ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
The following discussion
should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto included in
Item 1 of this report and is qualified in its entirety by the foregoing.
Forward Looking Statements
Certain statements in this
report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by “Management's
Discussion and Analysis of Financial Condition and Results of Operations” and the Notes to Consolidated Financial Statements,
are “forward-looking statements”, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), that are subject to certain events, risks and uncertainties that may be outside our control.
The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”,
“will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update
or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives
for our future operations and statements of future economic performance, information regarding our expansion and possible results
from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability
to meet future capital needs, and the assumptions described in this report underlying such forward-looking statements. Actual results
and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including,
without limitation, those described in the context of such forward-looking statements, our expansion and acquisition strategy,
our ability to achieve operating efficiencies, our ability to successfully develop and market new websites in the greater Asian
markets, the strength and financial resources of our competitors, our ability to raise sufficient capital in order to effectuate
our business plan, our ability to find and retain skilled personnel and key executives, the political and economic climate in which
we conduct operations and the risk factors described from time to time in our other documents and reports filed with the Securities
and Exchange Commission (the “Commission”).
General
We were incorporated in
the State of Nevada in January 2006 and are a development stage company. Our business is to develop and operate Internet websites
and applications on mobile platforms. We earn revenues through advertisements sold on these websites and applications. Our goal
is to become a major network of consumer-based websites and applications targeting viewers in the Hong Kong and Greater China Basin
with contents on travel, food, entertainment, activities and city life. As of the date of this Annual Report, we have launched
the website
www.drinkeat.com
, which provides reviews of restaurants in Hong Kong.
We plan to develop additional
websites and solicit advertisement for those websites through third-party agents. Presently, we own the following domain names:
www.domainextremes.com and www.drinkeat.com
.
We are a controlled corporation
with the substantial majority of our shares held by Mi1 Global Limited (“Mi1”), a company registered in the Republic
of Vanuatu. Mi1 acquired a 51% stake in our company in February 2016. As a result, there can be no assurance that our business
and/or our strategy will not change over time as a result of Mi1’s interest.
Our Business
We are an active developer
and operator of lifestyle-centered websites and mobile platform applications in the Hong Kong and Greater China Basin. We intend
to build content centered on travel, food, city life and entertainment in the region.
Our content is delivered
through internet-connected browser-based devices such as personal computers, laptops and mobile devices. As a result, our content
is available globally and our distribution is potentially unlimited in breadth. Thus, while our primary market focus is Hong Kong
and the Greater China Basin, we are able to reach those consumers and content providers around the world who have an interest in
this region.
Our site
www.drinkeat.com
,
also known as Hong Kong Restaurant Review, provides reviews on Hong Kong restaurants. We invite food critics to contribute review
articles on restaurants in Hong Kong either for a small fee or by obtaining their consent to post a previously printed article
without charge. Reviews are written in Chinese for the general public in Hong Kong and Chinese tourists who plan to visit Hong
Kong. Contributors are paid a nominal fee on a per-article basis either in cash, if available, or through the issuance of shares
in the Company. We rely on five active individual contributors to provide reviews, although we do not have formal agreements with
any. There are several websites providing similar reviews on Hong Kong restaurants.
We will gradually develop
other websites utilizing domain names we currently own or develop or acquire in the future. We plan to solicit advertisements through
third party agents. Depending on the nature of the content of the websites, prospective advertisers include restaurants, hotels,
travel agents, department stores and retail outlets. We also include pay-per-click advertisements in our websites. Our hope is
that when our network of websites has increased to at least five, we will be able to attract and retain more traffic, redirecting
users to other websites in our network.
We have contracted with
programming firms in Hong Kong and China to develop websites for our network. Once a domain name and theme have been decided by
our directors, we contact potential development firms for initial discussion regarding our proposal. Our directors maintain close
contact with the programming firms during development of the website and conduct testing throughout the development process. Additionally,
we intend to carry out enhancements on our websites from time to time based upon member feedback.
We will continue to develop
lifestyle applications on iPhone and other mobile platforms.
Critical Accounting Policies
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Our management routinely
makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions
affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex.
We have identified the following accounting policies, described below, as the most critical to an understanding of our current
financial condition and results of operations.
Basic of Presentation
The accompanying financial
statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of
America.
Use of Estimates
The preparation of the
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers all
short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three
months or less to be cash equivalents.
Impairment of Long-Lived
Assets
The Company accounts for
the impairment of long-lived assets, such as plant and equipment, leasehold land and intangible assets, under the provisions of
FASB Accounting Standard Codification Topic 360 (“ASC 360”) “Property, Plant and Equipment – Overall”
(formerly known as SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets” (“SFAS 144”)). ASC
360 establishes the accounting for impairment of long-lived tangible and intangible assets other than goodwill and for the disposal
of a business. Pursuant to ASC 360, the Company periodically evaluates, at least annually, whether facts or circumstances
indicate that the carrying value of its depreciable assets to be held and used may not be recoverable. If such circumstances
are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping
of assets, is compared to the carrying value to determine whether impairment exists. In the event that the carrying amount
of long-lived assets exceeds the undiscounted future cash flows, then the carrying amount of such assets is adjusted to their fair
value. The Company reports an impairment cost as a charge to operations at the time it is recognized.
Income Taxes
The Company utilizes FASB
Accounting Standard Codification Topic 740 (“ASC 740”) “Income taxes” (formerly known as SFAS No. 109,
"Accounting for Income Taxes"), which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
ASC 740 “Income taxes”
(formerly known as Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial
Accounting Standards No. 109 (“FIN 48”)) clarifies the accounting for uncertainty in tax positions. This interpretation
requires that an entity recognizes in the financial statements the impact of a tax position, if that position is more likely than
not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured
at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in
the period in which the change in judgement occurs. The Company has elected to classify interest and penalties related to unrecognized
tax benefits, if and when required, as part of income tax expense in the statements of operations. The adoption of ASC 740 did
not have a significant effect on the financial statements.
Comprehensive Income
The Company has adopted
FASB Accounting Standard Codification Topic 220 (“ASC 220”) “Comprehensive income” (formerly known as SFAS
No. 130, “Reporting Comprehensive Income”), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Accumulated other comprehensive income represents the accumulated balance of foreign
currency translation adjustments of the Company.
Stock-based Compensation
The Company has adopted
FASB Accounting Standard Codification Topic 718 (“ASC 718”), ”Stock Compensation” (formerly known as SFAS
123(R), Share-Based Payment), which requires the measurement and recognition of compensation expense for all share-based payment
awards made to employees and directors including stock option grants based on estimated fair values. ASC 718 requires companies
to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the award’s
portion that is ultimately expected to vest is recognized as expense over the requisite service periods. Prior to the adoption
of ASC 718, we accounted for share-based awards to employees and directors using the intrinsic value method. Under the intrinsic
value method, share-based compensation expense was only recognized by us if the exercise price of the stock option was less than
the fair market value of the underlying stock at the date of grant.
The Company accounts for
stock-based compensation to non-employees and consultants in accordance with the provisions of ASC 505-50 “Equity –Based
Payments to Non-employees”. Measurement of share-based payment transactions with non-employees shall be based on the fair
value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair
value of the share-based payment transactions should be determined at the earlier of performance commitment date or performance
completion date
.
Issuance of shares for service
The Company accounts for
the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair
value of the equity instrument at the time of issuance, whichever is more reliably measurable.
Foreign Currency Translations
The functional currency
of the Company is Hong Kong dollars (“HK$”). The Company maintains its financial statements in the functional currency.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional
currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional
currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange
gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
For financial reporting
purposes, the financial statements of the Group which are prepared using the functional currency have been translated into United
States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses
are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Any translation
adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive
income, a component of stockholders’ equity.
Fair value of financial
instruments
The carrying values of the
Company’s financial instruments, including cash and cash equivalents, trade and other receivables, deposits, trade and other
payables approximate their fair values due to the short-term maturity of such instruments. The carrying amounts of borrowings approximate
their fair values because the applicable interest rates approximate current market rates.
Earning per share
Basic earnings per share
is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares
outstanding during the period are included in diluted earnings per share. The average market price during the year is
used to compute equivalent shares.
FASB Accounting Standard
Codification Topic 260 (“ASC 260”), “Earnings Per Share,” requires that employee equity share options,
non-vested shares and similar equity instruments granted to employees be treated as potential common shares in computing diluted
earnings per share. Diluted earnings per share should be based on the actual number of options or shares granted and not yet forfeited,
unless doing so would be anti-dilutive. The Company uses the “treasury stock” method for equity instruments granted
in share-based payment transactions provided in ASC 260 to determine diluted earnings per share.
Website Development Costs
The Company recognized the
costs associated with developing a website in accordance with ASC 350-50 “Website Development Cost” that codified the
American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) NO. 98-1, “Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use”. Relating to website development costs the Company
follows the guidance pursuant to the Emerging Issues Task Force (EITF) NO. 00-2, “Accounting for Website Development Costs”.
The website development costs are divided into three stages, planning, development and production. The development stage can further
be classified as application and infrastructure development, graphics development and content development. In short, website development
cost for internal use should be capitalized except content input and data conversion costs in content development stage.
Costs associated with the
website consist primarily of website development costs paid to third party and directors. These capitalized costs will be amortized
based on their estimated useful life over three years upon the website becoming operational. Internal costs related to the development
of website content will be charged to operations as incurred. Web-site development costs related to the customers are charged to
cost of sales.
Revenue recognition
The Company recognized
revenues from advertising insertion revenue in the period in which the advertisement is displayed, provided that evidence of an
arrangement exists, the fees are fixed or determinable and collection of the resulting receivable is reasonably assured. If fixed-fee
advertising is displayed over a term greater than one month, revenues are recognized ratably over the period as described below.
The majority of insertion orders have terms that begin and end in a quarterly reporting period. In the cases where at the end of
a quarterly reporting period the term of an insertion order is not complete, the Company recognizes revenue for the period by pro-rating
the total arrangement fee to revenue and deferred revenue based on a measure of proportionate performance of its obligation under
the insertion order. The Company measures proportionate performance by the number of placements delivered and undelivered as of
the reporting date.
Recent Accounting Pronouncements
On January 5, 2016, the
FASB issued ASU 2016-01 (“ASU 2016-01”), Recognition and Measurement of Financial Assets and Financial Liabilities, which
amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This amendment requires
all equity investments to be measured at fair value, with changes in the fair value recognized through net income (other than those
accounted for under equity method of accounting or those that result in consolidation of the investee). This standard will
be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Group
does not expect this standard to have a material impact on its consolidated financial statements.
On February 25, 2016, the
FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 specifies the accounting for leases. For operating
leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present
value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated
so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. In addition, this standard
requires both lessees and lessors to disclose certain key information about lease transactions. ASU 2016-02 is effective for public
companies for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. Early adoption
is permitted. The Group does not expect this standard to have a material impact on its consolidated financial statements.
On March 30, 2016, the
FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation – Stock Compensation: Improvements to Employee Share-Based
Payment Accounting, which relates to the accounting for employee share-based payments. This standard addresses several aspects
of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards
as either equity or liabilities; and (c) classification on the statement of cash flows; (d) accounting for forfeitures of share-based
payments. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within
those fiscal years. The Group does not expect this standard to have a material impact on its consolidated financial statements.
In June 2016, the FASB
issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires
entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience,
current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable
to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for
all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Group
does not expect this standard to have a material impact on its consolidated financial statements.
In August 2016, the FASB
issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows – Classification of Certain Cash
Receipts and Cash Payments, which clarifies the presentation and classification of certain cash receipts and cash payments in the
statement of cash flows. This guidance is effective for financial statements issued for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years. Early adoption is permitted. The Group does not expect this standard to have
a material impact on its consolidated financial statements.
In November 2016, the
FASB issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted
Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after
December 15, 2017, and interim period within those fiscal years. Early adoption is permitted, including adoption in an interim
period. The standard should be applied using a retrospective transition method to each period presented. The Group does not expect
this standard to have a material impact on its consolidated financial statements.
In January 2017, the FASB
issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard
is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early
adoption is permitted. The standard should be applied prospectively on or after the effective date. The Group does not expect this
standard to have a material impact on its consolidated financial statements.
In January 2017, the
FASB issued Accounting Standards Update (“ASU”) 2017-04, “Simplifying the Test for Goodwill Impairment.”
The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill
impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying
amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests
beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on
testing dates after January 1, 2017. The Group does not expect this standard to have a material impact on its consolidated
financial statements.
Results of Operations for the Three Months
Ended March 31, 2017 and 2016
Net Sales
We generated revenues of
$1,833 for the three months ended March 31, 2017, compared to $1,885 for the three months, ended March 31, 2016. The decrease in
revenue was mainly due to discounts offered to our advertisers. Our principal source of revenues is from advertising banners on
our websites. We also intend to generate future revenues from advertising and user fees related to our mobile phone applications.
Net Income (Loss)
We have incurred a net
loss of $5,644 for the three months ended March 31, 2017 and a net profit of $1,879 for the three months ended March 31, 2016,
principally due to a substantial decrease in our administrative expenses as discuss below.
We had other income of
$206 for the three months ended March 31, 2017, attributable to the administration fee received from the shares subscribers and
$11,077 for the three months ended Mar 31, 2016, attributable to the write-off of accrued director fees and secretary fees.
We incurred general, administrative
and operating expenses of $7,683 for the three months ended March 31, 2017 and $11,083 for the three months ended March 31, 2016.
Of these amounts, a substantial portion of our expenses for the three months ended March 31, 2017 related to accounting and staff
service fees, audit service fees, legal and professional service fees, and for the three months ended March 31, 2016 related to
accounting and staff service fees, professional service fees and transfer agent fees
Income Taxes
Due to our lack of revenues,
we have not incurred any tax obligations for the three months ended March 31, 2017 and 2016. However, we would anticipate that
income tax obligations will arise as we begin to generate significant revenue in the future.
Liquidity and Capital Resources
Our total assets at March
31, 2017 were $11,306 compared to $7,833 at December 31, 2016. Our total liabilities were $333,775 at March 31, 2017 compared to
$325,841 at December 31, 2016, principally due to the increase of $8,735 in advance from related parties. As a result, there was
a working capital deficit of $322,469 on March 31, 2017 and it was $318,008 as of December 31, 2016. It increased $4,461.
At March 31, 2017, we had
cash and cash equivalents of $11,306, compared to $7,833 at December 31, 2016, an increase of $3,473. The increase is principally
due to the increase in cash provided by operation.
Currently, we have limited
operating capital. We expect that our current capital and our other existing resources will be sufficient only to provide a limited
amount of working capital, and the revenues, if any, generated from our business operations alone may not be sufficient to fund
our operations or planned growth. We will likely require additional capital to continue to operate our business, and to further
expand our business.
The Company is working
hard on reducing the expenses and so we expect our cash flow needs over the next 12 months through April 2018 to be approximately
$23,000. However, this amount may be materially increased if market conditions are favorable for a more rapid expansion of our
business model or if we adjust our model to exploit strategic acquisition opportunities. In addition, we may require additional
cash flow to support our public company reporting requirements in the United States. Although our average monthly expenditures
to date have averaged less than $2,000, we expect this rate to increase exponentially as our business expands. To date, we have
been financed principally by our directors; however, we expect to secure third party financing or bank loans as necessary until
we secure sufficient revenues, principally from advertisers on our websites, to sustain our ongoing operations.
Sources of additional capital
through various financing transactions or arrangements with third parties may include equity or debt financing, bank loans or revolving
credit facilities. We may not be successful in locating suitable financing transactions in the time period required or at all,
and we may not obtain the capital we require by other means. Our inability to raise additional funds when required may have a negative
impact on our operations, business development and financial results.
Off-Balance Sheet Arrangements
As of March 31, 2017, we did not have any off-balance
sheet arrangements.