UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q/A

 

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2018

 

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

 

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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

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]

 

On August 14, 2018, the Registrant had 17,042,986 shares of common stock outstanding.

 

 

 

Explanatory Note

 

The purpose of this Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, filed with the Securities and Exchange Commission on August 15, 2018 (the “Form 10-Q”), is solely to furnish Exhibit 101 to the Form 10-Q. Exhibit 101 provides the financial statements and related notes from the Form 10-Q formatted in XBRL (Extensible Business Reporting Language).

 

No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q continues to speak as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.

 

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

TABLE OF CONTENTS

 

Item		Description		Page
		PART I - FINANCIAL INFORMATION
ITEM 1.		FINANCIAL STATEMENTS.		3
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND PLAN OF OPERATIONS.		4
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.		7
ITEM 4.		CONTROLS AND PROCEDURES.		7
		PART II - OTHER INFORMATION
ITEM 1.		LEGAL PROCEEDINGS.		8
ITEM 1A.		RISK FACTORS.		8
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.		9
ITEM 3.		DEFAULT UPON SENIOR SECURITIES.		9
ITEM 4.		MINE SAFETY DISCLOSURE.		9
ITEM 5.		OTHER INFORMATION.		9
ITEM 6.		EXHIBITS.		9

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS Back to Table of Contents

 

Consolidated Balance Sheets as of June 30, 2018 (Unaudited) and December 31, 2017		F-1
Consolidated Statements of Operations for the Three and Six-Month Periods Ended June 30, 2018 and 2017 (Unaudited)		F-2
Consolidated Statements of Comprehensive Loss for the Three and Six-Month Periods Ended June 30, 2018 and 2017 (Unaudited)		F-3
Consolidated Statements of Cash Flows for the Six-Month Periods June 30, 2018 and 2017 (Unaudited)		F-4
Notes to Unaudited Interim Consolidated Financial Statements		F-5

 

 

KinerjaPay Corp.

Consolidated Balance Sheets

As of June 30, 2018 (Unaudited) and December 31, 2017

 

		June 30, 2018				December 31, 2017
		(Unaudited)
ASSETS
Current assets:
Cash		$	58,399			$	160,629
Accounts receivable - related party			61,278				20,900
Other receivable			-				2,687
Prepaid expenses			26,739				22,861
Inventory			15,463				-
Deposits			77,584				41,150
Total current assets			239,463				248,227
Other assets, net of amortization			113,797				266,045
Equipment, net of accumulated depreciation			19,226				12,596
Total Assets		$	372,486			$	526 ,868
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable – trade		$	54,945				2,794
Tax payable			3,290				8,092
Accrued expenses			61,381				97,873
Payable to Affiliate			50,510				52,673
Convertible notes payable, net of discount			789,000				480,345
Total current liabilities			959,126				641,777
Total liabilities			959,126				641,777
Stockholders’ Equity (Deficit):
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized: 400,000 issued and outstanding as of June 30, 2018 and 0 as of December 31, 2017			40				-
Common stock, par value $0.0001 per share; 500,000,000 shares authorized; 34,306,433 issued and 15,480,258 outstanding at June 30, 2018 and 15,803,021 issued and 12,461,036 outstanding at December 31, 2017			1,547				1,245
Additional paid-in capital			13,708,389				9,457,265
Accumulated deficit			(14,330,607	)			(9,751,419	)
Stock payable			34,000				178,000
Total stockholders’ (equity) deficit			(586,640	)			(114,909	)
Total Liabilities and Stockholders’ Equity (Deficit)		$	372,486			$	526 ,868

 

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

 

 

KinerjaPay Corp.

Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2018 and 2017

(Unaudited)

 

		Three months				Three months				Six months				Six months
		ended				ended				ended				ended
		June 30, 2018				June 30, 2017				June 30, 2018				June 30, 2017
Net revenue – related party		$	12,605			$	(9,558	)		$	1,328			$	(8,338	)
Expenses:
General and administrative			1,074,289				2,288,683				4,379,863				3,549,148
Depreciation expense			980				621				2,051				956
Total general and administrative expenses		$	1,075,267			$	2,289,304			$	4,381,914			$	3,550,104
(Loss) from operations			(1,062,664	)			(2,298,862	)			(4,380,586	)			(3,558,442	)
Other income (expense):
Interest expense			(9,166	)			(14	)			(18,823	)			(14	)
Loss on debt conversion			(126,016	)			(442,697	)			(126,016	)			(442,697	)
Other expense			(14,107	)			(70	)			(53,763	)			(70	)
Total costs and expenses			(1,211,953	)			(2,741,643	)			(4,579,188	)			(4,001,223	)
Net loss before income taxes			(1,211,953	)			(2,741,643	)			(4,579,188	)			(4,001,223	)
Income taxes			-				-								-
Net loss		$	(1,211,953	)		$	(2,741,643	)		$	(4,579,188	)		$	(4,001,223	)
Basic and diluted per share amounts:
Basic and diluted net loss		$	(0.08	)		$	(0.20	)		$	(0.31	)		$	(0.35	)
Weighted average shares outstanding (basic and diluted)		$	15,181,147			$	13,800,068			$	14,804,593			$	11,470,096

 

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

 

 

KinerjaPay Corp.

Consolidated Statements of Comprehensive Loss

For the Three and Six Months Ended June 30, 2018 and 2017

(Unaudited)

 

		Three months				Three months				Six months				Six months
		ended				ended				Ended				ended
		June 30, 2018				June 30, 2017				June 30, 2018				June 30, 2017
Net loss		$	(1,211,953	)		$	(2,741,643	)		$	(4,579,188	)		$	(4,001,223	)
Foreign currency translation adjustments			-				(179	)			-				(179	)
Total comprehensive loss, net of tax		$	(1,211,953	)		$	(2,741,822	)		$	(4,579,188	)		$	(4,001,402	)

 

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

 

 

KinerjaPay Corp.

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2018 and 2017

(Unaudited)

 

		Six months				Six months
		Ended				ended
		June 30, 2018				June 30, 2017
Cash flows from operating activities:
Net loss		$	(4,579,188	)		$	(4,001,223	)
Adjustments required to reconcile net loss to cash used in operating activities:
Shares issued for services			3,298,941				1,884,751
Loss on conversion of debt			126,016				442,697
Amortization expense			97,520				-
Depreciation expense			2,051				956
Share-based compensation			-				1,116,828
Changes in net assets and liabilities:
(Increase) decrease in receivable			(37,691	)			(26,573	)
(Increase) decrease in prepaid expenses			(40,312	)			7,364
(Increase) decrease in inventory			(15,463	)			-
(Increase) decrease in other assets			94,383				-
Increase (decrease) in accounts payable			45,186				(149,255	)
Increase (decrease) in accrued liabilities			(28,992	)			(4,107	)
Net cash used in operating activities			(1,037,549	)			(728,562	)
Cash flows from investing activities:
Purchase of equipment			(8,681	)			(7,969	)
Cash used in investing activities			(8,681	)			(7,969	)
Cash flows from financing activities:
Proceeds from issuance of preferred and common stock			500,000				902,000
Proceeds from warrant exercise			100,000				-
Borrowings on debt - related party			-				50,000
Borrowings on debt			344,000				100,000
Net cash provided by financing activities			944,000				1,052,000
Foreign currency translation adjustment			-				(179	)
Change in cash			(102,230	)			315,290
Cash - Beginning of period			160,629				48,772
Cash - End of period		$	58,399			$	364,062
Supplemental Cash Flow Disclosure:
Non-cash transactions:
Stock issued to settle debt		$	82,500			$	100,000

 

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

 

 

KinerjaPay Corp.

Notes to Unaudited Consolidated Financial Statements

 

1. The Company and Significant Accounting Policies

 

Organizational Background

 

KinerjaPay Corp. (the “Company”) is a Delaware corporation, was incorporated under the laws of the State of Delaware on February 12, 2010 as Solarflex Corp. The business plan of Solarflex 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 by Solarflex and all related contracts and agreements related to the solar energy business ceased.

 

On December 1, 2015, the Company entered into a license agreement with P.T. Kinerja Indonesia (“P.T. Kinerja”), an entity organized under the laws of Indonesia and controlled by Mr. Edwin Ng, our chairman, CEO and control stockholder, 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 this agreement, the Company changed its name from Solarflex Corp. to KinerjaPay Corp. On April 6, 2016, P.T. Kinerja Pay Indonesia, a wholly-owned subsidiary of the Company, 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 June 30, 2018, 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 P.T. 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 June 30, 2018 and December 31, 2017.

 

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.

 

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 $100,000 and $60,000, as of June 30, 2018 and December 31, 2017, respectively. The Company entered into an agreement with Ace Legends Pte Ltd on July 31, 2017, but the agreement was amended subsequently 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 were issued on March 7, 2018 reducing other assets and stock payable. As of June 30, 2018 and December 31, 2017, $57,865 and $9,292 of amortization expense has been recognized, respectively.

 

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. No shares have been issued under the terms of the investment agreement.

 

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 June 30, 2018 and December 31, 2017, respectively.

 

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 June 30, 2018 and December 31, 2017, 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 June 30, 2018 and December 31, 2017 and the years then ended on a recurring basis:

 

Fair Value Measurements at June 30, 2018

 

Quoted Prices in

Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

Total

(Level 1)

(Level 2)

(Level 3)

None

$

-

$

-

$

-

$

-

Total assets and liabilities at fair value

$

-

$

-

$

-

$

-

 

 

Fair Value Measurements at December 31, 2017

 

Quoted Prices in

Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

Total

(Level 1)

(Level 2)

(Level 3)

None

$

-

$

-

$

-

$

-

Total assets and liabilities at fair value

$

-

$

-

$

-

$

-

 

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 June 30, 2018 and December 31, 2017, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels.

 

Revenue from Purchased Products:

 

Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.

 

There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the three months ended June 30, 2018 and 2017, or the twelve months ended December 31, 2017.

 

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 five different revenue streams. Gross revenue from the various steams were as follows: Mobile phone prepaid $1,202,789, Kinerja Store $10,754, Instant Pay Fees Collection $27,949, Business2Business sales $1,096,050, and Unipin $579. Gross cost of goods sold did not exceed gross revenues for the period ended June 30, 2018.

 

Earnings per Common Share:

 

We compute net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 rquires 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.

 

 

Inventories

 

Inventories are stated at the lower of cost or market value, using the first-in, first but convention. Inventories consist of raw materials in the form of coins and finished goods, such as instant noodles for sale. The gold plated coins were manufactured in connection with the far future plan of coin offerings and supposed to be distributed at the first launch of the coin offering. However, the plan for coin offering is postponed. As of June 30, 2018, and December 31, 2017, the Company had inventories of $15,463 and $0, 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.

 

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 June 30, 2018 we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required under FASB ASC 740-10.

 

Recent Issued Accounting Standards

 

Effective in January 2017, the Company adopted Accounting Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which changes how deferred taxes are classified in organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, all deferred tax assets and liabilities will be required to be classified as noncurrent. The amendments apply to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods (i.e., in the first quarter of 2017 for calendar year-end companies). Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). If applied prospectively, entities are required to include a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include quantitative information about the effects of the change on prior periods. The adoption of this ASU did not have a significant impact on the condensed consolidated financial statements.

 

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

 

Effective in January 2017, the Company adopted Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.

 

Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments also simplify two areas specific to private companies.

 

For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period periods (i.e., in the first quarter of 2017 for calendar year-end companies).

 

The adoption of these ASU’s did not have a significant impact on the consolidated financial statements.

 

In May 2014, The FASB issued Accounting Standard Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 also requires entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

 

During 2016, the FASB issued several Accounting Standard Updates that focuses on certain implementation issues of the new revenue recognition guidance including Narrow-Scope Improvements and Practical Expedients, Principal versus Agent Considerations and Identifying Performance Obligations and Licensing. An entity should apply the amendments in this ASU using one of the following two methods:

 

1. Retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or,

 

2. Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. If an entity elects the latter transition method, it also should provide certain additional disclosures.

 

 

For a public business entity, the amendments in ASU 2014-09 (including the amendments introduced through recent ASU’s) are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period (the first quarter of fiscal year 2018 for the Company). Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

 

The Company is in the process of evaluating the impact of ASU 2014-09 on its revenue streams and selling contracts, if any, and on its financial reporting and disclosures. Management is expecting to complete the evaluation of the impact of the accounting and disclosure changes on the business processes, controls and systems throughout 2017. Since the Company did not report so far, material revenues, management believes that the adoption of ASU 2014-09 will not have significant impact on its financial statements.

 

The accompanying balance sheet as of June 30, 2018, which was derived from unaudited financial statements, and the unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K covering that period.

 

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. The results of operations for the periods presented are not necessarily indicative of the results for the full fiscal year or any future period.

 

In the opinion of management, the information furnished in these interim financial statements reflects all adjustments necessary for a fair statement of the financial position and results of operations and cash flows as of and for the three and six-month periods ended June 30, 2018 and 2017. All such adjustments are of a normal recurring nature. The Financial Statements do not include some information and notes necessary to conform to annual reporting requirements.

 

2. Prepaid Expenses and Deposit to Vendors

 

Prepaid assets represent advance payments to suppliers and purchase deposits to vendors. The Company paid in advance $26,739 and $22,861, respectively, for professional fees, rents and other prepaid expenses during the six-months ended June 30, 2018 and twelve months ended December 31, 2017. Deposits to vendors of $77,584 and $41,150 represent mostly 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.

 

 

		June 30, 2018				December 31, 2017
Individual components giving rise to prepaid expenses are as follows:
Professional fees, rent and other prepaid expenses		$	26,739			$	22,861
Third party vendor deposits			77,584				41,150
Total		$	104,323			$	64,011

 

3. Stockholders’ Equity

 

We are authorized to issue 500,000,000 shares of Common Stock, $0.0001 par value per share. We are authorized to issue 10,000,000 shares of Preferred Stock, $0.0001 par value per share. The Board of Directors has the authority to establish one or more series of Preferred Stock and fix relative rights and preferences of any series of Preferred Stock. On January 2, 2018, the board of directors authorized the issuance of a Series A Convertible Preferred Stock, of which Four Hundred Thousand (400,000) shares are outstanding. Each Preferred Share shall have a par value of $0.0001.

 

Stock-Based Compensation

 

During the six months ended June 30, 2018, the Company did not issue stock-based compensation.

 

Shares issued for services

 

During the six months ended June 30, 2018, the Company issued 2,257,778 shares of restricted common stock for services provided. The shares were valued at the closing price as of the date of the underlying agreements (ranging from $0.85 to $1.39) and resulted in current recognition of $3,298,941 in consulting service expense.

 

Based on agreement with Bear Creek Capital on January 29, 2018, the Company shall issue an additional 25,000 shares 120 days from the agreement, provided the Company is still using the service of the party. Consequently, the Company recorded the new stock payable amounting to $34,000 to the party, as the shares were not issued prior to June 30, 2018.

 

Preferred Stock for Cash

 

On January 2, 2018, the Company issued 400,000 Series A Convertible Preferred Stock to an institutional investor for an aggregate purchase price of $500,000. The Series A Convertible Preferred Stock is convertible into 400,000 shares of the Company’s common stock at a conversion price of $1.25 per Share. In addition, the Company issued to the Investor Class N 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 warrants were valued using the Black-Scholes pricing model to estimate the relative fair value of $300,772.

 

Warrant Exercise

 

On January 4, 2018, First Fire Global Opportunities Fund LLC opted to exercise the warrant and paid $ 100,000 for obtaining 100,000 shares.

 

Notes Payable Conversion

 

On June 25, 2018, Tangiers elected to convert $75,000 in the principal amount of these notes together with accrued interest of $7,500 into 198,317 shares of Common Stock based upon a conversion price of $1.25. The conversion resulted in the loss of conversion for the Company amounting to $126,016 which is included in the additional paid in capital.

 

 

4. Notes Payable

 

On May 9, 2017, we had a $50,000 note payable outstanding to our CEO, and control stockholder. The balance is due on demand and accrues interest at 8% per annum.

 

On November 9, 2017, the Company executed a 10% fixed convertible promissory note payable to Tangiers Global LLC (“Tangiers”) in the principal amount of $330,000. This note, which is due seven and one-half months from the date of funding, 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 $1.25 per share if converted within seven and one half 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 during the twenty (20) trading days prior to which the Holder elects to convert all or part of the note and holder gives notice of conversion to the Company and its transfer agent.

 

In connection with the Company’s investment agreement with Tangiers, as discussed throughout this quarterly report, the Company issued a commitment fee note payable of $75,000 to Tangiers. The commitment fee note bears an interest rate of 10% and was due on June 17, 2018. The note had a conversion price of $1.25, but in case of maturity default, the conversion price was subject to adjustment to a price equal to the lower of: (i) the conversion price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock during the twenty (20) trading days prior to which the Holder (Tangiers) elects to convert all or part of this $75,000 note upon notice of conversion to the Company and its transfer agent.

 

On June 25, 2018, Tangiers elected to convert $75,000 in the principal amount of these notes together with accrued interest of $7,500 into 198,317 shares of Common Stock based upon a conversion price of $1.25. The conversion resulted in the loss of conversion for the Company amounting to $126,016 which is included in the additional paid in capital.

 

The Tangiers 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.

 

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. As of June 30, 2018, $4,562 in interest was expensed during the six months ended June 30, 2018.

 

On January 12, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal amount of $153,000. The note is due on September 30, 2018. The note is convertible into shares of Common Stock at a conversion price of $1.75 per share. As of June 30, 2018, $8,501 in interest was expensed during the six months ended June 30, 2018.

 

On March 7, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal amount of $63,000. The note is due on November 30, 2018. The note is convertible into shares of Common Stock at a conversion price of $1.75 per share. As of June 30, 2018, $2,382 in interest was expensed during the six months ended June 30, 2018.

 

On May 1, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal amount of $53,000. The note is due on February 15, 2019. The note is convertible into shares of Common Stock at a conversion price of $ 1.75 per share. As of June 30, 2018, $1,045 in interest was expensed during the six months ended June 30, 2018.

 

 

On June 13, 2018, the Company executed an 10% convertible promissory note payable to Crown Bridge Partners in the principal amount of $75,000. The note is due on June 13, 2019. As of June 30, 2018, $349 in interest was expensed during the six months ended June 30, 2018.

 

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 June 30, 2018, the Company recognized a BCF, and amortization expenses of $39,655 on the discount created during the twelve month-period ended December 31, 2017.

 

For the six months ended June 30, 2018, the Company has recognized $18,823 in interest expense related to the notes as described above.

 

5. Related Party Transactions

 

As of June 30, 2018, we had $51,904 in accounts payable due to our CEO consisting of a $50,000 loan and $1,904 in expenses paid on behalf of the Company by our CEO. The loan is due on demand and accrues interest at 8% per annum. As of June 30, 2018, $1,984 in interest was expensed during the six months ended June 30, 2018.

 

All revenue received during 2018 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 $89,364 for costs associated with servicing customers and maintaining the website and license agreement during 2018.

 

As of June 30, 2018, we were owed an accounts receivable balance of $61,278 and once revenues are positively earned, we owe a 1% royalty fee on net revenues on a quarterly basis.

 

6. 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 2018 operating costs, and as such, has incurred an operating loss since inception. Further, as of June 30, 2018, 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.

 

7. Subsequent Events

 

From July 1, 2018 to August 14, 2018, there were new issuance of shares for Lawrence Partners LLC and Crown Bridge Partners LLC amounting to 416,667 shares and 200,000 shares respectively. There were also transfer of reserved shares by Tangiers Global LLC, Power Up Lending Group Ltd and Crossover Capital Fund I, LLC amounting to 362,043 shares, 424,018 shares, and 160,000 shares respectively resulting of the increase in the outstanding shares of the Company to 17,042,986 shares.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

 

As used in this Form 10-Q, references to the “KinerjaPay,” Company,” “we,” “our” or “us” refer to KinerjaPay Corp. Unless the context otherwise indicates.

 

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which refer to future events. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

 

Plan of Operation

 

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 P.T. Kinerja Indonesia, an entity organized under the laws of Indonesia and controlled by Mr. Ng, our chairman, CEO and control stockholder, 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 a Cooperation and Service Agreement with Black Grace Investment Ltd, organized under the laws of the British Virgin Islands (“Black Grace”) and its affiliate, PT. Pay Secure Online Indonesia (“PT. PaySec”), 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.

 

 

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 the six months ended June 30, 2018, we raised $500,000 from the private sale of equity, $344,000 from the issuance of short-term debt, and $100,000 in proceeds from the exercise of warrants. We expect to raise an additional $4.5 million during 2018. On November 3, 2017, the Company signed an investment agreement with Tangiers, of which Tangiers shall invest up to $10,000,000 by purchasing the Company’s Common Stock.

 

Results of Operations during the six months ended June 30, 2018 as compared to the six months ended June 30, 2017

 

During the six months ended June 30, 2018 and 2017, we generated revenue from services of $ 2,338,121 and $150,750, respectively. During the six months ended June 30, 2018, we had costs related to our services revenue of $ 2,336,793 compared to $ 159,088 during the same period of the prior year, resulting in a positive gross margin of $1,328 and negative gross margin of $8,338, respectively.

 

During the six months ended June 30, 2018 and June 30, 2017, we had general and administrative expenses of $4,379,863 and $3,549,148, respectively, and depreciation expense of $ 2,051 and $ 956, respectively, during the same period in the prior year. During the six months ended June 30, 2018, we had other costs and expenses related to interest expense of $18,823 compared to other costs and expenses related to interest expense of $14 during the six months ended June 30, 2017, a loss of $ 126,016 and $442,697 related to debt conversion; and $53,763 and $70 in other expenses. Our total costs and expenses were $4,579,188 during the six months ended June 30, 2018 and $4,001,223 during the six months ended June 30, 2017.

 

We had a net loss of $4,579,188 during the six months ended June 30, 2018 compared to a net loss of $4,001,223 during the six months ended June 30, 2017.

 

Results of Operations during the three months ended June 30, 2018 as compared to the three months ended June 30, 2017

During the three months ended June 30, 2018 and 2017, we generated gross revenues from a related party of $644,398 and $148,748, respectively. During the three months ended June 30, 2018 and 2017, we had costs related to our revenues from a related party of $631,793 and $158,306, resulting in a positive gross margin of $12,605 and negative gross margin of $9,558, respectively.

 

 

During the three months ended June 30, 2018, we had general and administrative expenses of $1,074,289 and depreciation expense of $980, as compared to $2,288,683 and $621, respectively, during the same period in the prior year. During the three months ended June 30, 2018, we had other cost and expenses related to interest expenses of $9,166 as compared to $14 during the same period in the prior year. During the three months ended June 30, 2018 and 2017, we had a loss of $126,016 and $442,697 related to debt conversion. During the three months ended June 30, 2018 and the three months ended June 30, 2017, we had other expenses of $14,017 and $70. Our total costs and expenses were $1,211,953 during the three months ended June 30, 2018 as compared to $2,741,643 in the same period in the prior year.

 

We had a net loss of $1,211,953 during the three months ended June 30, 2018, as compared to a net loss $2,741,643 during the three months ended June 30, 2017.

 

Liquidity and Capital Resources

 

On June 30, 2018, we had $239,463 in current assets represented by cash of $ 58,399, accounts receivable of $61,278, prepaid expenses and deposits of $104,323 and inventory of $15,463. On December 31, 2017, we had $248,227 in current assets consisting of $160,629 in cash, accounts receivable of $23,587, prepaid expenses and deposits of $64,011 and inventory of $0.

 

We had fixed assets of $19,226 as of June 30, 2018 and $12,596 as of December 31, 2017. We had total assets of $372,486 as of June 30, 2018 and $526,868 as of December 31, 2017. As of June 30, 2018, we had $959,126 in current liabilities comprised of $54,945 in accounts payable, $61,381 in accrued expense, $3,290 in tax payable, $50,510 in payable to affiliate and $789,000 in notes payable.

 

As of December 31, 2017, we had total current liabilities of $641,777 consisting of accounts payable of $2,794, accrued expense of $97,873, tax payable of $8,092, payable to affiliate of $52,673 and notes payable of $480,345, net of discount.

 

We had no long-term liabilities as of June 30, 2018 and December 31, 2017.

 

We used $1,037,549 in our operating activities during the six months ended June 30, 2018, which was due to a net loss of $4,579,188 offset by total non-cash compensation charges of $3,298,941, $2,051 in depreciation expense, an increase in receivable of $37,691, an increase in prepaid expenses of $40,312, an increase in inventory of $15,463 and a decrease in other assets of $94,383, an increase in accounts payable of $45,186, and a decrease in accrued liabilities of $28,992.

 

We used $728,562 in our operating activities during the six months ended June 30, 2017, which was due to a net loss of $4,001,223 offset by total non-cash compensation charges of $1,884,751, loss on conversion of debt amounting to $442,697, depreciation expense of $956, share based compensation of $ 1,116,828, an increase in receivable of $ 26,573, a decrease in prepaid expense of $7,364, a decrease in accounts payable of $149,255 and a decrease in accrued liabilities of $ 4,107.

 

We financed our negative cash flow from operations during the six months ended June 30, 2018 through the issuance of preferred stock of $500,000, debt borrowings of $344,000, and exercise of warrants of $100,000. We financed our negative cash flow from operations during the six-month period ended June 30, 2017 through the issuance of common stock of $902,000 and debt borrowings of $150,000.

 

We had investing activities of $ 8,681 during the six months ended June 30, 2018 related to purchase of equipment compared to $7,969 during the six months ended June 30, 2017 related to the purchase of equipment.

 

Availability of Additional Capital

 

During the six months ended June 30, 2018, we raised $500,000 from the private sale of equity, $344,000 from the issuance of short-term debt and $100,000 in proceeds from the exercise of warrants.

 

 

Notwithstanding our success in raising over $500,000 from the private sale of equity securities during the six months ended June 30, 2018 and our expectation that we will be able to raise an additional $4.5 million during 2018, there can be no assurance that we will be able to raise such amount at terms and conditions acceptable to the Company, if at all.

 

On November 3, 2017, the Company signed an investment agreement with Tangiers Global, LLC (“Tangeirs”) pursuant to which Tangiers agreed invest up to $10,000,000 by purchasing the Company’s Common Stock, subject to an effective registration statement. On May 8, 2018, we filed a registration statement on Form S-1 for the purpose of registering the shares issuable to Tangiers under the investment agreement. 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.

 

We are not aware of any material trend, event or capital commitment, which would or could potentially adversely affect our liquidity. The Company currently has no arrangements with any persons or entities with regard to our existing debt, however limited. We do not have any arrangements with potential investors or lenders to provide us with any additional financing and there can be no assurance that any such additional financing will be available when required in order to proceed with the business plan.

 

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.

 

Going Concern Consideration

 

Our registered independent auditors have issued an opinion on our financial statements 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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of disclosure controls and procedures.

 

As of June 30, 2018, 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 as provided under the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013), our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were ineffective as June 30, 2018. Management has identified corrective actions to address the weaknesses and plans to implement them during the third quarter of 2018.

 

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the period covered by this report, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

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 1A. RISK FACTORS.

 

A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES UND USE OF PROCEEDS.

 

During the six months ended June 30, 2018, the Company issued 2,257,778 shares of restricted common stock for services provided. The shares were valued at the closing price as of the date of the underlying agreements (ranging from $0.85 to $1.39) and resulted in current recognition of $3,298,941 in consulting service expense.

 

On January 2, 2018, the Company issued 400,000 Series A Convertible Preferred Stock to an institutional investor for an aggregate purchase price of $500,000. The Series A Convertible Preferred Stock is convertible into 400,000 shares of the Company’s common stock at a conversion price of $1.25 per Share. In addition, the Company issued to the Investor Class N 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 warrants were valued using the Black-Scholes pricing model to estimate the relative fair value of $300,772.

 

The Registrant issued and sold the above restricted securities 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 Regulation D, promulgated by the United States Securities and Exchange Commission under the Act.

 

The Company believes that the issuances and sale of the restricted shares were exempt from registration as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The recipients in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions. All recipients of restricted shares either received adequate information about the Company or had access, through employment, relation and/or business relationships with the Company to such information.

 

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURE.

 

None.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

Exhibit No.		Description
31.1		Certification of CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

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		Date
/s/ Edwin Witarsa Ng		Chief Executive Officer (Principal Executive Officer)		August 17, 2018
Edwin Witarsa Ng
/s/ Windy Johan		Chief Financial Officer (Principal Financial and Principal Accounting Officer)		August 17, 2018
Windy Johan