetary penalties and might be required to cease doing business. Even if the steps we have taken to resolve any concerns are deemed sufficient by the regulatory authorities, we could be subject to fines and penalties for our prior activities. The need to comply with laws prohibiting unauthorized banking activities could also limit our ability to enhance our services in the future.

 

Our financial success will remain highly sensitive to changes in the rate at which our customers fund payments using credit cards rather than bank account transfers. Our profitability could be harmed if the rate at which customers fund using credit cards goes up.

 

We pay significant transaction fees when senders fund payment transactions using credit cards, nominal fees when customers fund payment transactions by electronic transfer of funds from bank accounts and no fees when customers fund payment transactions from an existing account balance with us. Senders may resist funding payments by electronic transfer from bank accounts because of the greater protection offered by credit cards, including the ability to dispute and reverse merchant charges, because of frequent flier miles or other incentives offered by credit cards or because of generalized fears regarding privacy or loss of control in surrendering bank account information to a third party.

 

We rely on financial institutions to process our payment transactions. Should any of these institutions decide to stop processing our payment transactions, our business could suffer.

 

Not being a bank, we cannot belong to and directly access the credit card associations or the bank payment network. As a result, we must rely on banks or their independent service operators to process our transactions. Bank Central Asia (“BCA”) currently processes our bank transactions and our credit card transactions. BCA also provides payment processing services to some of our competitor and offers credit card processing services directly to online merchants. If we could not obtain processing services on acceptable terms, and if we could not switch to another processor quickly and smoothly, our business could suffer materially.

 

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Increases in credit card processing fees could increase our costs, affect our profitability, or otherwise limit our operations.

 

From time to time, credit card associations increase the interchange fees that they charge for each transaction using their cards. Our credit card processors have the right to pass any increases in interchange fees on to us. Any such increased fees could increase our operating costs and reduce our profit margins. Furthermore, our credit card processors require us to pledge cash as collateral with respect to our acceptance of certain credit cards and the amount of cash that we are required to pledge could be increased at any time.

 

Customer complaints or negative publicity about our product and customer service could affect use of our product adversely and, as a result, our business could suffer.

 

Customer complaints or negative publicity about our Portal could diminish consumer confidence in our EPS and Marketplace. Breaches of our customers’ privacy and our security measures could have the same effect. Measures we sometimes take to combat risks of fraud and breaches of privacy and security, such as freezing customer funds, can damage relations with our customers. These measures heighten the need for prompt and accurate customer service to resolve irregularities and disputes. We may receive negative media coverage, as well as public criticism regarding customer disputes. Effective customer service requires significant personnel expense, and if not managed properly, could impact our profitability significantly. The number of customer service and sales representatives that PT Kinerja Indonesia employees is expected to increase throughout 2018. Any inability to manage or train our customer service representatives properly could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation may suffer and we may lose our customers’ confidence.

 

We have limited experience in managing and accounting accurately for large amounts of customer funds. Our failure to manage these funds properly would harm our business.

 

Our ability to manage customer funds requires a high level of internal controls. We have neither an established operating history nor proven management experience in maintaining, over a long term, these internal controls. As our business continues to grow, we must strengthen our internal controls accordingly. Our success requires customer’s confidence in our ability to handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain controls or to manage customer funds could diminish customer use of our Portal severely.

 

Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.

 

In recent years, there have been several changes in laws, rules, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and various other new regulations promulgated by the SEC and rules promulgated by the national securities exchanges. The Dodd-Frank Act, enacted in July 2010, expands federal regulation of corporate governance matters and imposes requirements on publicly-held companies, including us, to, among other things, provide stockholders with a periodic advisory vote on executive compensation and also adds compensation committee reforms and enhanced pay-for-performance disclosures. While some provisions of the Dodd-Frank Act were effective upon enactment, others will be implemented upon the SEC’s adoption of related rules and regulations. The scope and timing of the adoption of such rules and regulations is uncertain and accordingly, the cost of compliance with the Dodd-Frank Act is also uncertain.

 

In addition, Sarbanes-Oxley specifically requires, among other things, that we maintain effective internal control over financial reporting and disclosure of controls and procedures.

 

These and other new or changed laws, rules, regulations and standards are, or will be, subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws, rules, regulations and standards may make it more difficult and expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result.

 

Online payment processing liability is inherent in the industry and insurance is expensive and difficult to obtain, we may be exposed to large lawsuits.

 

Our business exposes us to potential liability risks, which are inherent in the e-commerce business. While we will take precautions we deem to be appropriate to avoid potential liability suits against us, there can be no assurance that we will be able to avoid significant liability exposure. Liability insurance for electronic payment processing industry is generally expensive. We plan to obtain liability professional indemnity insurance coverage for our Portal services. There can be no assurance that we will be able to obtain such coverage on acceptable terms, or that any insurance policy will provide adequate protection against potential claims. A successful liability claim brought against us may exceed any insurance coverage secured by us and could have a material adverse effect on our results or ability to continue our Portal.

 

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We may need to raise additional capital to fund continuing operations and an inability to raise the necessary capital or to do so on acceptable terms could threaten the success of our business.

 

We currently anticipate that our available capital resources will not be sufficient to meet our expected working capital and capital expenditure requirements for the year ended December 31, 2018. We anticipate that we may require an additional funding during the remainder of 2018.

 

However, such resources may not be sufficient to fund the long-term growth of our business.

 

Any additional equity financing may be dilutive to our stockholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our Shares. Debt or equity financing may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to our product or marketing territories. If we are unable to obtain financing necessary to support our operations, we may be required to defer, reduce or eliminate certain planned expenditures or significantly curtail our operations.

 

We may need to increase the size of our organization, and may experience difficulties in managing growth.

 

At present, we are a small reporting company. We expect to experience a period of expansion in headcount, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate new managers. Our future financial performance and its ability to compete effectively will depend, in part, on its ability to manage any future growth effectively.

 

The loss of key personnel could adversely affect our business. We may not be able to hire and retain qualified personnel to support our growth.

 

Our success depends to a significant extent upon Mr. Edwin Ng, our CEO and controlling shareholder, and other key personnel. The loss of the services of such personnel and the inability to hire and retain of such personnel could adversely affect our business and our ability to implement our growth plan. We cannot assure you that the services of the members of our management team will continue to be available to us, or that we will be able to find suitable replacements. We do not have key man insurance on any members of our management team. If any member of our management team were to die and we are unable to replace them for a prolonged period of time, we may be unable to carry out our long-term business plan and our future prospect for growth, and our business, may be harmed. Our success is dependent upon our ability to attract, train, manage and retain qualified personnel. There is substantial competition for qualified personnel, and an inability to recruit or retain qualified personnel may impact our ability to implement our strategy to grow our business.

 

We plan to grant stock options or other forms of equity awards in the future as a method of attracting and retaining employees, motivating performance and aligning the interests of employees with those of our stockholders. There are currently no options and/or equity awards outstanding. If we are unable to adopt, implement and maintain equity compensation arrangements that provide sufficient incentives, we may be unable to retain our existing employees and attract additional qualified candidates. If we are unable to retain our existing employees, including qualified technical personnel, and attract additional qualified candidates, our business and results of operations could be adversely effected.

 

We may not be able to successfully expand our business through acquisitions.

 

We review corporate and product acquisitions as a part of our growth strategy. If we decided to undertake an acquisition, we may not be able to successfully integrate it in order to realize the full benefit of such acquisition. Factors which may affect our ability to grow successfully through acquisitions include:

 

inability to identify suitable targets given the relatively narrow scope of our business;

● inability to obtain acquisition or additional working capital financing due to our financial condition;

● difficulties and expenses in connection with integrating the acquired companies and achieving the expected benefits;

● diversion of management’s attention from current operations;

● the possibility that we may be adversely affected by risk factors facing the acquired companies;

● acquisitions could be dilutive to earnings, or in the event of acquisitions made through the issuance of our common shares to the shareholders of the acquired company, dilutive to our existing shareholders;
● potential losses resulting from undiscovered liabilities of acquired companies not covered by the indemnification we may obtain from the seller; and

● loss of key employees of the acquired companies.

 

We have limited experience competing in international markets, where we hope to compete, beyond Indonesia. Our international expansion plans will expose us to greater political, intellectual property, regulatory, exchange rate fluctuation and other risks, which could harm our business.

 

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We intend to expand use of our EPS and Marketplace in selected international markets, initially in the Southeast Asian region. If we are unable to execute our expansion into international markets, our business could suffer. Accordingly, we anticipate devoting significant resources and management attention to expanding international opportunities. Expanding internationally subjects us to a number of risks, including:

 

greater difficulty in managing foreign operations;

● expenses associated with localizing our products, including offering customers the ability to transact business in major currencies in addition to the Indonesian Rupiah;

● laws and business practices that favor local competitors;

● multiple and changing laws, tax regimes and government regulations;

● foreign currency restrictions and exchange rate fluctuations;

● changes in a specific country’s or region’s political or economic conditions; and

● differing intellectual property laws.

 

Risks Related to Our Common Stock

 

We are subject to compliance with securities law, which exposes us to potential liabilities, including potential rescission rights.

 

We have offered and sold our Common Stock to investors pursuant to certain exemptions from the registration requirements of the Securities Act of 1933, as well as those of various state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the offering. We have not received a legal opinion to the effect that any of our prior offerings were exempt from registration under any federal or state law. Instead, we have relied upon the operative facts as the basis for such exemptions, including information provided by investors themselves.

 

If any prior offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption from the registration or qualification provisions of such state statutes. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which it has relied, we may become subject to significant fines and penalties imposed by the SEC and state securities agencies.

 

Edwin Ng, our Control Shareholder and Chairman controls approximately 20.44% of our common stock and may be able to influence the outcome of stockholder votes and their interests may differ from other stockholders.

 

As of April 19, 2018, our control shareholder, executive officer and director has voting control for 3,000,000 shares of our Common Stock representing approximately 20.44% of our outstanding Shares, excluding Shares underlying options and warrants. Subject to any fiduciary duties owed to our other stockholders under Delaware law, these stockholders may be able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have some control over our management and policies. Some of these persons may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree. The concentration of ownership could delay or prevent a change in control of the Company or otherwise discourage a potential acquirer from attempting to obtain control of the Company, which in turn could reduce the price of our stock. In addition, these stockholders could use their voting influence to maintain our existing management and directors in office, delay or prevent changes in control of the Company, or support or reject other management and board proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.

 

The availability of a large number of authorized but unissued shares of Common Stock may lead to dilution of existing stockholders.

 

We are authorized to issue 500,000,000 shares of Common Stock, $0.0001 par value per share. As of April 19, 2018, we have approximately 483,176,622 shares of Common Stock available for issuance. Additional shares may be issued by our board of directors without further stockholder approval. The issuance of large numbers of shares, possibly at below market prices, is likely to result in substantial dilution to the interests of other stockholders. In addition, issuances of large numbers of shares may adversely affect the market price of our Common Stock.

 

Our Certificate of Incorporation, as amended, authorizes 10,000,000 shares of preferred stock, $0.0001 par value per share none of which are issued and outstanding to date. The board of directors is authorized to provide for the issuance of these unissued shares of preferred stock in one or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. Accordingly, the board of directors may issue preferred stock which may convert into large numbers of shares of Common Stock and consequently lead to further dilution of other shareholders.

 

We have never paid cash dividends and do not anticipate doing so in the foreseeable future.

 

We have never declared or paid cash dividends on our common shares. We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.

 

Our Common Stock is subject to the “Penny Stock” rules of the SEC and the trading market in our stock is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment.

 

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

 

That a broker or dealer approve a person’s account for transactions in penny stocks; and
● The broker or dealer receives a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

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In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

Obtain financial information and investment experience objectives of the person; and

● Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

 

Sets forth the basis on which the broker or dealer made the suitability determination; and

● That the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our stock. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Financial Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a shareholder’s ability to trade our Common Stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for some customers. FINRA requirements make it more difficult for broker-dealers to make a market, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our Shares.

 

Our stock is thinly traded, sale of your holding may take a considerable amount of time.

 

The shares of our Common Stock are traded on the OTCQB Market, meaning that the number of persons interested in purchasing our Common Stock at or near bid prices may be relatively small or non-existent. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. There can be no assurance that a broader or more active public trading market for our Common Stock will develop or be sustained. Due to these conditions, we can give you no assurance that you will be able to sell your shares at or near bid prices or at all if you need money or otherwise desire to liquidate your shares.

 

Shares eligible for future sale may adversely affect the market.

 

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of Common Stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information and notice requirements. Any substantial sales of our Common Stock pursuant to Rule 144 may have a material adverse effect on the market price of our Common Stock.

 

If we fail to maintain effective internal controls over financial reporting, the price of our Common Stock may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our Common Stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our Common Stock.

 

17

 

 

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline.

 

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards.

 

We expect to incur expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us, we could become subject to these requirements in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls over financial reporting. In the event that our Chief Executive Officer or Chief Financial Officer determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.

 

Our share price could be volatile and our trading volume may fluctuate substantially.

 

The price of our Common Shares has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low of $0.04 to a high of $3.50 during the last three fiscal years. Many factors could have a significant impact on the future price of our common shares, including:

 

our inability to raise additional capital to fund our operations;

● our failure to successfully implement our business objectives and strategic growth plans;

●compliance with ongoing regulatory requirements;

● market acceptance of our product;

● changes in government regulations; and

● actual or anticipated fluctuations in our quarterly financial and operating results; and the degree of trading liquidity in our common shares.

 

Our annual and quarterly results may fluctuate, which may cause substantial fluctuations in our common stock price.

 

Our annual and quarterly operating results may in the future fluctuate significantly depending on factors including the volume of electronic transactions, new Portal updates by us and other competitors, gain or loss of significant customers, pricing of our Portal fees, the timing of expenditures and economic conditions. Revenues related to our electronic payment processing are required to be recognized upon satisfaction of all applicable revenue recognition criteria. The recognition of revenues from our Portal fees is dependent on a number of factors, including, but not limited to, the terms of any license agreement and the timing of Portal transactions by our customers.

 

Any unfavorable change in these or other factors could have a material adverse effect on our operating results for a particular quarter or year, which may cause downward pressure on our common stock price. We expect quarterly and annual fluctuations to continue for the foreseeable future.

 

Delaware law contains provisions that could discourage, delay or prevent a change in control of our Company, prevent attempts to replace or remove current management and reduce the market price of our stock.

 

Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue up to ten million shares of “blank check” preferred stock without further stockholder approval. The board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquire us.

 

We are also subject to the anti-takeover provisions of the DGCL. Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change in control of us. An “interested stockholder” is, generally, a stockholder who owns 15% or more of our outstanding voting stock or an affiliate of ours who has owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in the DGCL.

 

Our quarterly operating results fluctuate and may not predict our future performance accurately. Variability in our future performance could cause our stock price to fluctuate and decline.

 

We expect our quarterly results will fluctuate in the future as a result of a variety of factors, many of which are beyond our control. These factors include:

 

changes in our costs, including interchange and transaction fees charged by credit card associations, and our transaction losses;

● changes in our pricing policies or those of our competitors;

● relative rates of acquisition of new customers;

● seasonal patterns, including increases during the holiday season;

● delays in the introduction of new or enhanced services, software and related products by us or our competitors or market acceptance of these products and services; and

● other changes in operating expenses, personnel and general economic conditions.

 

18

 

 

As a result, period-to-period comparisons of our operating results may not be meaningful, and you should not rely on them as an indication of our future performance.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Properties.

 

Our principal office is located at J1. Multatuli, No. 8A, Medan, Indonesia 20151. Our telephone number is +62-819-6016-168. Our offices consist of approximately 4,000 square feet of executive offices and sales and marketing space, are provided to us on a rent-free basis by PT Kinerja Indonesia and we believe that these facilities will be sufficient for the next twelve months.

 

Item 3. Legal Proceedings.

 

There are no pending legal proceedings to which the Company is a party or in which any Director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.

 

Item 4. Mine Safety Disclosure.

 

Not applicable.

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

Our common stock is quoted on the OTCQB Market under the symbol KPAY, an inter-dealer automated quotation system for equity securities not included on The Nasdaq Stock Market. Quotation of the Company’s securities on the OTCQB Market limits the liquidity and price of the Company’s common stock more than if the Company’s shares of common stock were listed on The Nasdaq Stock Market or a national exchange. For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. The below prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

 

   Price Range 
Period  High   Low 
Year Ended December 31, 2015:          
First Quarter  $0.15   $0.12 
Second Quarter  $0.14   $0.12 
Third Quarter  $0.17   $0.12 
Fourth Quarter  $0.16   $0.04 
Year Ended December 31, 2016:          
First Quarter  $0.90   $0.45 
Second Quarter  $0.77   $0.50 
Third Quarter  $0.90   $0.65 
Fourth Quarter  $0.70   $0.70 
Year Ending December 31, 2017:          
First Quarter  $3.50   $0.40 
Second Quarter  $2.72   $1.00 
Third Quarter  $2.84   $1.06 
Fourth Quarter  $2.83   $0.82 
Year Ending December 31, 2018:          
First Quarter  $2.40   $0.52 
Second Quarter (through April 19, 2018)  $0.99   $0.91 

 

Our stock transfer agent is Transfer Online, Inc., with offices located at 512 SE Salmon Street, Portland, OR 97214. Their telephone number is (503) 227 2950, their fax number is (503) 227 6874, and their website is transferonline.com.

 

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Holders

 

On of April 19, 2018, there were 13,542,207 shares of Common Stock issued and outstanding, which were held by 41 stockholders of record.

 

Dividends

 

We have never declared or paid any cash dividends on our common stock nor do we anticipate paying any in the foreseeable future. Furthermore, we expect to retain any future earnings to finance our operations and expansion. The payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant.

 

Equity Compensation Plans

 

We do not have any equity compensation plans.

 

Sale of Unregistered Securities

 

During the last three fiscal years, the Registrant issued and/or sold the following restricted securities.

 

Restricted Securities Issued in 2015:

 

In November 2015, the Registrant issued restricted shares upon the conversion of convertible notes to the accredited investors set forth below.

 

Name  Date of Conversion  Conversion Rate   Common Stock Issued 
Amir Uziel  11/05/2015  $0.01    2,947,389 
Dana Beresovski  11/05/2015  $0.01    4,221,499 
LaviKrasney  11/05/2015  $0.01    1,714,210 
Common Market Development Ltd. (2)  11/05/2015  $0.01    618,873 
GaliaZadenberg  11/05/2015  $0.01    1,206,466 
IMWT Holdings Ltd. (5)  11/05/2015  $0.01    1,162,082 
Asher Mediouni  11/05/2015  $0.01    1,095,014 
Zikri Zusa  11/05/2015  $0.01    1,086,795 
Tena Holdings GmbH (6)  11/05/2015  $0.01    308,088 

 

The Registrant issued the original fourteen convertible notes totaling the principal amount of $122,000 and accrued interest of $21,609 between July 2013 and October 2015 for a total of $143,604. The notes were converted at a price of $0.01 per share. Each of the individuals listed in the table represented to the Registrant their status as “accredited investors.”

 

On the dates set forth in the table below, the Registrant issued and sold restricted securities to the individuals and entities in the table below in reliance upon the exemptions provided in Section 4(2) of the Securities Act of 1933, as amended (the “Act”) and in reliance upon Regulation S or, in the instance of one individual, Regulation D, promulgated by the United States Securities and Exchange Commission under the Act. The shares of the Registrant’s common stock, par value $0.0001 (the “Shares”) issued pursuant to the Subscription Agreements were pursuant to a Unit Offering, each consisting of one Share and one Class A Warrant exercisable to purchase one additional Share at $1.00 for a period of 24 months.

 

Name of Issuee  Date of Transaction  Number of Shares   Consideration/Valued   Bases for Issuance
PT Kinerja Indonesia  03/21/2016   1,333,333    (1)  Services
PT Stareast Asset Management  12/29/2015   500,000   $0.50 per unit   Subscription Agreement
PT Stareast Asset Management  01/11/2016   140,000   $0.50 per unit   Subscription Agreement
Firman Eddy Limas  01/11/2016   140,000   $0.50 per unit   Subscription Agreement
Christopher Danil  01/20/2016   20,000   $0.50 per unit   Subscription Agreement
Eric Wibowo  01/19/2016   40,000   $0.50 per unit   Subscription Agreement
Henful Pang  01/19/2016   40,000   $0.50 per unit   Subscription Agreement
HendroTjahjono  12/31/2015   20,000   $0.50 per unit   Subscription Agreement
Jusuf Budianto  01/13/2016   20,000   $0.50 per unit   Subscription Agreement
Lau Kin Harn  01/13/2016   20,000   $0.50 per unit   Subscription Agreement
Stephanus Titus Widjaja  01/19/2016   20,000   $0.50 per unit   Subscription Agreement
Stephen Kurniadi  12/31/2015   20,000   $0.50 per unit   Subscription Agreement
Andy Litansen  01/19/2016   30,000   $0.50 per unit   Subscription Agreement
Djoahan Farida  02/02/2016   150,000   $0.50 per unit   Subscription Agreement
Silvia Silvia  02/02/2016   50,000   $0.50 per unit   Subscription Agreement
Alfred Herman Goenawan  02/26/2016   200,000   $0.50 per unit   Subscription Agreement
Jeffrey Nah Kim Boon  03/21/2016   20,000   $0.50 per unit   Subscription Agreement
Daniel Yohansha  03/01/2016   20,000   $0.50 per unit   Subscription Agreement
Syahid Liga Lie  05/19/2016   200,000   $0.50 per unit   Subscription Agreement
Peter Paschal Korompis  05/05/2016   100,000   $0.50 per unit   Subscription Agreement
Nicholas AugustinusBudiman  05/19/2016   20,000   $0.50 per unit   Subscription Agreement
Jusuf Chandra  05/19/2016   20,000   $0.50 per unit   Subscription Agreement
Iskandar Tanuseputra  05/19/2016   20,000   $0.50 per unit   Subscription Agreement
Shalom Amsalem  06/15/2016   300,000   $0.77 per share   Services valued at $231,000

 

(1) The 1,333,333 Shares issued to PT Kinerja Indonesia pursuant to a Services Agreement dated February 19, 2016, a copy of which is filed as exhibit 10.7 to the Company’s Form 8-K on March 23, 2016.

 

20

 

 

Restricted Securities Issued in 2016:

 

On March 31, 2016, we converted $24,753 of debt and issued 30,000 shares of Common Stock to a person for securities compliance services previously provided.

 

On February 19, 2016, we issued 1,333,333 shares of Common Stock to Mr. Ng, our CEO and Chairman, as payment for services as part of a service agreement resulting from the license agreement. The shares were valued at $0.9001, the closing price as of the date of the agreement.

 

On June 15, 2016, we issued 400,000 shares of our common stock to two unrelated parties as payment for a service agreement. The shares were valued at $0.77, the closing price as of the date of the agreement.

 

Restricted Securities Issued in 2017:

 

During the three months ended March 31, 2017, the Company received $175,000 through a placement of 350,000 common stock units to PT Stareast Asset Management, an affiliated party, for the offering price of $0.50 per unit. Each unit consisted of one share of common stock and one warrant to purchase common stock. The 350,000 warrants are exercisable at $1.00 and expire two years from the date of issuance, and were valued to be $125,119 using the Black-Scholes model.

 

During the three months ended March 31, 2017, the Company issued 750,000 fully-vested shares of the Company’s common stock and issued 1,200,000 warrants (400,000 “A” warrants with exercise price of $1.00, 400,000 “B” warrants with exercise price of $2.00 and 400,000 “C” warrants with exercise price of $3.00) to consultants for services provided. These shares were valued at $675,000 using the closing price on the date of grant, and the warrants were valued at $347,165.

 

During 2017, the Company issued and sold restricted securities to the individuals and entities as depicted in the table below in reliance upon the exemptions provided in Section 4(2) of the Securities Act of 1933, as amended (the “Act”) and in reliance upon Regulation S or, in the instance of one individual, Regulation D, promulgated by the United States Securities and Exchange Commission under the Act.

 

Name of Issuee  Date of Transaction  Number of Shares   Consideration/Valued (2)   Bases for Issuance
Hendro Tjanjono  03/27/2017   100,000   $1.65 per share   Services valued at $165,000
Henful Pang  03/27/2017   200,000   $1.65 per share   Services valued at $330,000
Piter Korompis  03/27/2017   100,000   $1.65 per share   Services valued at $165,000
Ben Ad Goldwater  05/18/2017   50,000   $1.00 per share   Subscription Agreement
Yosef Cohan  05/18/2017   40,000   $1.00 per share   Subscription Agreement
Short Trade Ltd.  04/04/2017   374,000   $2.00 per share   Subscription Agreement
FirstFire Global, Ltd.  04/04/2017   100,000   $2.00 per share   Subscription Agreement
Jeff Smurlick  05/27/2017   50,000   $2.00 per share   Subscription Agreement
Henful Pang  04/04/2017   40,000   $2.00 per share   Subscription Agreement
Evan Shear  04/06/2017   60,000   $1.00 per share   Subscription Agreement
Asher Tward  04/04/2017   25,000   $1.00 per share   Subscription Agreement
David Lithwick  04/07/2017   65,000   $1.00 per share   Subscription Agreement
Mark St. Amour  04/04/2017   50,000   $1.00 per share   Subscription Agreement
Michael Kodsi  04/06/2017   100,000   $1.00 per share   Subscription Agreement
Bronson Picket  04/06/2017   30,000   $1.00 per share   Subscription Agreement
Feinstein Corp.  04/04/2017   25,000   $1.00 per share   Subscription Agreement
Lyons Capital Ltd.  04/05/2017   75,000   $2.93 per share   Services valued at $219,750
Asher Tward  05/23/2017   50,000   $1.79 per share   Conversion of $89,500 in debt
Evan Shear  05/23/2017   50,000   $1.79 per share   Conversion of $89,500 in debt
Jeff Smurlick  05/23/2017   50,000   $1.79 per share   Conversion of $89,500 in debt
Gil Cohan  05/23/2017   50,000   $1.79 per share   Conversion of $89,500 in debt
JFS Investments, Inc.  11/14/2017   450,000   $1.198 per share   Services valued at $539,100
Lyons Capital LLC  12/13/2017   75,000   $1.24 per share   Services valued at $93,000
Amir Uziel Economic Consultant Ltd.  12/26/2017   250,000   $2.00 per share   Services valued at $500,000
Compliance Services Corp.  12/26/2017   25,000   $2.00 per share   Services valued at $50,000

 

21

 

 

The Registrant issuance of the above restricted Shares was in reliance upon the exemption from registration pursuant to Section 4(2) and Regulation S promulgated by the SEC under the Act.

 

Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers

 

None.

 

Item 6. Selected Financial Data.

 

A smaller reporting company is not required to provide the information required by this item.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Certain statements contained in this Annual Report, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of the Company and the services we expect to offer and other statements contained herein regarding matters that are not historical facts, are “forward-looking” statements. Future filings with the Securities and Exchange Commission, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may contain forward-looking statements, because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

 

Plan of Operations

 

The Company was incorporated in Delaware on February 12, 2010 under the name Solarflex Corp. for the purpose of developing, manufacturing and selling a solar photovoltaic element, a device that converts light into electrical flow (also known as a photovoltaic cell) based on certain proprietary technology to enable an increase in solar energy conversion and provide energy at a lower cost. We did not generate any revenues from the sale of any solar photovoltaic element, nor did we successfully manufacturer or construct a working prototype. We determined during the 4th quarter of 2015 to evaluate potential business opportunities.

 

On December 1, 2015, the Company entered into a license agreement (the “License Agreement”) with PT Kinerja Indonesia, an entity organized under the laws of Indonesia and controlled by Mr. Ng (“PT Kinerja”), for an exclusive, world-wide license to use and commercially exploit certain technology and intellectual property (the “KinerjaPay IP”) and its website, KinerjaPay.com. Pursuant to the License Agreement, the Company was granted the exclusive, world-wide rights to the KinerjaPay IP, an e-commerce portal.

 

In connection with the License Agreement, we agreed to: (i) change the name of the Company from Solarflex Corp to KinerjaPay Corp.; (ii) implement a reverse split of our common stock on a one-for-thirty (1:30) basis; and raise equity capital in the minimum offering amount of $500,000 and the maximum offering amount of $2,500,000 through the offering of units at a price of $0.50, each Unit, each consisting of 1 share of common stock (post-reverse) and 1 class A warrant exercisable for a period of 24 months to purchase 1 additional share of common stock (post-reverse) at $1.00. The Unit Offering was made only to “accredited investors” who are not U.S. Persons in reliance upon Regulation S promulgated by the SEC under the Securities Act of 1933, as amended (the “Act”). On January 20, 2016, the Company closed the Minimum Offering after it received subscription proceeds in excess of $500,000. To date, we have raised $1,105,000 under the Unit Offering, while the Unit Offering is continuing.

 

On March 10, 2016, the Company’s name change to KinerjaPay Corp. and its one-for-thirty reverse stock split became effective. The Company’s shares of common stock are subject to quotation on the OTCQB market under the symbol KPAY.

 

On August 31, 2016, the Registrant and its wholly-owned Indonesian subsidiary, PT. Kinerja Pay Indonesia, entered into an a Cooperation and Service Agreement with Black Grace Investment Ltd, organized under the laws of the British Virgin Island (“Black Grace”) and its affiliate, PT. Pay Secure Online Indonesia, organized under the laws of Indonesia. Pursuant to this Agreement, PT/ PaySec granted PT. Kinerja Pay the right to use the PT. PaySec’s payment services (“Payment Services”) under a revenue sharing arrangement. As consideration for the use of the Payment Services, the Registrant agreed to issue 200,000 restricted shares to Black Grace or its designee. As further consideration for the use of the Payment Services, the Parties agreed that to share the net revenues generated from the use of the Payment Services and e-wallet and payment gateway technology on a 50/50 basis.

 

On September 8, 2016, PT. Kinerja Pay entered into a second Cooperation and Service Agreement with PT. Indonesia EnamDua, organized under the laws of Indonesia (“PT.IED”), which owns 62hall.co.id, an integrated wholeseller that sells online a wide range of products and services, an online search engine and extensive customer services. Pursuant to this Agreement, the parties agreed to share resources in connection with the development of PT, Kinerja Pay’s new e-commerce portal, KinerjaMall.com. In consideration for PT.IED’s services, the parties agreed to allocate the profits, defined as an item’s selling price on KinerjaMall.com minus the cost price of the item sold, 90% to PT. Kinerja Pay and 10% to PT.IED.

 

On April 10, 2017, the Company announced that customers are now able to use its platform to make payments to state-run Pegadaian, the largest provider of fiduciary services and credit across Indonesia.

 

Our principal products and services are (i) our electronic payment service (the “EPS”); and (ii) our virtual marketplace (the “Marketplace”) both of which are available on our portal under the domain name KinerjaPay.com (the “Portal”). Our Android-based mobile app not only serves as an extension of desktop or laptop access to our website but has additional in-app services that cater to mobile users, such as social engagement and digital entertainment (the “Mobile App”). We believe that in combining our EPS function (“PAY”) with the ability to buy and sell products via our virtual marketplace (“Buy”) enhanced by a gamification component (“Play”) our customers and merchants increase their loyalty to our services.

 

22

 

 

Indonesia, the world’s fourth most-populous country, having a population estimated to be 255 million people, is becoming an economic power in the Southeast Asia region. Over 50% of its population is below the age of 30 and we believe that the young Indonesian population is highly adaptive to new technology. The rise of Smartphones and tablets that sell for less than US$100 is rapidly broadening internet access and pushing the Indonesian e-commerce market toward a critical point in terms of scale and profitability, in spite of significant challenges due to poor infrastructure and payment systems. The number of internet users is excepted to double to 125 million by 2017 and Smartphone ownership is to rise from 20 per cent to 52 per cent in the same period, the highest percentage compared to other Southeast Asian countries, according to Redwing, an advisory group.

 

Notwithstanding our belief that our Portal represents a significant advance as compared to other Indonesian portals, there are a number of potential difficulties that we might face, including the following:

 

We may not be able to raise sufficient additional funds to fully implement our business plan and grow our business;

● Competitors may develop alternatives that render our Portal services redundant or unnecessary;

● Our proprietary technology may be shown to have characteristics that may render it insufficient for our business;

● Our Portal may not become widely accepted by consumers and merchants; and

● Strict, new government regulations and inappropriate e-commerce policies, especially in an emerging economy such as Indonesia, may hinder the growth of the e-commerce market.

 

During 2017, we raised $952,000from the private sale of equity securities. We expect to raise an additional $4.5 million during 2018. On November 3, 2017, the Company signed an investment agreement with Tangiers Global, LLC (“Tangiers”), of which Tangiers shall invest up to $10,000,000 by purchasing the Company’s Common Stock.

 

Results of Operations during the twelve months ended December 31, 2017 as compared to the twelve months ended December 31, 2016

 

During the twelve months ended December 31, 2017, we generated revenues of net revenues from a related party of ($106,262) as compared to no revenues in during the twelve months ended December 31, 2016.

 

During the twelve months ended December 31, 2017, we had a total general and administrative expenses of $5,597,398 comprised of marketing expenses of $148,187, general and administrative expense of $5,446,336 and $2,875 in depreciation expense. During the twelve months ended December 31, 2016, we had total general and administrative expenses of $2,688,144 comprised of $2,687,855 in general and administrative expense and $289 in depreciation expense.

 

We had a loss from operations during the twelve months ended December 31, 2017 and 2016 of $5,703,660 and $2,688,144, respectively.

 

During the twelve months ended December 31, 2017 and 2016, we had interest expenses of $44,851 as compared to $648 in the same period in the prior year. During the twelve months ended December 31, 2017 and 2016, we had expenses related to amortization of debt discount of $21,275 and $0, respectively. We expensed losses due to debt extinguishments of $396,007 in 2017 as compared to $9,003 in the same period in the prior year.

 

Our total costs and expenses during the twelve months ended December 31, 2017 and 2016 were $462,133 and $2,697,795, respectively.

 

During the twelve months ended December 31, 2017, we had a net loss of $6,165,793 as compared to a net loss of $2,697,795 in 2016.

 

Liquidity and Capital Resources

 

On December 31, 2017, we had $248,227 in current assets consisting of $160,629 in cash, $20,900 in accounts receivable from a related party, $2,687 in other receivable, $22,861 in prepaid expenses, and deposits of $41,150.

 

On December 31, 2016, we had $77,738 in current assets consisting of $32,591 in cash, $16,181 in restricted cash and $28,966 in prepaid expenses.

 

We had fixed assets of $12,596 as of December 31, 2017 and $3,845 as of December 31, 2016. We had other assets of $266,045 and $0 at December 31, 2017 and 2016, respectively. We had total assets of $526,868 as of December 31, 2017 and $81,583 as of December 31, 2016.

 

As of December 31, 2017, we had total current liabilities of $641,777 consisting of accounts payable of $2,794, tax payable of $8,092, accrued interest of $44,851, accrued expenses of $53,022, accounts payable to an affiliate of $52,673 and notes payable, net, of $480,345.

 

As of December 31, 2016, we had total current liabilities of $157,663 consisting of accounts payable of $3,461, tax payable of $95, accrued expenses of $4,107 and unissued stock subscriptions of $150,000. We had no long-term liabilities as of December 31, 2017 and 2016.

 

We used $1,423,362 in our operating activities during the twelve months ended December 31, 2017, which was due to a net loss of $6,165,793 offset by depreciation and amortization expense of $24,150, a loss on extinguishment of debt of $396,007, non-cash compensation charges of $4,627,475, an increase in accounts receivable of $23,587, an increase in prepaid expenses of $35,045, an increase in other assets of $200,337, a decrease in accounts payable of $89,997 and an increase in accrued liabilities of $43,766.

 

23

 

 

We used $1,301,701 in our operating activities during the twelve months ended December 31, 2016, which was due to a net loss of $2,697,795 offset by depreciation expense of $289, a loss on extinguishment of debt of $9,003, non-cash compensation charges of $1,508,133, an increase in prepaid expenses of $28,966, a decrease in accounts payable of $96,457 and an increase in accrued liabilities of $4,092.

 

We financed our negative cash flow from operations during the twelve months ended December 31, 2017 through the issuance of common stock of $952,000 and proceeds from the issuance of debt of $595,000.

 

We financed our negative cash flow from operations during the twelve months ended December 31, 2016 through the issuance of common stock of $1,105,000 and $7,947 in contributed capital offset by principal debt payments of $8,689.

 

We had investing activities of $11,626 during the twelve months ended December 31, 2017 related to the purchase of fixed assets. We had investing activities of $4,134 during the twelve months ended December 31, 2016 related to the purchase of fixed assets.

 

Availability of Additional Capital

 

During 2017, we raised $1,547,000 from the private sale of equity and debt securities. We expect to raise an additional $4.5 million during the next 12 months to fully implement our business plan and fund our operations. On November 3, 2017, the Company signed an investment agreement with Tangiers Global, LLC (“Tangiers”), of which Tangiers shall invest up to $10,000,000 by purchasing the Company’s Common Stock.

 

There can be no assurance that we will continue to be successful in raising equity capital and/or debt financing and have adequate capital resources to fund our operations or that any additional funds will be available to us on favorable terms or in amounts required by us. If we determine that it is necessary to raise additional funds, we may choose to do so through public or private equity or debt financing, a bank line of credit, or other arrangements. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some or all of our plan of operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.

 

Any additional equity financing may be dilutive to our stockholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock. Debt or equity financing may subject us to restrictive covenants and significant interest costs.

 

Capital Expenditure Plan During the Next Twelve Months

 

During 2017, we raised $1,547,000 from the private sale of equity and debt securities. We expect to raise an additional $4.5 million during the next 12 months to fully implement our business plan and fund our operations.

 

We plan to use these funds for significant investments in sales and marketing, concentrating principally on online advertising and incentivizing existing customers for the introduction of new customers, among other strategies. However, there can be no assurance that: (i) we will continue to be successful in raising equity capital in sufficient amounts and/or at terms and conditions satisfactory to the Company; or (ii) we will generate sufficient revenues from operations, to fulfill our plan of operations. Our revenues are expected to come from the sale of our portal services. As a result, we will continue to incur operating losses unless and until we are able to generate sufficient cash flow to meet our operating expenses and fund our planned sales and market efforts. There can be no assurance that the market will adopt our portal or that we will generate sufficient cash flow to fund our enhanced sales and marketing plan. In the event that we are not able to successfully: (i) raise equity capital and/or debt financing; or (ii) market and significantly increase the number of portal users and revenues from such users, our financial condition and results of operations will be materially and adversely affected and we will either have to delay or curtail our plan for funding our sales and marketing efforts.

 

Going Concern Consideration

 

Our registered independent auditors have issued an opinion on our financial statementsfor the year 2017 which includes a statement describing our going concern status. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until we begin marketing the product. Accordingly, we must raise capital from sources other than the actual sale of the product. We must raise capital to implement our project and stay in business.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2017 and 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.

 

Contractual Obligations and Commitments

 

As of December 31, 2017 and 2016, we did not have any contractual obligations.

 

Critical Accounting Policies

 

Our significant accounting policies are described in the notes to our financial statements for the year ended December 31, 2017 and 2016, and are included elsewhere in this annual report.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

A smaller reporting company is not required to provide the information required by this item.

 

24

 

 

Item 8. Financial Statements and Supplementary Data.

 

Index to Financial Statements

 

Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets as of December 31, 2017 and 2016 F-2
Consolidated Statements of Operations for the Years Ended December 31, 2017 and 2016 F-3
Consolidated Statements of Comprehensive Income (Loss) F-4
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2017 and 2016 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016 F-6
Notes to Consolidated Financial Statements F-7

 

25

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and
Stockholders of KinerjaPay Corp.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of KinerjaPay Corp. (the Company) as of December 31, 2017 and 2016, and the related statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ M&K CPAS, PLLC  
We have served as the Company’s auditor since 2013.  
Houston, TX  
April 19, 2017  

 

F-1

 

 

KinerjaPay Corp.

Consolidated Balance Sheets

As of December 31, 2017 and 2016

 

   December 31, 2017   December 31, 2016 
ASSETS          
Current assets:          
Cash  $160,629   $48,772 
Accounts receivable - related party   20,900    - 
Other receivable   2,687    - 
Prepaid expenses   22,861    28,966 
Deposits   41,150    - 
Total current assets   248,227    77,738 
           
Other assets, net of amortization   266,045    - 
Equipment, net of accumulated depreciation   12,596    3,845 
           
Total Assets  $526,868   $81,583 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities:          
Accounts payable - trade  $2,794    3,461 
Tax payable   8,092    95 
Accrued interest   44,851    - 
Accrued expenses   53,022    4,107 
Unissued stock subscriptions   -    150,000 
Payable to Affiliate   52,673    - 
Notes payable, net of discount, contingently convertible   480,345    - 
Total current liabilities   641,777    157,663 
           
Total liabilities   641,777    157,663 
           
Stockholders’ Equity (Deficit):          
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized: none issued   -    - 
Common stock, par value $0.0001 per share; 500,000,000 shares authorized; 15,803,021 issued and 12,461,036 outstanding at December 31, 2017 and 8,627,013 shares issued and outstanding at December 31, 2016   1,245    862 
Additional paid-in capital   9,457,265    3,508,529 
Accumulated deficit   (9,751,419)   (3,585,626)
Stock payable   178,000    - 
Accumulated other comprehensive income   -    155 
Total stockholders’ (equity) deficit   (114,909)   (76,080)
Total Liabilities and Stockholders’ Equity (Deficit)  $526,868   $81,583 

 

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

 

F-2

 

 

KinerjaPay Corp.

Consolidated Statements of Operations

For the Years ended December 31, 2017 and 2016

 

   Year Ended   Year Ended 
   December 31, 2017   December 31, 2016 
         
Net revenue - related party  $(106,262)  $- 
           
Expenses:          
Marketing Expense   148,187    - 
General and administrative   5,446,336    2,687,855 
Depreciation expense   2,875    289 
Total general and administrative expenses   5,597,398    2,688,144 
           
(Loss) from operations   (5,703,660)   (2,688,144)
           
Other income (expense)          
Interest expense   (44,851)   (648)
Amortization of debt discount   (21,275)   - 
Loss of extinguishment of debt   (396,007)   (9,003)
Total costs and expenses   (462,133)   (2,697,795)
           
Net loss before for income taxes   (6,165,793)   (2,697,795)
Income taxes   -    - 
Net loss  $(6,165,793)  $(2,697,795)
           
Basic and diluted per share amounts:          
Basic and diluted net loss  $(0.53)  $(0.35)
           
Weighted average number of common shares outstanding (basic and diluted)   11,628,462    7,701,722 

 

The accompanying notes to the consolidated financial statements are integral part of these financial statements.

 

F-3

 

 

KinerjaPay Corp.

Consolidated Statements of Comprehensive Income (Loss)

For the Twelve Months Ended December 31, 2017 and 2016

 

   Year Ended   Year Ended 
   December 31, 2017   December 31, 2016 
         
Net loss  $(6,165,793)  $(2,697,795)
Other comprehensive loss adjustments, net of tax:          
Foreign currency translation adjustments   -    155 
Total other comprehensive income, net of tax   -    155 
Total comprehensive loss, net of tax  $(6,165,793)  $(2,697,640)

 

The accompanying notes to the consolidated financial statements are integral part of these financial statements.

 

F-4

 

 

KinerjaPay Corp.

Consolidated Statement of Changes in Stockholders’ Equity (Deficit)

For the Years Ended December 31, 2017 and 2016

 

       Additional            Accumulated
Other
   Total 
   Common Stock   Paid-In   Stock   Accumulated   Comprehensive   Stockholders’ 
   Shares   Amount   Capital   Payable  

Deficit

   Income (loss)   Equity 
Balance at December 31, 2015   4,654,680   $465   $863,093   $   $(887,831)  $-   $(24,273)
Shares issued for cash   2,210,000    221    1,104,779    -    -    -    1,105,000 
Stock issued to settle accounts payable   30,000    3    24,750    -    -    -    24,753 
Shares issued for services   1,733,333    173    1,507,960    -    -    -    1,508,133 
Contributed capital   -    -    7,947    -    -    -    7,947 
Foreign currency translation adjustments   -    -    -    -    -    155    155 
Net loss   -    -    -    -    (2,697,795)   -    (2,697,795)
Balance at December 31, 2016   8,627,013   $862   $3,508,529   $-   $(3,585,626)  $155   $(76,080)
Shares issued for cash   1,359,000    136    901,864    50,000    -    -    952,000 
Shares issued for services   2,275,000    228    3,151,623    128,000    -    -    3,279,850 
Loss on warrants for debt conversion   -    -    138,007    -    -    -    138,007 
Beneficial conversion features   -    -    51,638    -    -    -    51,638 
Stock-based compensation   -    -    1,347,624    -    -    -    1,347,624 
Debt converted   200,000    20    357,980    -    -    -    358,000 
Shares reserved   3,342,008    -    -    -    -    -    - 
Foreign currency translation adjustments   -    -    -    -    -    (155)   (155)
Net loss   -    -    -    -    (6,165,793)   -    (6,165,793)
Balance at December 31, 2017   15,803,021   $1,245   $9,457,265   $178,000   $(9,751,419)  $-   $(114,909)

 

The accompanying notes to the consolidated financial statements are integral part of these financial statements.

 

F-5

 

 

KinerjaPay Corp.

Consolidated Statements of Cash Flows

For the years ended December 31, 2017 and 2016

 

   Year Ended   Year Ended 
   December 31, 2017   December 31, 2016 
Cash flows from operating activities:          
Net loss  $(6,165,793)  $(2,697,795)
Adjustments required to reconcile net (loss) to net cash (used in) operating activities:          
Depreciation and amortization   24,150    289 
Amortization of debt discount   -    - 
Loss on extinguishment of debt   396,007    9,003 
Stock-based compensation   1,347,624    - 
Common stock issued for services   3,279,850    1,508,133 
Changes in net assets and liabilities:          
(Increase) decrease in accounts receivable   (23,587)   - 
(Increase) decrease in prepaid expenses   (35,045)   (28,966)
(Increase) decrease in other assets   (200,337)   - 
Increase (decrease) in accounts payable   (89,997)   (96,457)
Increase (decrease) in accrued liabilities   43,766    4,092 
Net cash used in operating activities   (1,423,362)   (1,301,701)
           
Cash flows from investing activities:          
Purchase of equipment   (11,626)   (4,134)
Net cash used in investing activities   (11,626)   (4,134)
           
Cash flows from financing activities:          
Proceeds from issuance of common stock   952,000    1,105,000 
Proceeds of debt   595,000    - 
Contributed capital   -    7,947 
Principal payments made on debt   -    (8,689)
Net cash provided by financing activities   1,547,000    1,104,258 
           
Foreign currency translation adjustments   (155)   155 
           
Net (decrease) increase in cash   112,012    (201,422)
Cash - Beginning of period   48,772    250,194 
Cash - End of period  $160,629   $48,772 
           
Supplemental disclosure:          
Non-cash transactions          
Debt discount attributable to beneficial conversion feature  $51,638   $- 
Stock issued to settle debt  $100,000   $15,750 
Debt issued for equity commitment  $75,000   $- 

 

The accompanying notes to consolidated financial statements are integral part of these financial statements.

 

F-6

 

 

KinerjayPay Corp.
Notes to Consolidated Financial Statements

 

1. The Company and Significant Accounting Policies

 

Organizational Background: The Company was incorporated under the laws of the State of Delaware on February 12, 2010 as Solarflex Corp. The business plan of the Company was to develop a commercial application of the design in a patent of a “Solar element and method of manufacturing the same”. On November 10, 2015 this plan was abandoned and all related contracts and agreements rescinded.

 

On December 1, 2015, the Company entered into a license agreement with PT Kinerja Indonesia, an entity organized under the laws of Indonesia and controlled by Mr. Ng (“PT Kinerja”), for an exclusive, world-wide license to use and commercially exploit certain technology and intellectual property and its website, KinerjaPay.com. Pursuant to the License Agreement, the Company was granted the exclusive, world-wide rights to the KinerjaPay IP, an e-commerce platform that provides users with the convenience of e-wallet service for bill transfer and online shopping and is among the first portals to allow users the convenience to top-up phone credit. In conjunction with the agreement the company changed its name from Solarflex Corp. to KinerjaPay Corp. On April 6, 2016, P.T. Kinerja Pay Indonesia, a subsidiary, was organized under the laws of Indonesia.

 

The accompanying financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting.

 

Basis of Presentation:

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established sufficient revenue to cover its operating costs, and as such, has incurred an operating loss since inception. Further, as of December 31, 2017, the cash resources of the Company were insufficient to meet its current business plan. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

Principles of Consolidation:

 

The financial statements include the accounts of KinerjaPay Corp. and its wholly owned subsidiary PT KinerjaPay, Indonesia. All significant inter-company balances and transactions have been eliminated.

 

Significant Accounting Policies

 

Use of Estimates:

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

 

Cash and Cash Equivalents:

 

For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. There were no cash equivalents as of December 31, 2017 and December 31, 2016.

 

Property and Equipment:

 

New property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.

 

Valuation of Long-Lived Assets:

 

We review the recoverability of our long-lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.

 

F-7

 

 

Foreign Currency:

 

Non-U.S. entity operations are recorded in the functional currency of each entity. Results of operations for non-U.S. dollar functional currency entities are translated into U.S. dollars using average currency rates or actual action date currency rate. Assets and liabilities are translated using currency rates at period end. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity.

 

Stock Based Compensation:

 

Stock-based awards are accounted for using the fair value method in accordance with ASC 718, Share-Based Payments. Our primary type of share-based compensation consists of stock options. We use the Black-Scholes option pricing model in valuing options. The inputs for the valuation analysis of the options include the market value of the Company’s common stock, the estimated volatility of the Company’s common stock, the exercise price of the warrants and the risk-free interest rate.

 

Accounting For Obligations And Instruments Potentially To Be Settled In The Company’s Own Stock:

 

We account for obligations and instruments potentially to be settled in the Company’s stock in accordance with FASB ASC 815, Accounting for Derivative Financial Instruments. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company’s own stock.

 

Fair Value of Financial Instruments:

 

FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At December 31, 2017 and December31, 2016, the carrying value of certain financial instruments (cash and cash equivalents, accounts payable and accrued expenses.) approximates fair value due to the short-term nature of the instruments or interest rates, which are comparable with current rates.

 

Fair Value Measurements:

 

The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are:

 

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

 

Level 2: Inputs to the valuation methodology include:

 

- Quoted prices for similar assets or liabilities in active markets;
- Quoted prices for identical or similar assets or liabilities in inactive markets;
- Inputs other than quoted prices that are observable for the asset or liability;
- Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

 

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The assets or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following table presents assets that were measured and recognize at fair value on December 31, 2017 and December 31, 2016 and the years then ended on a recurring basis:

 

Fair Value Measurements at December 31, 2017  

 

         Quoted Prices in Active    Significant Other    Significant 
         Markets for Identical Assets    

Observable

Inputs

    

Unobservable

Inputs

 
    Total    (Level 1)    (Level 2)    (Level 3) 
None  $-   $-   $-   $- 
Total assets and liabilities at fair value  $-   $-   $-   $- 

 

Fair Value Measurements at December 31, 2016  

 

         Quoted Prices in Active    Significant Other    Significant 
         Markets for Identical Assets    

Observable

Inputs

    

Unobservable

Inputs

 
    Total    (Level 1)    (Level 2)    (Level 3) 
None  $-   $-   $-   $- 
Total assets and liabilities at fair value  $-   $-   $-   $- 

 

F-8

 

 

When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended December 31, 2017 and 2016, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels.

 

Earnings per Common Share:

 

We compute net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

Common Stock Split:

 

On January 15, 2016 we declared a reverse split of our common stock. The formula provided that every thirty (30) issued and outstanding shares of common stock of the Corporation be automatically split into one (1) share of common stock. The reverse split was effective upon receipt of approval from FINRA. Except as otherwise noted, all share, option and warrant numbers have been restated to give retroactive effect to this split. All per share disclosures retroactively reflect post-split shares.

 

Revenue from Purchased Products:

 

Pursuant to ASC 605, we recognize our revenue at net since we are an agent and not a principal to the various transactions with other financial institutions and or technology companies through our leased portal. We have eight different revenue streams. Gross revenue from the various steams were as follows: Mobile phone prepaid $2,291,067, Kinerja Store $463, Payment Gateway Services $9, Instant Pay Fees Collection $68,431, Marketplace Merchant Partners $203, Marketplace Merchant Users $11, Remittance $29,180, and Unipin $3,179. Gross cost of goods sold exceeded gross revenues for the year ended December 31, 2017. We recognize revenue when the four criteria of revenue have been met which includes 1) Persuasive evidence of an arrangement, 2) services and or delivery being rendered, 3) the price is fixed or determinable and 4) collectability is reasonably assured.

 

Other Assets:

 

Other assets consist of cash payments made to Ace Legends Pte. Ltd. in connection with a partnership in game development for a total of $60,000, as of December 31, 2017. The Company entered into an agreement with Ace Legends Pte Ltd on July 31, 2017, which agreement was amended to commence on December 1, 2017. The agreement is for a period of 18 months and as part of the agreement, the Company agreed to issue 80,000 shares of common stock that were valued at $128,000 the date of the agreement. The shares remain unissued as of December 31, 2017, but are included as an asset of the Company. As of December 31, 2017, $9,292 of amortization expense has been recognized.

 

On November 3, 2017, the Company issued a commitment fee note payable of $75,000 to Tangiers Global, LLC in connection with an investment agreement as discussed throughout the report. The Company did not receive cash in connection with this commitment fee note. We recorded the commitment fee as an asset that will be netted with funds received once shares of common stock are issued under the investment agreement. As of December 31, 2017, no shares have been issued resulting in the outstanding asset of $75,000.

 

Accounts Receivable - Related Party:

 

Accounts receivable consist primarily of trade receivables from a related party. The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $0 at December 31, 2017 and 2016, respectively.

 

Income Taxes:

 

We have adopted ASC 740, Accounting for Income Taxes. Pursuant to ASC 740, we are required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

 

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

 

F-9

 

 

Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which we make the determination. Our tax rate may also vary based on our results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.

 

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

 

ASC 740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.

 

Uncertain Tax Positions:

 

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of FASB ASC 740-10, Accounting for Uncertain Income Tax Positions, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2013. We are not under examination by any jurisdiction for any tax year. At December 31, 2017 we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required under FASB ASC 740-10.

 

Recent Accounting Pronouncements

 

Deferred Income Taxes: In November 2015, amended guidance was issued for the balance sheet classification of deferred income taxes. The amended guidance requires the classification of all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Early adoption is permitted.

 

Leases: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the current leasing guidance and upon adoption, will require lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for the Company for the annual period beginning after December 15, 2018 and can be early adopted by applying a modified retrospective approach for leases existing at, and entered into after, the beginning of the earliest comparable period presented in the financial statements. We are evaluating the impact of the adoption of this standard on our Consolidated Financial Statements.

 

Business Acquisitions: In January 2017, FASB issued Accounting Standards Update No. 2017-01 (ASU 2017-01) “Clarifying the Definition of a Business.” The new guidance clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance will become effective for us beginning in the first quarter of 2018. Early adoption is permitted. We are evaluating the impact of the adoption of this standard on our Consolidated Financial Statements.

 

On July 13, 2017, the FASB has issued a two-part Accounting Standards Update (ASU), No. 2017-11, I. Accounting for Certain Financial Instruments. With Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted.

 

Management does not anticipate that the adoption of these standards will have a material impact on the financial statements.

 

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States 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. On an on-going basis, we evaluate our estimates, including those related intangible assets, income taxes, insurance obligations and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions.

 

F-10

 

 

2. Prepaid Expenses

 

Prepaid assets represent advance payments to suppliers and purchase deposits to vendors. The Company paid in advance $22,861 for professional fees, rents and other prepaid expenses. Its annual Indonesian office represents $16,243 of these deposits in 2017 an $6,618 represents other prepaid expenses. Deposits to vendors of $41,150 represent prepayments to third party vendors who provide the Company with vouchers, prepaid phone credit, etc, that the Company sells through it licensed portal. The Company deposits cash, as needed, to the vendors and once the sale is made, the vendors deduct the deposit from their account. Each transaction is done electronically to record the purchase (to the vendors) and the sale (to the user), and the products are then transferred to the users. Once the transaction is executed, it cannot be cancelled or refunded by the Company to the vendors. The unused funds can only be refunded to the Company upon the termination of the agreement with the vendors, and only after both parties settle their obligations. The Company is independent in setting up the selling price of each product.

 

   December 31 
   2017   2016 
Individual components giving rise to prepaid expenses are as follows:  $    $  
Professional fees, rent and other prepaid expenses   22,861    28,966 
Third party vendor deposits   41,150    - 
Total  $64,011   $28,966 

 

3. Stockholders’ Equity

 

On January 15, 2016 we amended our certificate of incorporation to increase authorized capital to include 10 million shares of $.0001 par value preferred shares. No preferred shares have been issued.

 

Issuance of Shares of Common Stock for Services during twelve months ended December 31, 2017

 

During the three months ended December 31, 2017, the Company authorized the issuance of 800,000 shares of Common Stock Lyon Capital LLC, Security Compliance Corp, Amir Uziel Economic Consulting Ltd and JFS Investment Inc. for the services provided by the entities. These shares were valued using the share price on the date of the grant, ranging from $1.19 to $2.00 resulting in an expense of $1,182,100.

 

Debt Conversion into Shares of Common Stock during the twelve months ended December 31, 2017

 

During the twelve months ended December 31, 2017, the Company agreed to convert $100,000 in debt into 200,000 shares of common stock and 200,000 warrants. The debt was non-convertible, and the borrowings took place on May 7, 2017, but were subsequently fully converted on May 23, 2017. As a result, the Company incurred a loss of $396,007 in connection with the shares issued, and a loss of $138,007 in connection with the warrants issued, which was recorded as additional paid-in capital.

 

Shares Underlying Convertible Notes Issued during the twelve months ended December 31, 2017

 

In connection with the Company’s investment agreement with Tangiers Global as discussed throughout the report, the Company issued a commitment fee note payable of $75,000 to Tangiers. The commitment fee note payable bears an interest rate of 10% and is due on June 17, 2018. The note has conversion price of $1.25, but in case of default, the conversion price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.

 

On November 9, 2017, the Company executed a 10% fixed convertible promissory note payable to Tangiers Global LLC in the principal amount of $330,000. The note, which is due eight months from the date mentioned above, was funded by the investor in the initial sum of $150,000 on November 15, 2017 and $150,000 on December 19, 2017. The note is convertible into shares of Common Stock at a conversion price of $1.3 per share if converted within 8 months, or thereafter the conversion price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.

 

On December 1, 2017, the Company executed an 8% fixed convertible promissory note payable to Crossover Capital Fund I, LLC in the principal amount of $115,000. The note is due eight months from the date as mentioned above. The note is convertible into shares of Common Stock at a conversion price of $1.3 per share if converted within 8 months, or thereafter the conversion price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.

 

F-11

 

 

In accordance with ASC 470, the Company has analyzed the beneficial nature of the initial conversion terms of the fixed convertible notes and determined that a beneficial conversion feature (BCF) exists because the effective conversion price was lower than the quoted market price at the time of the issuance. As of December 31, 2017, the Company recognized a $51,638 BCF, and amortization expenses of $11,983 on the discount.

 

As of December 31, 2017, the Company reserved 3,342,008 shares underlying the convertible notes as discussed above.

 

In December 2017, the Company made a cash payment to Ace Legends Pte. Ltd. in connection with a partnership in game development for a total of $60,000. The Company entered into an agreement with Ace Legends Pte Ltd on July 31, 2017, which agreement was amended to commence on December 1, 2017. The agreement is for a period of 18 months and as part of the agreement, the Company agreed to issue 80,000 shares of common stock that were valued at $128,000 the date of the agreement. The shares remain unissued as of December 31, 2017, but are included as an asset of the Company.

 

Common Stock and Warrants Issued for Cash during the twelve months ended December 31, 2017

 

During the three months ended September 30, 2017, the Company authorized the issuance of 181,818 shares of common stock for cash at $1.10 per share for a total to be earned of $200,000. As of December 31, 2017, none of these shares have been issued and outstanding even though the Company received $50,000 with respect to these shares. As a result, the Company recorded $50,000 in stock payable as of December 31, 2017.

 

During the twelve months ended December 31, 2017, the Company received $902,000 through a placement of 1,359,000 common stock units to investors for an offering price of $0.50 and $1.00 per unit. Each unit consisted of one share of common stock and one warrant to purchase common stock. The 964,000 warrants are exercisable at $2.00 and $1.00 and expire one year from the date of issuance. The warrants were valued using the Black-Scholes pricing model to estimate the relative fair value of $404,767. The Black-Sholes-Merton pricing model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 1.36%; expected volatility between 179% and 181%, and warrant exercise period based upon the stated terms. The warrants were classified within stockholders’ equity.

 

Stock-Based Compensation during the twelve months ended December 31, 2017

 

During the twelve months ended December 31, 2017, the Company issued 1,475,000 fully vested shares of the Company common stock and 2,050,000 warrants to consultants as payment for services. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grants was recognized as an increase additional paid-in capital at the measurement date. The shares were valued at the closing price as of the date of the underlying agreements (ranging from $0.65 to $2.93).

 

The warrants were valued using the Black-Scholes pricing model to estimate the fair value of $1,251,821 and resulted in current recognition in additional consulting services. The Black-Sholes pricing model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 1.21%; expected volatility between 179% and 185%, and warrant exercise period based upon the stated terms.

 

During the three months ended December 31, 2017, the Company issued 800,000restricted shares of the Company common stock as payment for services.

 

Debt Conversion into Shares of Common Stock during the twelve months ended December 31, 2016

 

On February 19, 2016 we issued 30,000 shares of our common stock in settlement of $15,750 in accounts payable. The settlement resulted in a loss of $9,003. The shares were valued at $24,753 at the date of settlement. The loss is reflected as additional paid-in capital.

 

Stock issued upon completion of Regulation S offering during the twelve months ended December 31, 2016

 

We received $1,105,000 through a placement of common stock units. Each unit consists of one share of common stock and one warrant to purchase common stock. The units were sold for the offering price of $0.50 per unit and resulted in the issuance of 2,210,000 shares of common stock and 2,210,000 warrants. The warrants are exercisable at $1.00 and expire two years from the date of issuance and had a fair market value of $425,425.

 

Stock-Based Compensation during the twelve months ended December 31, 2016

 

On February 19, 2016, we issued 1,333,333 shares of our common stock to Mr. Ng (an officer and director of the company) individually and as control person of PT Kinerja as payment for services as part of a service agreement resulting from the license agreement. The shares were valued at the closing price as of the date of the agreement ($0.9001) and resulted in full recognition of $1,200,133 in consulting services expense.

 

On June 15, 2016, we issued 300,000 shares of our common stock to an unrelated party as payment for a service agreement. The shares were valued at the closing price as of the date of the agreement ($0.77) and resulted in full recognition of $231,000 in consulting services expense.

 

In July 2016, we issued 100,000 shares of our common stock to an unrelated party as payment for a service agreement. The shares were valued at the closing price as of the date of the agreement ($0.77) and offset by $1,000 in cash received for the shares. This resulted in full recognition of the excess of fair value over cash received of $77,000 as consulting services expense.

 

The Company received $150,000 in proceeds from a stock rights offering. The $150,000 will remain a liability until the full minimum offering of $500,000 s met and completed. Unspent funds are segregated and reported as $16,181 restricted cash on the accompanying balance sheet and a deficiency of $133,819 as of December 31, 2016.

 

Contributed Capital in 2016

 

We received $7,947 in cash from a related party. As the Company was not obligated to issue shares of common stock or other forms of equity, the receipt was determined to be accounted for as contributed capital.

 

F-12

 

 

4. Notes Payable

 

On May 9, 2017, we had a $50,000 note payable outstanding to our CEO and control shareholder. The balance is due on demand and accrues interest at 8% per annum. As of December 31, 2017, $2,586 in accrued interest was due and was expensed during the twelve-months ended December 31, 2017.

 

During the twelve months ended December 31, 2017, the Company agreed to convert $100,000 in debt into 200,000 shares of common stock and 200,000 warrants. The debt was non-convertible, and the borrowings took place on May 7, 2017, but were subsequently fully converted on May 23, 2017. As a result, the Company incurred a loss of $396,007 in connection with the shares issued, and a loss of $138,007 in connection with the warrants issued, which was recorded as additional paid-in capital.

 

In connection with the Company’s investment agreement with Tangiers Global as discussed throughout the report, the Company issued a commitment fee note payable of $75,000 to Tangiers. The commitment fee note payable bears an interest rate of 10% and is due on June 17, 2018. The note has conversion price of $1.25, but in case of default, the conversion price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.

 

On November 9, 2017, the Company executed a 10% fixed convertible promissory note payable to Tangiers Global LLC in the principal amount of $330,000. The note, which is due eight months from the date mentioned above, was funded by the investor in the initial sum of $150,000 on November 15, 2017 and $150,000 on December 19, 2017. The note is convertible into shares of Common Stock at a conversion price of $1.3 per share if converted within 8 months, or thereafter the conversion price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.

 

On November 1, 2017, the Company executed an 8% fixed convertible promissory note payable to Crossover Capital Fund I, LLC in the principal amount of $115,000. The note is due eight months from the date as mentioned above. The note is convertible into shares of Common Stock at a conversion price of $1.3 per share if converted within 8 months, or thereafter the conversion price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.

 

The Tangiers Global fixed convertible promissory notes payable and the commitment fee note are guaranteed an interest payment of 10% of the beginning note balance. As such, the Company had to immediately expense the balances during 2017.

 

In accordance with ASC 470, the Company has analyzed the beneficial nature of the initial conversion terms of the fixed convertible notes and determined that a beneficial conversion feature (BCF) exists because the effective conversion price was lower than the quoted market price at the time of the issuance. As of December 31, 2017, the Company recognized a $51,638 BCF, and amortization expenses of $11,983 on the discount.

 

For the year ended December 31, 2017, the Company has recognized $44,851 in interest expense related to the notes as described above.

 

5. Related Party Transactions

 

On December 1, 2015, the Company entered into an agreement with PT Kinerja Indonesia, an entity organized under the laws of Indonesia (“PT Kinerja”), for an exclusive, world-wide license to use and commercially exploit certain KinerjaPay technology and intellectual property. Pursuant to the License Agreement and in consideration for the payment of royalties, the Company has been granted the exclusive, world-wide rights to the KinerjaPay IP, an e-commerce platform that provides users with the convenience of e-commerce services for bill transfer and online shopping. Mr. Ng is the control person of PT Kinerja and a controlling shareholder, CEO and Chairman of the Company.

 

On February 19, 2016, we issued 1,333,333 shares of our common stock to Mr. Ng, our CEO, sole director and control person. Mr. Ng is the sole officer and directors and control person of PT Kinerja, the other party to this agreement, as payment for services as part of a service agreement resulting from the license agreement. The shares were valued at the closing price as of the date of the agreement ($0.9001) and resulted in full recognition of $1,200,133 in consulting services expense.

 

The Company issued 1,333,333 restricted shares of common stock in 2016 to PT Kinerja Indonesia and paid a one-time set-up fee of $55,000.

 

As the Service Company, PT Kinerja collected the revenue from the platform and transfer it to the Company.

 

As of December 31, 2017, we had $52,673 in accounts payable due to our CEO consisting of a $50,000 loan and $2,673 in expenses paid on behalf of the Company by our CEO. The balance is due on demand and accrues interest at 8% per annum. As of December 31, 2017, $2,586 in accrued interest was due and was expensed during the twelve-months ended December 31, 2017.

 

All revenue received during 2017 was received from PT Kinerja Indonesia, which has the same control person residing at both companies. Pt Kinerja Indonesia receives payments from the portal that we license and then remits the funds back to us. We paid our sister company $324,131 for costs associated with servicing customers and maintaining the website and license agreement during 2017. As of December 31, 2017, we still owed them $51,759, which is reflected in accrued expenses.

 

As of December 31, 2017, we were owed an accounts receivable balance of $20,900, and once revenues are positively earned, we owe a 1% royalty fee on net revenues on a quarterly basis.

 

F-13

 

 

6. Income Taxes

 

We have adopted ASC 740 which provides for the recognition of a deferred tax asset based upon the value the loss carry-forwards will have to reduce future income taxes and management’s estimate of the probability of the realization of these tax benefits. Our net operating loss carryovers incurred prior to 2008 considered available to reduce future income taxes were reduced or eliminated through our recent change of control (I.R.C. Section 382(a)) and the continuity of business limitation of I.R.C. Section 382(c).

 

We have a current operating loss carry-forward of $2,156,022. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all our net deferred tax asset.

 

Future utilization of currently generated federal and state NOL and tax credit carry forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of NOL and tax credit carry forwards before full utilization.

 

   December 31 
   2017   2016 
Individual components giving rise to the deferred tax assets are as follows:  $   $ 
Future tax benefit arising from net operating loss carryover   754,608    354,799 
Less valuation allowance   (754,608)   (354,799)
Net deferred  $-   $- 

 

The Company is not under examination by any jurisdiction for any tax year. Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2014.

 

7. Legal Proceedings and Loss Contingencies

 

We accrue for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.

 

The Company has no current legal proceeding and did not accrue any loss for contingencies as of December 31, 2017.

 

8. Going Concern

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established sufficient revenue to cover its 2017 operating costs, and as such, has incurred an operating loss since inception. Further, as of December 31, 2017, the cash resources of the Company were insufficient to meet its current business plan. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

9. Subsequent Events

 

On January 2, 2018, the Company received $100,000 as a result of the exercise by an institutional investor of 100,000 Class C Warrants that had been originally issued as part of a unit purchase transaction in April 2017. The Class C Warrants were exercisable for a period of 12 months to purchase 100,000 shares of common stock at an exercise price of $1.00 per share.

 

On January 3 and January 4, 2018, the Company issued a total of 581,171 restricted shares to third parties in consideration for services valued at $1.82 per share based upon the price of the shares on the date of issuance.

 

On January 11, 2018, the Company entering into an Advisory Agreement with Blockchain Industries, Inc., a public Nevada corporation and Fintech Financial Consultants, Inc., a Nevada corporation. In connection with the Advisory Agreement, the Registrant agreed to issue 1,000,000 shares valued at $1.05 per share to Blockchain Industries, an “accredited investor,” as that term is defined in Rule 501 under Regulation D promulgated by the SEC under the Act.

 

On January 16, 2018, the Company issued 20,000 restricted shares to a key employee for services valued at $1.80 based upon the price of the shares on the date of issuance.

 

On February 9, 2018, the Company issued a total of 200,000 restricted shares to two parties in consideration for services valued at $0.97 per share based upon the price of the shares on the date of issuance.

 

On Janaury 23 and February 14, 2018, the Company issued a total of 200,000 restricted shares to third parties for services valued at $1.37 per share based upon the price of the shares on the respective dates of issuance.

 

On March 12, 2018, the Company issued 80,000 restricted shares to a third party for services valued at $1.05 per share based upon the price of the shares on the date of issuance.

 

On January 9, 2018, the Company entered into a Series A Convertible Preferred Stock Securities Purchase Agreement (the “Agreement”) with an institutional investor for an aggregate purchase price of $500,000 (the “Share Purchase Price”). The total net proceeds to the Registrant for issuance and sale of the Series A Convertible Preferred Stock (the “Preferred Stock”) was $445,000 after payment of due diligence and legal fees related to this transaction.

 

The Preferred Stock is convertible into 400,000 shares of the Registrant’s Common Stock, at a conversion price of $1.25 per share. In addition, the Registrant issued to the Investor Class N Warrants (the “Warrants”) exercisable to purchase 400,000 shares on a cashless basis, at an exercise price of $1.25 per Share, during a period of three (3) years from the date of the Agreement.

 

The issuances of the above-referenced restricted shares were made in reliance upon the exemptions provided in Section 4(2) of the Act and Regulation D and Regulation S promulgated by the SEC under the Act.

 

F-14

 

 

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A(T) Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of December 31, 2017, the Company’s chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were ineffective as of the end of the fiscal year 2017 under the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15. Internal control over financial reporting is defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act as a process designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2016 based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that, as of December 31, 2017, the Company’s internal control over financial reporting was not effective based on those criteria.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.

 

The Company recognizes the following weaknesses and deficiencies of the Company as of December 31, 2017:

 

We recognized the following deficiencies that we believe to be material weaknesses:

 

- The Company has not fully designed, implemented or assessed internal controls over financial reporting. Due to the Company being a development stage company, management’s assessment and conclusion over internal controls were ineffective this year.

 

We recognized the following deficiencies that we believe to be significant deficiencies:

 

- The Company has no formal control process related to the identification and approval of related party transactions.
- No formal written policy for the approval, identification and authorization of related party transactions currently exists.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

26

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Our directors were elected to serve until the next annual meeting of shareholders and until his respective successors will have been elected and will have qualified. The following table sets forth the name, age and position held with respect to our present executive officers and directors:

 

Name   Age   Title
Edwin Witarsa Ng   36   CEO and Chairman
Windy Johan   41   CFO
Deddy Oktomeo   47   CEO of P.T. Kinerja Pay Indonesia

 

Edwin Witarsa Ng, 36, was appointed to the Board of Directors, with the position of Chairman, on November 15, 2015. In 2007, Mr. Ng founded PT Kinerja, an Information Technology company organized under the laws of Indonesia with offices located in Medan, Indonesia and operations throughout Indonesia. PT Kinerja operates through the following units, among others: (i) KinerjaHosting, which is engaged in the business of providing data hosting to Companies and/or individuals, as well as website domains and VPS services; (ii) KinerjaNet, which is engaged in the business of Internet Service Provider by providing internet connectivity to corporate offices, households, and internet cafes; and (iii) Kinerja Technology, which is engaged in the business of Application Development, mobile app development, website development, and Software implementation such as ERP and CRM Software. PT Kinerja also partnered with IBM to build the first Tier 2+ Data Center in Medan City (KDC Medan). In February 2015, Mr. Ng started the business of KinerjaPay, an e-commerce payment gateway with marketplace platform. Since 2007, Mr. Ng serves as CEO and president of PT. Stareast Sejahtera Group, a Real Estate Development company with operations in Medan, Pekanbaru, and BintanIsland, Indonesia. Since 2007, the company has built and opened hotels and apartment complexes and conducted extensive development operations in Indonesia. In 2012, Mr. Ng established PT. GrahaPecatu Sejahtera, a Real Estate Development company for which he has served as CEO & President and built a four-star rated Condotel in BALI. Mr. Ng has other business interests engaged in asset management, tire distribution, marketing consultancy and hospitality.

 

Mr. Ng intends to devote 20% of his professional time to the business affairs of the Registrant.

 

Mr. Ng received his undergraduate degree from the University of Southern California (USC) School of Engineering, Los Angeles, CA in 2002 with a major in Management Information Systems and a Minor in SAP Implementation Systems and his post-graduate degree from the University of Toronto in 2004 with a major in Information Science.

 

The Board of Directors has concluded that Mr. Ng should serve as Director because of his extensive and diverse experience working with development teams and managing development efforts, which experiences he gained while working at and managing the above-referenced entities.

 

Windy Johan, 41, was appointed to serve as its new Chief Financial Officer on December7, 2017. Mr. Johan, has degrees as an Accountant from Gadjah Mada University, Indonesia and an MBA degree from University of Glouchestershire, United Kingdom. He is also a registered Chartered Accountant in IAI, Indonesian Institute of Accountants. From April 2014 through November 2017, Mr. Johan served as aFinance and Accounting Manager of Ancora Group, a corporate group investing in various industries including mining and mining services, hospitality, etc. In 2013, Mr. Johan served as Financial Controller of PT. Loka Wisata Asri, a resort and hotel company owning and operating resorts in Bali, Kota Bunga (Bogor) and Anyer.

 

Deddy Oktomeo, 47, was appointed as the new Chief Executive Officer of PT. Kinerja Pay Indonesia in July 2017. He has extensive an 17 years of experience as an entrepreneur in Hospitality Industry System Solution and 6 Years experience in Corporate and ERP solution with responsibilities in Product Design and Development, Project Management, Business Development and Company Setup, Operation and Support, Sales and Marketing and Finance for  industry Hospitality Industry (F&B and Hotel), Retail, Distribution and Manufacturing, Tour & Travel and Property and Assets Management.From 2001 – 2004, Mr. Deddy Oktomeo served as Chief Technical Officer at Azec Indonesia Management Services , with duties developed Enterprise Resources Planning System for major shipping, pharmaceutical and telco companies. Starting from 2004 to 2017, Mr. Deddy Oktomeo served as Chief Executive Officer with objectives to bring company as major system solution provider in Hospitality Industry with worldwide products and local owned products as one stop solution. Previously, from 1998 to 2001, Mr. Deddy Oktomeo served as Consultant Director at Baan Bisnis Sistem Indonesia, a Baan Enterprise Resources Planning System Solution that operate worldwide.

 

Mr. Deddy Oktomeo received his Bachelor Degree in Computer Science from STMIK Nina Nusantara, Jakarta, Indonesia in 1993.

 

Each Director of the Company serves for a term of one year or until the successor is elected at the Company’s annual shareholders’ meeting and is qualified, subject to removal by the Company’s shareholders. Our executive officer serves at the pleasure of the Board of Directors, for a term of one year and until the successor is elected at the annual or other meeting of the Board of Directors and is qualified.

 

We do not compensate our directors. We do not have any standing committees at this time.

 

Our director, officers or affiliates have not, within the past ten years, filed any bankruptcy petition, been convicted in or been the subject of any pending criminal proceedings, or is any such person the subject or any order, judgment or decree involving the violation of any state or federal securities laws.

 

27

 

 

Section 16(a) Compliance. Section 16(a) of the Securities and Exchange Act of 1934 requires that directors and executive officers, and persons who own beneficially more than ten percent (10%) of the Registrant’s Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Registrant pursuant to Section 16(a). Based solely on the reports received by the Registrant and on written representations from reporting persons, the Registrant was informed that our CEO has filed reports as required under Section 16(a). Based solely on the reports received by the Registrant and on written representations from reporting persons, the Registrant was informed that its officers and directors have not filed all reports as required under Section 16(a).

 

NASDAQ Rule 4200. The NASDAQ Rule 4200, which sets forth several tests to determine whether a director of a listed company is independent. Rule 4200 provides that a director would not be considered independent if the director or an immediate family member accepted any compensation from the listed company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the determination of independence (excluding compensation for board or board committee service, compensation paid to an immediate family member as a non-executive employee, benefits paid under a tax-qualified retirement plan and non-discretionary compensation).

 

Director Independence. In determining whether or not our directors are considered independent, the Company used the definition of independence as defined in NASDAQ Rule 4200. We therefore believe that our director Edwin Witarsa Ng is not an independent director.

 

Directors’ Term of Office. Our directors are elected to serve until the next annual meeting of shareholders and until their respective successors will have been elected and will have qualified.

 

Audit Committee and Financial Expert, Compensation Committee, Nominations Committee. We do not have any of the above mentioned standing committees because our corporate financial affairs and corporate governance are simple in nature at this stage of development and each financial transaction is approved by our sole officer or director.

 

Potential Conflicts of Interest. Since we do not have an audit or compensation committee comprised of independent Directors, the functions that would have been performed by such committees are performed by our Board of Directors. Thus, there is a potential conflict of interest in that our Directors have the authority to determine issues concerning management compensation, in essence their own, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our Executives or Directors.

 

Board’s Role in Risk Oversight. The Board assesses on an ongoing basis the risks faced by the Company. These risks include financial, technological, competitive, and operational risks. In addition, since the Company does not have an Audit Committee, the Board is also responsible for the assessment and oversight of the Company’s financial risk exposures.

 

Involvement in Certain Legal Proceedings. We are not aware of any material legal proceedings that have occurred within the past ten years concerning any Director or control person which involved a criminal conviction, a pending criminal proceeding, a pending or concluded administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.

 

Item 11. Executive Compensation.

 

Any compensation received by our officers, directors, and management personnel will be determined from time to time by our Board of Directors. Our officers, directors, and management personnel will be reimbursed for any out-of-pocket expenses incurred on our behalf.

 

For the three fiscal years ended December 31, 2017, 2016 and 2015, we did not pay any compensation to our current or former executive officers, nor did any other person receive a total annual salary and bonus exceeding $100,000.

 

All of our current officers have agreed to defer their compensation until such time as we are cash flow positive; therefore, none of our officers have received any compensation as of the date of this Annual Report. No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of the Company’s employees.

 

Compensation of Directors

 

We do not compensate our director.

 

Outstanding Equity Awards

 

None of our Directors or executive officers holds stock that has not vested or equity incentive plan awards. PT Kinerja Indonesia, an affiliate and controlled by our CEO, owns 1,333,333 shares, which vestedon August 19, 2017.

 

Option Grants

 

There were no individual grants of stock options to purchase our Common Stock made to our executive officers

 

Aggregated Option Exercises and Fiscal Year-End Option Value

 

There were no stock options exercised during the year ending December 31, 2017 and 2016 by the executive officers.

 

28

 

 

Long-Term Incentive Plan (“LTIP”) Awards

 

There were no awards made to a named executive officers in the last completed fiscal year under any LTIP.

 

Certain Relationships and Related Party Transactions and Director Independence

 

None.

 

Indebtedness of Management

 

As of December 31, 2017, we had $52,673 in accounts payable due to our CEO consisting of a $50,000 loan and $2,673 in expenses paid on behalf of the Company by our CEO. The balance is due on demand and accrues interest at 8% per annum. As of December 31, 2017, $2,586 in accrued interest was due and was expensed during the twelve-months ended December 31, 2017.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table lists the number of shares of Common Stock of our Company as of April 19, 2018 that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding Common Stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of Common Stock by our principal stockholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within sixty (60) days. Under the rules of the SEC, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he/she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power. As of April 19, 2018, the Company had 13,542,207 shares of Common Stock outstanding.

 

Name and Address of Beneficial Owner  Number of Shares of Common
Stock Beneficially Owned
   Percent of Common
Stock Beneficially Owned (2)
 
         
Edwin Witarsa Ng, CEO and Chairman (1)   3,000,000    20.49%
Jl. Multatuli, No.8A          
Medan, 20151, Indonesia          
           
Windy Johan, CFO   0    0.00%
Jl. Multatuli, No.8A          
Medan, 20151, Indonesia          
           
Blockchain Industries Inc.   1,000,000    6.83%
53 Calle Palmeras, Suite 802          
San Juan, Puerto Rico          
           
Pop Trade Ltd.   920,000    6.28%
11 Scotts Road          
Singapore          
           
Total Officers (2 people)   3,000,000    20.49%

 

(1) Includes 1,333,333 held by PT Kinerja Indonesia. Mr. Ng, an Indonesian resident and citizen, exercises the sole voting and dispositive powers with respect to these shares. The 1,333,333 shares owned by PT Kinerja Indonesia were issued in connection with a services agreement. The shares vested on August 19, 2017. Mr. Ng, our CEO and Chairman, owns directly 1,666,667 shares that are fully-vested.
(2) Applicable percentage ownership is based on 13,542,207 shares of Common Stock outstanding as of April 19, 2018. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock that are currently exercisable or exercisable within 60 days of April 19, 2018 are deemed to be beneficially owned by the person holding such securities for the purpose of computing ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Certain Related Party Transactions During the Last Two Fiscal Years

 

On February 19, 2016, we issued 1,333,333 shares of our common stock to Mr. Ng, our CEO, sole director and control person. Mr. Ng is the sole officer and directors and control person of PT Kinerja, the other party to this agreement, as payment for services as part of a service agreement resulting from the license agreement. The shares were valued at the closing price as of the date of the agreement ($0.9001) and resulted in full recognition of $1,200,133 in consulting services expense.

 

29

 

 

The services provided and to be provided under this service agreement are as follows:

 

(a) The Service Company shall provide the Company and the Subsidiary with the following services during a term of three (3) years from the date first set forth above (the “Services”), for which the Subsidiary shall pay the Service Company.

 

(i) General Business Services: which shall include personnel, office facilities and equipment, utilities, and related overhead and operational expenses and shall be provided under the direction and control of a designated project manager; and
(ii) Technical Services: which shall include, but not be limited to, Web Hosting, Web Maintenance, Web Updates and System Upgrades, from time-to-time, which Technical Services will be fulfilled by a minimum of five (5) experienced computer engineers / programmers, one (1) algorithm specialist and two (2) trained technical engineers who shall maintain the servers provided by the Service Company and support the Subsidiary’s full time operations. In addition, the Service Company, in support of the Technical Services, shall guarantee ninety-nine point nine-nine (99.99%) percent uptime of the Company’s domains and applications, and provide all requisite support for the traffic to the Company’s domains with unlimited bandwidth and scalable uplink whenever the traffic to the domains increases, from time-to-time; and
(iii) R&D Services: which shall include, but not be limited to, the development of new features, products, or services related to the KinerjaPay IP and KinerjaPay.com. In connection with the R&D Services, the Parties acknowledge that all new KinerjaPay IP that is developed or for which enhancements are created for KinerjaPay IP already in existence at the date of this Agreement (“Additional IP”) shall belong exclusively to the Company and its Subsidiary. The Parties further agree that in each instance, they will, in “good faith,” negotiate and execute separate, supplemental addendums to this Agreement to address the Services to be provided by the Service Company with respect to the Additional IP.

 

(b) The Subsidiary shall responsible for the following:

 

(i) Sales and Marketing: PT. KinerjaPay Indonesia shall cover and be directly responsible for all sales and marketing activities and expenses associated with the commercial exploitation of the License for the KinerjaPay IP; and
(ii) Billing and Collections: PT. KinerjaPay Indonesia shall be responsible for all billing and collections and book all revenues generated by and from commercial exploitation of the License; and
(iii) Advertising and Sales Reps: PT. KinerjaPay Indonesia shall at all times maintain a staff of at least three (3) sales reps;
(iv) Office and Administration: PT. KinerjaPay Indonesia shall retain at least one (1) person to provide office/administrative/accounting services to fulfill the duty of Subsidiary in Section 1B(ii) above.

 

In consideration for the Services to be provided, the Company shall pay or compensate the Service Company as follows:

 

(i) The Company shall issue to the Service Company 1,333,333 restricted. The restricted shares shall not be deemed fully-paid and non-assessable until eighteen (18) months from the date first set forth above; and
(ii) The Subsidiary, on a quarterly basis, shall pay the Service Company for the services, facilities and personnel provided by the Service Company be at the rate set forth in Appendix A attached hereto; and
(iii) The Subsidiary, on a quarterly basis, shall pay the Service Company royalties equal to one (1%) percent of the net revenues generated from the commercial exploitation of the License; and
(iv) The Service Company shall be paid a one-time set-up fee of $55,000 within three (3) business days of the execution of this Agreement.

 

As of December 31, 2017, we had $52,673 in accounts payable due to our CEO consisting of a $50,000 loan and $2,673 in expenses paid on behalf of the Company by our CEO. The balance is due on demand and accrues interest at 8% per annum. As of December 31, 2017, $2,586 in accrued interest was due and was expensed during the twelve-months ended December 31, 2017.

 

No other officer, director or security holder known to us to own of record or beneficially more than 5% of our Common Stock or any member of the immediate family or sharing the household (other than a tenant or employee) of any of the foregoing persons is indebted to us in the years 2017 and 2016.

 

Item 14. Principal Accounting Fees and Services.

 

The Registrant’s Board of Directors has appointed M&K CPAS, PLLC (“M&K”) as independent public accountant for the fiscal year ended December 31, 2017 and 2016.

 

Principal Accounting Fees

 

The following table presents the fees for professional audit services rendered by M&K for the audit of the Registrant’s annual financial statements for the years ended December 31, 2017 and 2016, and fees billed for other services rendered by M&K during those periods.

 

   Year Ended   Year Ended 
   December 31, 2017   December 31, 2016 
Audit fees (1)  $15,500   $15,000 
Audit-related fees (2)        
Tax fees (3)        
All other fees        

 

(1) Audit fees consist of audit and review services, consents and review of documents filed with the SEC.
(2) Audit-related fees consist of assistance and discussion concerning financial accounting and reporting standards and other accounting issues.
(3) Tax fees consist of preparation of federal and state tax returns, review of quarterly estimated tax payments, and consultation concerning tax compliance issues.

 

As of December 31, 2017, the Company did not have a formal documented pre-approval policy for the fees of the principal accountant. The Company does not have an audit committee. The percentage of hours expended on the principal accountant’s engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%.

 

30

 

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

 

Exhibit   Description
     
3.1   Certificate of Incorporation of the Company attached to the Registration Statement on Form S1, filed on February 8, 2012.
3.1(i)   Amendment to the Certificate of Incorporation, attached to the Registration Statement on Form S1/A, filed on July 20, 2016.
3.2   Bylaws of the Company, attached to the Registration Statement on Form S1, filed on February 8, 2012.
3.3   Form of Common Stock Certificate of the Company, attached to the Registration Statement on Form S1, filed on February 8, 2012.
10.1   Patent Assignment Agreement, attached to the Registration Statement on Form S1, filed on February 8, 2012.
10.2   Assets Purchase Agreement between the Company and International Executive Consulting SPRL, attached to the Company’s Form 8-K as filed with the SEC on May 20, 2013.
10.3   Asset Purchase Rescission Agreement dated November 10, 2015, attached to the Company’s Form 8-K as filed with the SEC on November 17, 2015.
10.4   Memorandum of Understanding dated November 15, 2015, attached to the Company’s Form 8-K as filed with the SEC on November 17, 2015.
10.5   License Agreement between the Registrant and PT Kinerja dated December 1, 2015, attached to the Company’s Form 8-K as filed with the SEC on December 2, 2015.
10.6   Amendment to License Agreement between the Registrant and PT Kinerja dated December 29, 2015, attached to the Company’s Form 8-K as filed with the SEC on January 4, 2016.
31.1   Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13A-14(A)/15D-14(A) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Principal Accounting Officer Pursuant to Exchange Act Rule 13A-14(A)/15D-14(A) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2   Certification of Principal Accounting Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

31

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Signature   Title