PART
I
ITEM
1. BUSINESS
Corporate Overview and History
Our business aim is
to build a secure and convenient e-commerce ecosystem to customers and merchants through our introduction of services and products
including: (i) electronic payment service; and (ii) virtual marketplace both of which are available on the portal, KinerjaPay.com,
(the “Portal”). In addition to access to the Portal, our Android and iPhone based mobile application includes additional
in-app services to mobile phone users such as social engagement and digital entertainment (the “Mobile App”). A virtual
marketplace, powered by our proprietary electronic payment service and gamified with in-app entertainment features, creates a
one-stop-shop e-commerce platform for users to BUY, PAY and PLAY. We brand our virtual marketplace under the name of KMALL, our
electronic payment solution under the name of KPAY, and our gamification features under the name of KGAMES.
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 (“Equipment”), an equipment 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 efficiency
and provide energy at a lower cost. The Company entered into an Asset Purchase Agreement with International Executive Consulting
SPRL, organized under the laws of Belgium (“IEC”) on May 14, 2013. The business plan was to use the Equipment to:
(i) develop a working prototype of its photovoltaic cell for testing and evaluation; (ii) enter into manufacturing arrangements
with third parties to produce the photovoltaic elements and sell to solar panel producers; and (iii) enter into distribution agreements
for the commercial sale of our products. Since the Asset Purchase Agreement with IEC through mid-2015, we did not successfully
use the Equipment to develop a working prototype, nor was there any estimated timeline for our ability to put the working prototype
in production. Since the Company did not generate any revenue from the technology, we determined that it was not in the best interest
of the Company or its shareholders to continue devoting resources and incurring expenditures towards efforts to commercialize
the technology using the Equipment.
On
November 10, 2015, the Company entered into an Asset Purchase Rescission Agreement with IEC (the “Rescission Agreement”)
pursuant to which: (i) we transferred and assigned all right, title and interest in the Equipment back to IEC; (ii) IEC returned
333,333 of the 2,000,000 Shares back to the Company; (iii) IEC transferred and assigned the remaining 1,666,667 Shares to Mr.
Edwin Witarsa Ng (“Mr. Ng”), a resident of Indonesia, who was appointed as Chairman of our Board of Directors, in
consideration for a cash payment by Mr. Ng of $20,000 to IEC. The rationale of the Rescission Agreement was based upon the Registrant’s
determination not to pursue the use and commercial exploitation of the Equipment in furtherance of its former solar energy business
plan.
On
December 1, 2015, the Company entered into a license agreement (the “License Agreement”) with PT Kinerja Indonesia,
an entity organized under the laws of Indonesia and controlled by Mr. Ng (“PT Kinerja”), for an exclusive, world-wide
license to use and commercially exploit technology and intellectual property owned by PT Kinerja (the “KinerjaPay IP”)
and its website, KinerjaPay.com (the “Portal”). The Portal, and the technology behind it, KinerjaPay IP, create an
e-commerce platform that provides electronic payment solutions to customers and merchants for bill payment, money transfer and
online shopping. KinerjaPay.com is among the first portals that allow users to conveniently top up mobile phone credit in Indonesia.
Pursuant
to the License Agreement, the Company agreed to: (i) change the name of the Company to KinerjaPay Corp.; (ii) implement a reverse
split of the Company’s shares of common stock on a one-for-thirty (1:30) basis; and (iii) raise equity capital in the minimum
offering amount of $500,000 and the maximum offering amount of $2,500,000 through the offering of units at a price of $0.50. Each
unit consists of 1 share of common stock and 1 Class A warrant exercisable for a period of 24 months to purchase 1 additional
share of common stock at $1.00 (“Unit Offering”). The Unit Offering is only being made to “accredited investors”
who are not U.S. Persons pursuant to Regulation S promulgated by the SEC under the Securities Act of 1933, as amended (the “Securities
Act”). On January 20, 2016, the Company closed its first Unit Offering receiving subscription proceeds in excess of $500,000.
To date, the Company has raised $1,540,000 pursuant to subsequent Unit Offerings.
On
March 10, 2016, the Company’s name changed to KinerjaPay Corp., and its one-for-thirty (1:30) reverse stock split became
effective.
On
April 6, 2016, PT Kinerja Pay Indonesia (“PT Kinerja Pay”), a wholly-owned subsidiary of the Company, was organized
under the laws of Indonesia, for the purpose of developing and managing the Company’s e-commerce business ranging from electronic
payment solutions, virtual marketplace, and any other strategies within the e-commerce ecosystem in Indonesia.
On
August 31, 2018, the Company completed the acquisition of its licensor PT Kinerja Indonesia (“PT Kinerja”), which became
a wholly-owned subsidiary of the Company. PT Kinerja Indonesia continues to provide the technology solutions needed by the Company
to support its e-commerce business and may expand into cloud computing services and other IT service-related businesses.
On
September 13, 2018, PT Kinerja Simpan Pinjam (“PT Kinerja SP”), a wholly-owned subsidiary of PT Kinerja, was organized
under the laws of Indonesia for the purpose of developing and managing a peer-to-peer (“P2P”) lending platform focusing
on micro-lending activities.
E-Commerce
Portal KinerjaPay.com
Indonesia
is the fourth largest country in the world in terms of population size with GDP just slightly under $1 trillion in 2018, with
more than 50% of its population under the age of 30, and yet with its citizens largely underserved by the banking industry and
less than 10% of the population have credit cards. Our business aim is to build a secure and convenient e-commerce ecosystem to
customers and merchants through our introduction of services and products including: (i) electronic payment service; and (ii)
virtual marketplace both of which are available on the portal, KinerjaPay.com, (the “Portal”). In addition to access
to the Portal, our Android and iPhone based mobile application includes additional in-app services to mobile phone users such
as social engagement and digital entertainment (the “Mobile App”). A virtual marketplace, powered by our proprietary
electronic payment service and gamified with in-app entertainment features, creates a one-stop-shop e-commerce platform for users
to BUY, PAY and PLAY. We brand our virtual marketplace under the name of KMALL, our electronic payment solution under the name
of KPAY, and our gamification features under the name of KGAMES. Since the Company acquired licensing rights from PT Kinerja on
December 1, 2015 and established its wholly-owned subsidiary PT Kinerja Pay on April 6, 2016, we have raised capital to fund our
e-commerce business development and operations. The Company began generating sales revenue from the Portal in 2017.
Electronic
Payment Service (PAY)
We
provide electronic payment service to consumers and merchants using the technology licensed from PT Kinerja on the Portal and
Mobile App. The service is also known as KPAY. KPAY provides an affordable, secure and convenient method for money transfer, bill
payment and online transactions. Friends and family may transfer money using electronic devices anywhere and anytime; consumers
may pay utility bills, phone bills, credit card bills and top up mobile phone credit to their mobile phone accounts; merchants
of all sizes may accept payments channeled through KPAY on their merchant websites. Our Company also developed a proprietary digital
wallet software (“e-wallet”) that provides an easy, safe and secure way for individuals and businesses to make and
receive payments on the Internet. Our e-wallet provides an escrow payment service that reduces transaction risk for online consumers;
shoppers can verify whether they are happy with the products received before releasing funds to the seller.
The
Company plans to develop its payment gateway service to enable users process payments or transfer money directly using their bank,
debit and credit card accounts on our Portal and marketplace. We also offer merchants an end-to-end payment solution that provides
authorization and settlement capabilities, of which merchants can connect with their customers and manage collection risk. We
have also introduced an application-generated token to confirm outgoing payments to enhance transaction security.
On
August 22, 2016, the Company and its wholly-owned Indonesian subsidiary, PT Kinerja Pay, entered into an addendum (the “Addendum”)
of the License Agreement, effective as of July 1, 2016, with PT Kinerja. Pursuant to the Addendum, PT Kinerja Pay agreed to utilize
certain payment services of PT Kinerja as described below. PT Kinerja has already successfully established the requisite infrastructure
for billing, collections, payments and related payment services in the furtherance of its various businesses, including its e-wallet
and web portal business that were the subject of the License Agreement between the Registrant and PT Kinerja dated December 1,
2015. The Company entered into the Addendum as a strategic move to accelerate the commencement of its electronic payment services
business by licensing existing technology. It also eliminated the need to hire and maintain additional personnel in-house to manage
the infrastructure.
Pursuant
to the Addendum, in consideration for the payment of an administrative fee of $200 per month, PT Kinerja, our licensor, shall:
(i) collect payments from users of KinerjaPay.com, including cash deposits, bank transfers, debit cards and credit cards payments,
and other forms of payments for transactions generated on the Portal; and (ii) distribute the appropriate payments to vendors,
less the commissions chargeable for all transactions generated by the users while using KinerjaPay.com. Commission is paid to
our subsidiary PT Kinerja Pay as vendors receive payments.
Virtual
Marketplace (BUY)
We
launched our virtual marketplace (“KMALL”) (www.KinerjaMall.com or https://KMALL.id) during 2017 as a free platform
for buyers to explore products and sellers to establish a low-cost online presence for their products from the local Indonesian
market. Buyers and sellers can access KMALL from their electronic devices anytime and anywhere. KMALL features a “Max-3-Steps”
concept aiming to streamline the shopping experience of buyers. Buyers complete a purchase transaction within three steps, by
choosing an item, checking out and making a payment using their e-wallet under KPAY.
In
addition to the typical categories of consumer products offered similarly by other virtual marketplaces, KMALL differentiates
itself from the competitors by offering computer-related goods and mobile phone prepaid vouchers. A large selection of computer-related
goods serves to attract the younger generation which tends to be heavy users of electronic devices. Approximately 98% of Indonesian
mobile-phone users use prepaid vouchers to top up phone credit and the size of the prepaid voucher market in Indonesia is estimated
to be $4 billion according to a research conducted by AdPlus, a leading digital media network in Indonesia. By offering mobile
phone prepaid vouchers on our virtual marketplace, we believe that KMALL can generate a substantial number of return customers
to shop online with us.
Market
Opportunity in Indonesia
Indonesia,
the world’s fourth most-populous country, having a population of approximately 266 million, is rapidly becoming the major
economic power in Southeast Asia. Over 50% of its population is below the age of 30 and the young Indonesian generation is highly
adaptive to new technology. A combination of positive factors including the rapidly growing pool of internet users, the increase
in discretionary spending among the middle class, and the increasing popularity of inexpensive smartphones and tablets, have pushed
the Indonesian e-commerce market towards scalability and profitability. Indonesia’s e-commerce market is projected to reach
$130 billion by 2020 only surpassed by China and India. According to a joint report released by idEA, Google Indonesia, and Taylor
Nelson Sofres (TNS), the e-commerce market in Indonesia, where our business operates and where our initial marketing efforts is
focused on, is also the fastest growing in Southeast Asia. With an estimated annual growth rate of 50% in e-commerce business
and strong mobile-first initiatives, Indonesia presents a unique opportunity for merchants and businesses to establish their online
presence in the country with a service provider like us.
We
believe that the current Indonesian e-commerce market resembles the early-stage Chinese e-commerce market, which is characterized
by a large pool of entrepreneurial merchants offering a wide variety of consumer goods to buyers, and buyers rely heavily on social
media recommendations to make their purchase decisions. In addition, Indonesian customers and merchants welcome the concept of
electronic payment services and are anxious to adopt the technology which has been widely available in other sophisticated e-commerce
markets such as the United States. We believe that our Company is well positioned, as an e-commerce business solution provider,
to connect buyers and sellers seamlessly on KMALL, and provide an electronic payment solution KPAY to facilitate secure and convenient
online transactions.
Competitive
Advantages and Growth Opportunities
The
KinerjaPay Core Pillars represents the competitive advantage of our Company. We believe that the successful integration of PAY,
BUY and PLAY, will enable our business to become an indispensable player in Indonesia’s e-commerce market. Our electronic
payment service (“KPAY”), backed by strong proprietary technology from PT Kinerja and connected with many third party
business partners, acts as a secure and convenient payment channel for users to fulfil their day-to-day payment needs, ranging
from bill payment, money transfer, and online shopping; our virtual marketplace (“KMALL”), curates a unique baskets
of goods and offers a free platform to connect buyers and sellers, armed with its “Max-3-Steps” check-out process
and escrow services backed by KPAY. To enhance user engagement, we complete KinerjaPay Core Pillars by introducing gamification
features (“KGAMES”), which allows users to entertain and get rewards in our e-commerce ecosystem.
Based
on data from Alexa.com, a website analytics provider, KinerjaPay.com users spend an average of 30 minutes on our Portal, which
we believe is partly due to our unique gamification features. By further gamifying the e-commerce experience for our Portal users,
we foresee monetizing opportunities directly and indirectly from our KGAMES features. We plan to partner with third-party game
developers and develop proprietary games that curate to our user experience on the Portal and virtual marketplace. Users may transfer
rewards from games and redeem in KMALL.
In
building an e-commerce ecosystem from our KinerjaPay Core Pillars, we plan to continue strengthening our areas of excellence and
exploring growth opportunities:
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Currently
we have market dominance in mobile phone prepaid top-up voucher business. Our fee structure is very competitive in the business
and currently faces few competitors;
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Our
e-wallet feature under KPAY enables fast and secure payment, and provides escrow services to online transactions;
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Our
gamification features will continue to grow and enhance user engagement in other areas of services we provide;
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We
plan to expand our Portal functionality by offering advertising packages to merchants and business partners, and seeking for
collaboration with mobile publishers such as Google and Facebook to use our Portal as an advertising channel;
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Pursuant
to our acquisition of PT Kinerja, our former licensor of the core technologies behind our payment services, we plan to explore
opportunities in cloud computing and data management businesses; and
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Pursuant
to the formation of a new subsidiary PT Kinerja SP, we plan to develop a P2P micro-lending platform and target the majority
of Indonesian population which is currently underserved by the banking system.
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Since
the formation of PT Kinerja SP, we have embarked on active planning of the new P2P micro-financing platform and intend to launch
the platform under the brand name of KFUND. KFUND will provide financing solutions to individuals, and small to medium-size enterprises
in Indonesia, who currently lack access to financing from banks and other financial institutions which typically favor collateralized
large projects with lower credit risk. KFUND will connect individual and business borrowers and lenders via our proprietary online
platform which is currently under development. We plan to: 1) build a robust credit rating process by developing a proprietary
credit rating methodology and partnering with a certified credit rating agency; 2) create a borrower acquisition strategy that
reaches audience via online social media and offline sales effort in local communities. Potential lenders will have the opportunity
to select a desired loan or a combination of several loans to invest in based on their risk appetite and preferred investment
duration. KFUND will collect an average of 9% administration fees from each loan transaction. We understand the importance of
compliance in the microlending space and is currently in the process of applying for required licenses, including ISO 27001, Information
Security Management System certification. We believe that with the launch of KFUND business, we will reach another milestone in
building our online ecosystem. We aim to offer our users an expanded and integrated online service experience with our existing
businesses and future KFUND, and become a one-stop-shop solution for their needs to buy, pay, play and fund.
Company
Subsidiaries and Collaboration Agreements
We
carry out our business through the Company and three wholly-owned subsidiaries. This corporate structure allows us to simplify
the accounting treatment, minimize taxation and optimize local grant support. The subsidiaries related to this business are as
follows:
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PT
Kinerja Pay Indonesia – this entity currently focuses on building our e-commerce ecosystem including KPAY, KMALL and
KGAMES. Together with the parent Company, PT Kinerja Pay Indonesia continues to expand collaboration with third parties and
develop an internal sales and marketing effort.
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PT
Kinerja Indonesia – this entity, as the previous licensor of the Company prior to acquisition, has already successfully
established the requisite infrastructure for billing, collections, payments and related payment services, and continues to
provide all necessary R&D, technical support, servers, procurement/logistic and IT operational services, equipment bandwidth
and other technology support. It continues to serve as the technology engine of the Company and will explore cloud computing
business and other IT service-related businesses.
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PT
Kinerja Simpan Pinjam – this entity will manage the new KFUND brand and focus on developing a peer-to-peer (P2P) micro-lending
platform.
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We
have embarked on a strategy of collaborative arrangements and partnerships with strategically situated third parties around the
world. We believe that these parties have the expertise, experience and strategic location to advance our e-commerce business.
Corporation
and Service Agreement with Black Grace Investment Ltd.
On
August 31, 2016, the Company and PT Kinerja Pay entered into a corporation and service agreement with Black Grace Investment Ltd.,
organized under the laws of the British Virgin Island (“Black Grace”) and its affiliate, PT. Pay Secure Online Indonesia,
organized under the laws of Indonesia (“PT. PaySec”). 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 to share the net revenue generated
from the use of the Payment Services and e-wallet and payment gateway technology on a 50/50 basis. On May 12, 2017, the agreement
with Black Grace was terminated.
Corporation
and Service Agreement with PT. Indonesia EnamDua
On
September 8, 2016, the Company entered into a second Cooperation and Service Agreement with PT. Indonesia EnamDua, organized under
the laws of Indonesia (“PT.IED”), which owns 62hall.co.id, an integrated wholesaler and online shop that sells a wide
range of products and services, an online search engine and an online customer service provider. Pursuant to this Agreement, the
parties agreed to share resources in connection with the development of PT Kinerja Pay’s virtual marketplace, KMALL. In
consideration for PT.IED’s services, the parties agreed to allocate the profits, defined as an item’s selling price
on KMALL minus the cost price of the item sold 90% to the Company and 10% to PT.IED. The Company has not generated revenue as
a result of this Corporation and Service Agreement. On August 31, 2018, the agreement with PT.IED was terminated.
Partnerships
with businesses
At
the end of March 2017, we started, in cooperation with third parties, providing monthly billing services to PLN customers which
could serve potentially 10 million accounts nation-wide. PLN is an Indonesian government-owned corporation that has a monopoly
on electricity generation and distribution in the country. During April 2017, we expanded our payment channel by cooperation with
large state-owned companies in Indonesia such as PT Pos Indonesia and PT Pegadaian, as well as leading multi finance companies
including Columbia Cash & Credit, Mega Auto Finance and WOM Finance. In addition, beginning May 2017, we extended our payment
channel to include minimart chains such as Indomaret and Alfamart, as well as PT 24 Jam Online. We believe that by expanding our
network of payment channels with well-organized notable businesses, we will be able to generate a significant number of new users
for KinerjaPay.com to use KPAY, and serve the unbanked Indonesian customers and businesses, helping them to shop and pay bills
quicker, safer, and more conveniently. In October 2017, we entered into a partnership with a global smartphone-enabled ‘Ride
Hailing’ service, Uber Technologies, Inc.(“Uber”). Our partnership with Uber was intended to bring promotional
deals for KinerjaPay users to use Uber service and use our payment solutions for ride payment processing. Due to the acquisition
of Uber Southeast Asia by
GrabTaxi Holdings Pte. Ltd. (“Grab”)
in March 2018, our partnership with Uber was not extended.
Corporation
and Service Agreement with Ace Legends, Pte. Ltd.
In
July 2017, the Company entered into a Cooperation and Service Agreement with Ace Legends, Pte. Ltd, organized under the laws of
Singapore (“ACE”). Pursuant to the agreement, ACE, a game developer, will develop games for the Company under our
KGAMES business. On March 6, 2018, the Company and ACE launched a game called FLOO on Android and iOS platform. However, due to
delay of the launch of subsequent planned games, in November 2018, the Company and ACE agreed to terminate the agreement. The
Company plans to build its own game division in PT Kinerja.
Sales
and Marketing
Our
primary sales and marketing effort emphasizes on our key differentiator from competitors – KinerjaPay Core Pillars, an e-commerce
ecosystem that integrates electronic payment service with a virtual marketplace enhanced by gamification components. The emphasis
of such will deliver a message to potential users that they can PAY, BUY and PLAY at one place and thus achieve the marketing
objective to attract new users and enhance user engagement.
We
commenced a nationwide marketing campaign to promote KinerjaPay.com to Indonesian consumers and merchants during 2017. Marketing
techniques used include online advertisement on Facebook®, YouTube®, Twitter®, AdWords®, AdChoices® and Instagram®.
Early January 2017, the holiday campaigns held by KinerjaPay were able to help in securing a milestone of reaching 100,000 users.
We localized our online and offline marketing effort to target specific communities to attract new customers and merchants. Our
user basis is currently approaching 200,000 users.
Our
services and products are marketed under the brand names as follows:
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KPAY
– our electronic payment service (“PAY”) business including payment gateway, e-wallet and payment with QR
code;
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KMALL
– our virtual marketplace (“BUY”) business B2B and B2C online transactions; and
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KGAMES
– our gamification (“PLAY”) business that develops games internally and from local game developers.
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Proprietary
Technology, Domain Name and Licenses
KinerjaPay
IP and www.KinerjaPay.com are backed by proprietary technology including the application codes, infrastructure architecture, infrastructure
design, processes/sub-processes, integrated proprietary payment solutions, built-in marketplace and gamification concepts and
modules. We will endeavor to protect our propriety technology, domain name, customer base and trade secrets to the extent reasonably
and commercially practicable because such protection is critical to our success. We will rely principally on the laws in Indonesia
and, to a lesser extent on available international protection, if any.
We
have registered our domain names, Kinerja Pay, Kmall and Kfund to Ministry of Communication and Informatics of the Republic of
Indonesia. As we expand our markets, we may seek to further protect our proprietary rights, to the extent that they may exist,
a process that can be both expensive and time consuming and may not be successful. If we are unable to register or protect our
domain name, we could be adversely affected in any jurisdiction in which our trademarks and/or domain names are not registered
or protected.
Research
and Development
Because
the industries in which the Company competes are characterized by rapid technological advances, the Company’s ability to
compete successfully depends heavily upon its ability to ensure a continual and timely flow of competitive products, services
and technologies to the marketplace. The Company continues to develop new technologies to enhance existing products and services,
and to expand the range of its offerings through R&D, licensing of intellectual property and acquisition of third-party businesses
and technology.
Competition
We
compete with various companies in each of our business segments directly and indirectly.
Our
electronic payment service (“KPAY”) competes directly with other electronic payment solution services and alternative
payment gateways provided by banks or telecommunication companies. These are typical stand-alone payment service providers that
depend on third-party e-commerce marketplaces to generate transaction flows.
We
believe that our KPAY service differs from our competition in three major aspects:
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Unique
feature: we provide e-wallet functionality which allows users to deposit funds using different means into the secured digital
wallet. An e-wallet is accessible from multiple electronic devices;
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Security
feature: our e-wallet acts as an escrow account to enhance the reliability of KMALL transactions. Payments are only released
to merchants once goods are received by buyers on our virtual marketplace; and
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Versatility
in use: our KPAY service not only acts as a traditional payment gateway like other providers, the service is deeply integrated
with KMALL. Users enjoy the convenience of KPAY for different purposes, including bill payment, fund transfer, as well as
online shopping.
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Our
virtual marketplace (“KMALL”) competes directly with online B2B and B2C shopping platforms and other offline channels
including but not limited to, retailers, catalogs and classifieds. Direct competitive shopping platforms include Tokopedia, Bukalapak,
Shopee, Lazada, and Blibli, etc. We mainly compete based on price, product selection and services.
Some
of the principal competitive factors include:
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ability
to attract, retain and engage buyers and sellers;
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volume
of transactions and price and selection of goods;
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reliability
in our electronic payment service;
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customer
service;
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accessibility
and user-friendliness of website, mobile app and application;
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reliability
and security of our technology and system, and
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level
of service fees.
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We
believe that our KMALL differs from our competition in three major aspects:
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KMALL
is backed by technology and market knowledge developed by Indonesian locals. Our Company currently focuses solely on growing
the Indonesian e-commerce market. We believe that our in-depth understanding of local cultural, commercial, and regulatory
environment gives us a unique competitive edge compared to foreign e-commerce players;
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KMALL
features the “Max-3-Steps” check out process and payment method backed by KPAY; shopping on KMALL is convenient
and secure for customers and merchants who are already our KPAY users; and
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As
we continue to grow our KGAMES gamification features, we reward our gaming users with extra bonuses for shopping on KMALL.
We believe this feature is particularly enticing to younger generation under the age of 30, which accounts for more than 50%
of the entire Indonesian population.
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We
expect that our P2P lending business, KFUND, will face intense competition from established players in Indonesia. Some notable
competitors include KoinWorks, Investree, Modalku, Danamas, Akseleran and Taralite. Top players have achieved annual revenue between
two to three million US Dollars, with over one million active user accounts and annual loan disbursement of over $110 million.
We expect our customer base will overlap significantly with top players in the market. Therefore, successful product differentiation
and sophisticated technological interface will strengthen our competitive advantage in the industry. Our strategic focus will
include the following:
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Build
a proprietary lending platform and develop necessary technological infrastructure in-house, which will allow us to respond
to market changes rapidly and achieve business scalability;
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Develop
proprietary credit scoring methodology using a mix of traditional and behavioral metrics, and integrate with data from third-party
credit rating agency, to create a hybrid credit rating system; and
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Offer
a unique portfolio of loan products such as employee loans and SME micro productive loans.
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We
plan to continue to invest significant resources in technology to enhance user experience. We also plan to refine search engine
optimization and use paid search advertising to increase visibility of our products and services. By deepening existing collaborative
relationships with our partners and seeking for new partnerships, we aim to reach more end users efficiently.
Government
Regulation
There
are currently few laws or regulations in Indonesia that are specifically related to the sale of goods and services on the Internet.
We currently are subject to Indonesian regulations in our role as a money transfer agent and are, therefore, subject to Indonesian
electronic fund transfer and money laundering regulations. We received the requisite GeoTrust Certificate in March 2014 in which
entire user transactions have been protected by 256-bit encryption. This is understood to provide a safe platform for online transaction.
We believe to be in compliance with all existing Indonesian governmental regulations applicable to e-commerce operator that facilitate
online transactions between sellers and buyers.
Any
application of existing laws and regulations related to banking, currency exchange, online gaming, electronic contracting, consumer
protection and privacy is at present unclear. Our potential liability in case our customers are in violation of any applicable
laws on pricing, taxation, impermissible content, intellectual property infringement, unfair or deceptive practices or quality
of services is also unclear. In addition, we may become subject to new laws and regulations directly applicable to the Internet
or our specific e-commerce activities. Any existing or potential new legislation applicable to specific e-commerce activities
could expose us to substantial liability, including significant expenses necessary to comply with these laws and regulations,
and reduce and/or limit the use of the Internet on which we depend.
To
date, we have not incurred any compliance-related expenses with any governmental laws in Indonesia pertaining to the use of our
e-commerce portal as a payment option for online shopping and other transactions.
Employees
As
of December 31, 2018, we had an aggregate of 77 employees working at our Company and subsidiaries. Mr. Edwin Witarsa Ng, CEO and
Chairman (“Mr. Ng”)and Mr. Windy Johan, our CFO (“Mr. Johan”), constitute our management team, together
with Mr. Deddy Oktomeo (“Mr. Oktomeo”), CEO of our wholly-owned Indonesian subsidiary, PT Kinerja Pay Indonesia, Mr.
Christopher Danil, CEO of PT Kinerja Indonesia, Mr. Henful Pang, Commissioner of PT Kinerja Indonesia, and Mr. Anoki Kiyosyi,
CEO of PT Kinerja Simpan Pinjam. They are not obligated to contribute any specific number of hours per week to our operations
and intend to devote only as much time as they deem necessary to the Company’s affairs until our business scales and new
business initiatives require to do so. We have not entered into employment agreements with Mr. Ng, Mr. Johan, Mr. Oktomeo, Mr.
Danil, Mr. Pang and Mr. Kiyoshi.
The
employees of our Company and our subsidiaries are not subject to any collective bargaining agreement. We believe that we have
good relations with our employees.
Transfer
Agent
Our
stock transfer agent is Transfer Online, Inc., with offices located at 512 SE Salmon Street, Portland, OR 97214. Their telephone
number is (503) 227 2950, their fax number is (503) 227 6874, and their website is transferonline.com.
Corporate
and Available Information
Our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are
available free of charge though our website (
https://www.kinerjapay.co/
) as soon as practicable after such material is
electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). Except as otherwise
stated in these documents, the information contained on our website or available by hyperlink from our website is not incorporated
by reference into this report or any other documents we file, with or furnish to, the SEC.
ITEM
1A. RISK FACTORS
An
investment in our common stock involves a number of very significant risks. You should carefully consider the following risks
and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing
shares of our company’s common stock. Our business, operating results and financial condition could be seriously harmed
due to any of the following risks. You could lose all or part of your investment due to any of these risks.
Risks
Related to Our Business and Industry
Although
our financial statements have been prepared on a going concern basis, we must raise additional capital to fund our operations
in order to continue as a going concern.
The audited financial
statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might
result if we cease to continue as a going concern. We believe that in order to continue as a going concern, including the costs
of being a public company, we will need to continue to increase sales and revenue to fund business expenses,
and support business expansion through the sale of restricted shares of our Common Stock, and the issuance of convertible
notes.
During
the year ended December 31, 2018, we raised $500,000 from the private sale of equity securities and received net proceeds of $1,519,000
and $100,000 respectively from issuance of convertible notes and exercise of warrants. On November 2, 2018, the Company filed
a registration statement on Form S-1 for the purpose of offering a total of up to 300,000 shares of our 11% Series C Cumulative
Redeemable Perpetual Preferred Stock (“Series C Preferred Stock”), at an offering price of $25 per share. If the offering
is successful, of which there can be no assurance, the gross proceeds will be $7.5 million. The Company’s intention is to
have these shares of Series C Preferred Stock subject to quotation on OTC Market Group’s OTCQB. 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.
Our
limited operating history does not afford investors a sufficient history on which to base an investment decision.
Our
existing electronic payment service and virtual marketplace businesses were first launched and operated by PT Kinerja in February
2015 and only has a limited operating history. The Company initially utilized KinerjaPay IP and operated KinerjaPay.com through
License Agreement entered into with PT Kinerja in December 2015 before acquiring PT Kinerja as a wholly-owned subsidiary in August
2018. As a result of limited operating history of the business, and the Company’s short period of control over the subsidiary,
the business may not break-even or become profitable in the near future, if at all. If we are unable to reach profitability, our
stock price would decline and our ability to continue to raise capital, either equity or debt, may be adversely affected. The
e-commerce market in Indonesia is emerging and evolving; we may need an extended period of time to prove our business model in
the local market and reach long-term profitability and scalability, during which we will encounter risks and difficulties commonly
faced by any early-stage companies in new and rapidly evolving markets.
We
will need to raise capital in order to realize our business plan, the failure of which could adversely impact our operations.
We are currently not profitable.
For the fiscal year ended December 31, 2018 and as of the date of this report, we assessed our financial condition and concluded
that we may need to raise additional capital to fund business operations for the next 12 months from the date of the report. Our
auditor’s report for the year ended December 31, 2018 includes a going concern opinion on the matter. We had a net
loss of $8,393,660 for the year ended December 31, 2018. During the same period, cash used in operations was $2,037,691,
the working capital deficit and accumulated deficit as of December 31, 2018 were approximately $3,594,000 and
$18,145,000, respectively. Management is unable to predict if and when we will be able to generate significant positive
cash flow or achieve profitability. Without adequate funding or a significant increase in revenue, we may not be able to resume
operations in the normal course of business or expand business development efforts in other strategic initiatives; we may not
be able to invest in research and development needed to upgrade technological infrastructure of our electronic payment service,
virtual marketplace and gamification features; we may not be able to acquire additional businesses or form more collaborative
relationships with third parties to gain market share in the e-commerce market. As of December 31, 2018, we had available cash
resources of $150,091.
Overall,
we have funded our cash needs from inception through the date hereof with a series of debt and equity transactions, and through
cash flow from our revenue-generating operations.
We
expect to continue to finance our operations, acquisitions and develop strategic relationships, primarily by issuing equity or
convertible debt securities, which could significantly reduce the percentage ownership of our existing stockholders. Furthermore,
any newly issued securities could have rights, preferences and privileges senior to those of our existing common stock. Moreover,
any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any event may
have a dilutive impact on existing stockholders’ ownership interest, which could cause the market price of our common stock
to decline. We may also issue securities in our subsidiaries, and these securities may have rights or privileges senior to those
of our common stock.
We
may have difficulty obtaining additional funds as and when needed, and we may have to accept terms that would adversely affect
our stockholders. In addition, any adverse conditions in the credit and equity markets may adversely affect our ability to raise
funds when needed. Any failure to achieve adequate funding will delay our business plan executions and could lead to abandonment
of one or more of our initiatives, as well as prevent us from responding to competitive pressures or take advantage of unanticipated
acquisition opportunities. Any additional equity financing will likely be dilutive to stockholders, and certain types of equity
financing, if available, may involve restrictive covenants or other provisions that would limit how we conduct our business or
finance our operations.
We
will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
As
of December 31, 2018, we had 77 employees. As our marketing plans and business strategies develop, we may need to recruit additional
managerial, operational, sales and marketing, financial, IT and other personnel. Future growth will impose significant added responsibilities
on members of management, including:
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identifying,
recruiting, integrating, maintaining, and motivating additional employees;
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maintaining
and furthering collaborative relationships with third-party business partners, service providers and investors; and
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improving
our operational, financial and management controls, reporting systems, and procedures of the Company and its subsidiaries.
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Our
future financial performance and our ability to scale our e-commerce business will depend, in part, on our ability to effectively
manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day
activities in order to devote a substantial amount of time to managing these growth activities. This lack of long-term experience
working together may adversely impact our senior management team’s ability to effectively manage our business and growth.
We
currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations,
advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations,
advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements.
In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided
by consultants is compromised for any reason, our marketing plans to promote e-commerce business may be delayed, or terminated;
our technological integrity of the IT system backing up KPAY, KMALL and KGAMES may be compromised, and we may not be able to ensure
the security of our electronic payment service or prevent system malfunction of the virtual marketplace. There can be no assurance
that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically
reasonable terms, if at all. If we are not able to effectively expand our organization by hiring new employees and expanding our
groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to achieve our marketing,
research, development, and expansion goals, and we may face loss and liability in connection with any deficiency in service caused
by the lack of capable personnel or errors made by third party contractors.
We
depend on key personnel who would be difficult to replace, and our business plans will likely be harmed if we lose their services
or cannot hire additional qualified personnel.
Our
success depends substantially on the efforts and abilities of our senior management, including Mr. Ng, our CEO and controlling
shareholder, and certain key personnel. The competition for qualified management and key personnel is intense. The loss of services
of one or more of our key employees, or the inability to hire, train, and retain key personnel, could delay the development and
sale of our services and products, disrupt our business, and interfere with our ability to execute our intended business plan.
We
plan to grant stock options or other forms of equity awards in the future as a method of attracting and retaining employees, motivating
performance and aligning the interests of employees with those of our stockholders. There are currently no options and/or equity
awards outstanding. If we are unable to adopt, implement and maintain equity compensation arrangements that provide sufficient
incentives, we may be unable to retain our existing employees and attract additional qualified personnel. If we are unable to
retain our existing employees, including qualified technical personnel, and attract additional qualified candidates, our business
and results of operations could be adversely affected.
Our
revenue will be dependent upon acceptance of our e-commerce services and products by Indonesian Consumers. The failure of such
acceptance will cause us to curtail or cease operations.
We
are uncertain whether our e-commerce services and products including KPAY, KMALL and KGAMES will be accepted by Indonesian consumers
and become commercial success. A number of factors may limit the market acceptance of our services and products, including:
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the
availability of alternative electronic payment solutions;
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the
competitiveness of transaction fees using our services relative to alternative electronic payment solutions;
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competition
from other locally or internationally recognized virtual marketplaces;
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market
demand for our e-commence products and services proves to be smaller than we expect;
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user
friendliness of our services and products in comparison to competitors;
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research
and development turns out to be costlier and/or more time-consuming than anticipated; and
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change
in regulatory environment may make running our Portal and virtual marketplace become uneconomical.
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We
may not be able to realize substantial streams of revenue from our offering of services and products if we lose market share in
currently dominant market such as the mobile phone credit voucher business, or fail to increase market share in electronic payment
service and virtual marketplace. We may incur significant amount of capital expenditure on research and development to exploit
and commercialize KinerjaPay IP but never succeed despite of management’s effort.
Service
interruption in PT Kinerja may harm our business operations.
We
rely on our wholly-owned subsidiary PT Kinerja to provide substantially all technology support required for electronic payment
service and payment processing on our virtual marketplace. If the operations of PT Kinerja are limited, restricted, curtailed
or degraded in any way or become unavailable to our users for any reason, our business operations may be materially and adversely
affected.
PT Kinerja operates all of the servers,
manages the 1,500 square-feet data center located in North Sumatra, Indonesia, and provides hosting and maintenance services to
all infrastructure systems which we rely on.
PT
Kinerja’s operation is subject to a number of risks that could materially and adversely impact its ability to provide payment
processing and escrow services to KPAY and KMALL, including:
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service
outages, system failures or failure to effectively scale the system to handle large and growing transaction volumes;
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breach
of users’ privacy and concerns over the use and security of information collected from customers; and
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failure
to manage funds accurately or loss of funds, whether due to employee fraud, security breaches, technical errors or otherwise.
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While
all of our operations have disaster recovery plans in place and we plan to carry property and business interruption insurance,
preventive measures and insurance coverage may be inadequate. Despite any precautions we undertake, damage from natural disasters,
outbreak of war, escalation of hostilities, acts of terrorism, and similar events at PT Kinerja’s computer facilities could
result in interruptions in the flow of data to our users. In addition, any failure by the computer environment to provide our
required data communications capacity could result in interruptions in our service. In the event of a server failure, we could
be required to transfer our user data operations to an alternative provider of server hosting services. Such a transfer could
result in delays in our ability to deliver our services to our customers and increased operating costs.
If
glitches and errors interrupt user experience with our services, our Company may attract negative publicity and incur further
cost to remedy the situation. We may also be subject to liability if the glitches and malfunctions cause breach of the security
of user proprietary information. There is no assurance that technical difficulties will not occur in the normal course of business
of PT Kinerja. Resulting business consequences may include decrease in market acceptance of our services and products, loss of
trust from our existing customers, diversion of development resources and management attention, damage to our reputation, potential
litigation, and increased service costs, any of which would have a material adverse effect upon our business, operating results
and financial condition.
Change
in Credit card associations rules may harm our business.
Credit
card associations rules may change or certain practices could negatively affect our electronic payment service business and, incompliance
with these rules may result in our inability to accept credit cards from our customers. If we are unable to accept credit cards,
our competitive position would be critically damaged. We are not a bank and as a result we are barred from belonging to or directly
access any credit card associations or bank payment networks. We rely on banks, credit card companies, and their respective service
providers to process our transactions. We must comply with the operating rules of credit card associations and bank payment networks
as they apply to all merchants dealing on our Portal. The association’s member banks set these rules, and the association
interprets the rules. Some of those member banks compete with us in providing electronic payment services to customers and businesses.
Credit Card Association could issue new operating rules or change interpretations of existing rules which we may find difficult
or impossible to comply with, in which case we could lose our ability to provide customers with the option of using credit cards
to process payments and thus lose our competitive position to financial institutions and/or other electronic payment solution
providers.
We
rely on a single bank for payment processing.
Bank
Central Asia (“BCA”) currently processes our bank transactions and our credit card transactions. BCA also provides
payment processing services to some of our competitors and offers credit card processing services directly to online merchants.
If our cooperative relationship with BCA become unsustainable, we may not be able to find alternative bank, credit card companies
and other service providers quickly at acceptable terms to prevent any disruption in our service.
Increase
in transactions processed by credit card may increase our transaction cost.
We
pay significant amount of transaction fees depending on issuing banks’ policies, which ranges from 0% to 3% when payers
fund payment transactions using credit cards, nominal fees when payers fund payment transactions by electronic transfer of funds
from bank accounts, and no fees when payers fund payment transactions from an existing e-wallet account with us. Users may prefer
funding payments by credit card because of certain protection and benefits offered by credit cards, including the ability to dispute
and reverse merchant charges, offering cash reward and incentive programs. Our transaction fees may increase significantly which
in turn squeeze our profit margin in electronic payment service if increasing number of users switch to using credit card as their
preferred method of payment.
From
time to time, Credit card associations increase the interchange fees that they charge for each transaction using their cards.
Our credit card processors have the right to pass any increases in interchange fees on to us. Any such increased fees could increase
our operating costs and reduce our profit margin. Furthermore, our credit card processors require us to pledge cash as collateral
with respect to our acceptance of certain credit cards and the amount of cash that we are required to pledge could increase at
any time.
We
may incur liabilities and losses related to our electronic payment processing business; insurance coverage is expensive and difficult
to obtain, we may be exposed to lawsuits and monetary penalties that will harm our business.
Our
business exposes us to potential liability risks which are inherent in the e-commerce market. As we will take preventive measures
we deem to be appropriate to avoid potential liability claims against us, there can be no assurance that we can avoid exposure
to significant liability claims. Liability insurance for electronic payment processing industry is generally expensive. We also
plan to obtain liability professional indemnity insurance coverage for our Portal services. There can be no assurance that we
will be able to obtain such coverage on acceptable terms, or that any insurance policy will provide adequate protection against
potential claims. A successful liability claim brought against us may exceed any insurance coverage secured by us and could have
a material adverse effect on our results or ability to continue our business.
The
loss of market share in the mobile phone credit top-up business or a change in mobile phone bill payment method could harm our
business.
Currently we are one of
the few players in Indonesia providing mobile phone credit top-up service to our electronic payment service users. The business
contributes a significant amount of revenue to our Company. During the year ended December 31, 2018, revenue generated from mobile
phone credit top-up service amounts to $1,412,303. There can be no assurance that customers will continue to favor our
service if other competitors offer more affordable and convenient payment options. If mobile service providers offer payment options
using credit cards or bank accounts directly, our service may be obsolete and cause material adverse effect on our business, operating
results and financial condition.
We
may be unable to compete successfully against current and future competitors.
The
e-commerce market in Indonesia has become very active only during the past several years with a few major companies that were
funded by big institutional investors. Some current and potential competitors have longer operating histories, larger customer
bases and greater brand recognition in other business and Internet sectors than we do. To a lesser extent, there are local and
a few regional companies that have entered the e-commerce market. The products being offered in the marketplace have typically
been physical items across few different categories such as electronics and gadgetry, fashion items and household goods. These
e-commerce entities typically are charging transaction fees of from 2% to 5% per transaction.
Customer
complaints or negative publicity about our product and customer service could harm our business.
Customer
complaints or negative publicity about our products and services could tarnish our reputation and decrease customer confidence.
Customer complaints may stem from system malfunction, server shutdown, breach of privacy, fraud, disputes around online transactions,
and inadequate customer service towards issues and disputes. Measures we sometimes take to combat risks of fraud and breaches
of privacy and security, such as freezing customer funds, can damage relations with our customers. These measures heighten the
need for prompt and accurate customer service to resolve irregularities and disputes. We may receive negative media coverage,
as well as public criticism regarding customer disputes. Effective customer service requires significant personnel expense, and
if not managed properly, could adversely impact our business. We expect to employ more customer service and sales representatives
at PT Kinerja. Any inability to manage or train our customer service representatives properly could compromise our ability to
handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation may suffer and we
may lose our customers’ confidence in our business.
We
have limited experience in managing and accounting accurately for large amounts of customer funds. Our failure to manage these
funds properly would harm our business.
Our
ability to manage customer funds requires a high level of internal controls. We have neither an established operating history
nor proven management experience in maintaining, over a long term, these internal controls. With limited experience, we may mishandle
a single large transaction or encounter technical difficulty in surging volume of transactions. Any failure to maintain controls
over large amount of customer funds can hurt consumer confidence and drive away large merchants.
We
face considerable risks of loss due to fraud and/or disputes between senders and recipients. If we are unable to deal effectively
with losses from fraudulent transactions and user disputes, our losses would increase, and our business would be materially adversely
affected.
We
face significant risks of losses and liabilities to fraud and disputes between senders and recipients, including:
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settling
funds for illegitimate transactions and unable to recover them;
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fraud
and identity thieves using stolen or fabricated credit card or bank account numbers causing damage to users; and
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inability
to collect chargebacks or refunds.
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Illegitimate
transactions can expose us to governmental and regulatory sanctions as well as potentially prevent us from satisfying our contractual
obligations to our third party partners, which may cause us to be in breach of our obligations. The highly automated nature of
our payments services may make us a target for illegal or improper uses, including fraudulent or illegal sales of goods or services
such as alcoholic beverages, tobacco products, prescription medications, controlled substances, pirated software and intellectual
properties, illegal online games, illegal activities such as money laundering, bank fraud, child pornography trafficking, online
securities fraud, and terrorist financing.
In
the event that a billing dispute between a buyer and a seller is not resolved in favor of the seller, including in situations
where the seller engaged in fraud, the transaction is typically “charged back” to the seller and the purchase price
is credited or otherwise refunded to the buyer. If we are unable to collect chargebacks or refunds from the seller’s account,
or if the seller refuses to or is unable to reimburse us for chargebacks or refunds due to closure, bankruptcy, or other reasons,
we may bear the loss for the amounts paid to the buyer. If our chargeback rate becomes excessive, credit card associations may
require us to pay fines and could terminate our ability to accept their cards for payments.
In
configuring our payments services, we face an inherent trade-off between security and customer convenience. We believe that several
of our current and former competitors in the electronic payments business have gone out of business or significantly restricted
their businesses largely due to fraudulent transactions. We expect that technically knowledgeable criminals will continue to attempt
to circumvent our anti-fraud systems. Our current business and anticipated growth will continue to place significant demands on
our risk management and compliance efforts, and we will need to continue developing and improving our risk management infrastructure,
techniques, and processes. If our risk management policies and processes contain errors or are otherwise ineffective, we may suffer
large financial losses, we may be subject to civil and criminal liability, and our business may be materially and adversely affected.
We
have entered into collaborations and may form or seek collaborations or strategic alliances or enter into additional licensing
arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.
We
may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements
with third parties that we believe will complement or augment our development efforts with respect to our e-commerce business
and any future products or services that we may develop. Any of these relationships may require us to incur non-recurring and
other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt
our management and business. In addition, we face significant competition in seeking appropriate strategic partners for which
the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic
partnership because our e-commerce business may be deemed to be too early stage for collaborative effort and third parties may
not view our business model as having the requisite potential to demonstrate security and scalability. Further, collaborations
involving our services and products, are subject to numerous risks, which may include the following:
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collaborators
have significant discretion in determining the efforts and resources that they will apply to a collaboration;
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collaborators
may elect not to continue or renew revenue-sharing agreements for our electronic payment service and virtual marketplace;
changes in their strategic focus due to the acquisition of competitive products, availability of funding, or other external
factors, such as a business combination that diverts resources or creates competing priorities;
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collaborators
could independently develop, or develop with third parties, electronic payment service, e-wallet, payment gateway, virtual
marketplace, online game, and any other related e-commerce services or products that compete directly or indirectly with our
services, products or product candidates;
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collaborators
may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information
in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property
or proprietary information or expose us to potential liability;
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disputes
may arise between us and a collaborator that cause the termination of the joint effort, loss of revenue source, or that result
in costly litigation or arbitration that diverts management attention and resources; and
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collaborators
may own or co-own intellectual property covering our products that results from our collaborating with them and, in such cases,
we would not have the exclusive right to commercialize such intellectual property.
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As
a result, if we enter into collaboration agreements and strategic partnerships or license our products or businesses, we may not
be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations
and company culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that,
following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction.
Any delays in entering into new collaborations or strategic partnership agreements or any unexpected termination of the existing
relationships could cause loss of revenue streams and user base in the short term, and would harm our business prospects, financial
condition, and results of operations.
We
have established current business model by acquisitions of requisite technology infrastructure and intellectual properties; future
acquisitions may not be successful or may not realize the long-term performance we expect from business integration.
Corporate
and product acquisition is an important part of our growth strategy. We may not be able to identify suitable targets given the
relatively narrow scope of our business. We may not be able to close an acquisition or lose to other competitors due to inadequate
capital funding. If we make strategic acquisitions to expand our existing business lines or develop new business services or products,
the target may be loss-making; we may incur significant operating expenses and capital expenditure which will adversely impact
our financial results. The acquired business may compete directly or indirectly with one or more of our existing strategic partners
or collaborators, thus negatively impacting other existing revenue streams. There is no assurance that we will be able to realize
the expected benefits of synergies and growth opportunities in connection with these acquisitions. Acquisition could be dilutive
to earnings, or in the event of acquisitions made through the issuance of commons stocks, may be dilutive to our existing shareholders.
New
lines of business or new products and services may subject us to additional risks.
From
time to time, we may implement new lines of business or offer new services within existing lines of business. There are substantial
risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In
developing and marketing new lines of business and/or new services, we may invest significant time and resources. Initial timetables
for the introduction and development of new lines of business and/or new services may not be achieved and price and profitability
targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market
preferences, may also impact the successful implementation of a new line of business or a new product or service.
In
forming PT Kinerja SP, a new wholly-owned subsidiary in an effort to develop our KFUND brand and tap into peer-to-peer micro-lending
market, we anticipate the launching cost will be approximately $175,000. There is no assurance that the business will materialize
in the near future. Failure to successfully launch the business, integrate it into our existing operations and manage risks related
to the new business could have a material adverse effect on our business, results of operations and financial condition.
Our
intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services,
and brand.
Our
proprietary technology, domain name and licenses and other intellectual property rights are critical to our success. We rely on,
and expect to continue to rely on, existing KinerjaPay IP backed by PT Kinerja, any proprietary technology developed internally
and other intellectual property rights acquired through various third party collaborative relationships to build our continuing
business and brand. However, various events outside of our control may pose a threat to our intellectual property rights, as well
as to our products and services. Effective protection of our proprietary technology, domain names, and licenses is expensive and
difficult to maintain, both in terms of application and maintenance costs, as well as the costs of defending and enforcing those
rights. Our intellectual property rights may be infringed, misappropriated, or challenged, which could result in them being narrowed
in scope or declared invalid or unenforceable. Our agreements with employees and third parties that place restrictions on the
use and disclosure of any intellectual property rights may be insufficient or may be breached, or we may not enter into sufficient
agreements with such individuals in the first instance, in either case potentially resulting in the unauthorized use or disclosure
of our proprietary technology and other intellectual property, including to our competitors, which could cause us to lose any
competitive advantage resulting from this intellectual property.
Cyber-attacks
or other security breaches could have a material adverse effect on our business.
In
the normal course of business, we collect, process and store certain personal and other sensitive information from users of our
electronic payment service and virtual marketplace, which makes it an attractive target and potentially vulnerable to cyber-attacks,
computer viruses, physical or electronic break-ins or similar disruptions. While we have taken steps to protect the confidential
information that we have access to, our security measures could be breached. Because techniques used to sabotage or obtain unauthorized
access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable
to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or
other unauthorized access to our platform could cause confidential borrower and lender information to be stolen and used for criminal
purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the
loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because
of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed
and exploited, our relationships with borrowers and lenders could be severely damages, we could incur significant liability and
our business and operations could be adversely affected.
We
face increasing competition in the Indonesian e-commerce market.
We
compete in the Indonesian market, which is characterized by vigorous competition, changing technology, changing customer needs,
evolving industry standards, and frequent introductions of new products and services. We expect competition to intensify in the
future as existing and new competitors introduce new services or enhance existing services. We compete against many companies
to attract customers, and some of these companies have greater financial resources and substantially larger bases of customers
than we do, which may provide them with significant competitive advantages. These companies may devote greater resources to the
development, promotion, and sale of products and services, and they may offer lower prices or more effectively introduce their
own innovative products and services that adversely impact our growth. Mergers and acquisitions by these companies may lead to
even larger competitors with more resources. We also expect new entrants to offer competitive products and services. Certain merchants
have long-standing exclusive, or nearly exclusive, relationships with our competitors to accept payment cards and other services
that we offer. These relationships may make it difficult or cost-prohibitive for us to conduct material amounts of business with
them. Competing services tied to established brands may engender greater confidence in the safety and efficacy of their services.
If we are unable to differentiate ourselves from and successfully compete with our competitors, our business will be materially
and adversely affected. We may, from time to time, make adjustments to pricing, service scope or marketing strategies that are
unwelcomed by our users as we respond to changing competitive landscape in the market, which could reduce activity on our Portal
and harm our business.
Our
notable competitors in the electronic payment services sector include payment processors such as Doku and Veritrans. Our notable
competitors in the virtual marketplace sector include Tokopedia, Bukalapak, Shopee, Lazada, Zalora, OLX, and Blibli.
We
have limited or no experience competing in certain international markets, where we hope to compete, beyond Indonesia.
We
intend to expand our business in selected international markets, initially in the Southeast Asian region. We may face challenges
in expanding our international and cross-border businesses and operations which may expose us to greater political, intellectual
property, regulatory, exchange rate fluctuation and other risks.
We will face risks associated
with expanding into markets in which we have limited or no experience, in which we may be less well-known or have fewer available
local resources and in which we may need to localize our business practices, culture and operations. We may be unable to attract
a sufficient number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating
effectively in these new markets. We may also face protectionist policies that could, among other things, hinder our ability to
execute our business strategies and put us at a competitive disadvantage relative to domestic companies in other jurisdictions.
The expansion of our international and cross-border businesses will also expose us to risks inherent in operating businesses globally,
including:
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|
lack
of acceptance of our products and service offerings, including offering customers the ability to transact business in major
currencies in addition to the Indonesian Rupiah;
|
●
|
challenges
and increased expenses associated with staffing and managing international and cross-border operations and managing a multi-national
organization;
|
●
|
trade
barriers, such as duties and taxes, competition law regimes and other trade restrictions, as well as other protectionist policies;
|
●
|
compliance
with privacy laws and data security laws
;
heightened restrictions and barriers on the transfer of data between different jurisdictions;
|
●
|
the
need for increased resources to manage regulatory compliance across our international businesses in multiple jurisdictions
with different and sometimes conflicting requirements;
|
●
|
foreign
currency restrictions and exchange rate fluctuations;
|
●
|
challenges
caused by distance, language, business customs and cultural differences; and
|
●
|
political
instability and general economic or political conditions in particular countries or regions
.
|
Our
business is subject to extensive regulation and oversight in a variety of areas, all of which are subject to change and uncertain
interpretation.
We
are currently subject to Indonesian electronic fund transfer and money laundering regulations in our capacity as a money transfer
agent. As we seek to build a trusted and secure platform for e-commerce, and as we expand our network of users and facilitate
their transactions and interactions with one another or otherwise evolve our products and services, we will increasingly be subject
to laws and regulations relating to the payment processing, collection, use, retention, privacy, security, and transfer of information,
including the personally identifiable information of our employees and users. In the future, we may be further subject to:
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|
banking
regulations;
|
●
|
additional
electronic fund transfer and money laundering regulations;
|
●
|
international
banking or financial services regulations or laws governing other regulated industries and regions; or
|
●
|
international
regulation of Internet transactions.
|
If
we are found to be engaged in any unauthorized banking business, we may be subject to monetary penalties and be required to cease
business. We may not be able to respond quickly or effectively to regulatory, legislative, and other developments, and these changes
may in turn impair our ability to offer our existing or planned features, products, and services and/or increase our cost of doing
business. In addition, if our practices are not consistent or viewed as not consistent with legal and regulatory requirements,
including changes in laws, regulations, and industry standards or new interpretations or applications of existing laws, regulations,
and standards, we may become subject to audits, inquiries, adverse media coverage, investigations, or criminal or civil sanctions,
all of which may have an adverse effect on our reputation, business, results of operations, and financial condition.
It
may be difficult to enforce a U.S. judgment against us, our officers and directors and the foreign persons named in this Annual
Report on Form 10-K in the United States or in foreign countries, or to assert U.S. securities laws claims in foreign countries
or serve process on our officers and directors and these experts.
While
we are incorporated in the State of Delaware, currently a majority of our directors and executive officers are not residents of
the United States, and the foreign persons named in this Annual Report on Form 10-K are located in Indonesia. Other than our cash
assets held in our U.S. bank accounts, all of our operating assets are located outside the United States. Therefore, it may be
difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions
of the U.S. federal securities laws against us or any of these persons in a U.S. or foreign court, or to effect service of process
upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to
assert U.S. securities law claims in original actions instituted in foreign countries in which we operate. Foreign courts may
refuse to hear a claim based on a violation of U.S. securities laws on the grounds that foreign countries are not necessary the
most appropriate forum in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that foreign
law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must
be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by foreign
countries law. There is little binding case law in foreign countries addressing the matters described above.
Our
reported financial statements and results may be materially and adversely affected by changes in accounting principles generally
accepted in the United States.
Generally
accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board
(FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles
or interpretations could have a significant effect on our reported financial statements and results and could materially and adversely
affect the transactions completed before the announcement of a change. Additionally, the adoption of new or revised accounting
principles may require that we make significant changes to our systems, processes, and controls. Changes in any new standards
may result in materially different financial statements and results and may require that we change how we process, analyze, and
report financial information and that we change financial reporting controls.
Servicing
our Notes may require a significant amount of cash, and we may not have sufficient cash or the ability to raise the funds necessary
to repay the Notes at maturity.
In
consideration of the acquisition of PT Kinerja Indonesia in August 2018, the Company issued a Promissory Note of $1,200,000 with
interest of 6.00% per annum. The note is due twenty-four months from August 31, 2018. Our ability to repay full principal with
interest upon note maturity will depend on our ability to generate sufficient cash flow from operations and equity financing to
fulfill debt repayment. Our inability to repay the note in full at maturity will lead to default and we may be responsible for
additional cost related to collection and attorney fee. The Company currently runs working capital deficit as of December 31,
2018, we may not have sufficient funds to repay the indebtedness at maturity.
The
conversion of some or all of our currently outstanding convertible notes in shares of our common stock will dilute the ownership
interests of existing stockholders.
The
conversion of some or all of our currently outstanding convertible notes in shares of our common stock will dilute the ownership
interests of existing stockholders. As of December 31, 2018, we had $1,304,853 outstanding notes convertible into
up to our common stock based on then applicable conversion prices, which are subject to adjustment based upon applicable discounts
based upon the closing market price of our common stock on the respective dates of conversion. Each holder of the notes has agreed
to a 4.99% beneficial ownership conversion limitation (subject to certain noteholders’ ability to increase such limitation
to 9.99% upon 60 days’ notice to us), and each note may not be converted during the first six-month period from the date
of issuance. Any sales in the public market of the common stock issuable upon such conversion or any anticipated conversion of
our convertible notes into shares of our common stock could adversely affect prevailing market prices of our common stock.
The
accounting method for convertible debt securities that may be settled in cash could have a material adverse effect on our reported
financial results.
Under
Financial Accounting Standards Board Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC
470-20”), we are required to separately account for the liability and equity components of our convertible notes because
they may be settled entirely or partially in cash upon conversion in a manner that reflects our economic interest cost. The effect
of ASC 470-20 on the accounting for our convertible notes is that the equity component is required to be included in the additional
paid-in capital section of stockholders’ deficit on our consolidated balance sheet, and the value of the equity component
would be treated as original issue discount for purposes of accounting for the debt component of our convertible notes. As a result,
we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization
of the discounted carrying value of our convertible debt or notes to their face amount over the terms. We will report higher net
loss in our financial results in part because ASC 470-20 will require interest to include both the current period’s amortization
of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial
results, the trading price of our common stock and the trading price of our convertible notes.
In
addition, because our convertible notes may be settled entirely or partly in cash, under certain circumstances, these are currently
accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion are not included
in the calculation of diluted earnings per share except to the extent that the conversion value exceeds their principal amount.
Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of
shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued.
We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If
we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of our convertible notes,
then our diluted earnings per share would be adversely affected.
Risks
Related to Our Common Stock
If
we issue additional shares in the future, it will result in the dilution of our existing stockholders.
Our
articles of incorporation authorize the issuance of up to 500,000,000 shares of our common stock with a par value of $0.0001 per
share. As of April 22, 2019, we have approximately 236,931,976 shares of Common Stock available for issuance.
Our Board of Directors may choose to issue some or all of such shares for business acquisition and for funding of operations without
stockholder approval. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in
the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce
the proportionate ownership and voting power of all current stockholders. Further, such issuance may result in a change of control
of our company.
Our
articles of incorporation authorizes the issuance of up to 10,000,000 shares of our preferred stock with a par value of $0.0001
per share. The board of directors is authorized to provide for the issuance of these unissued shares of preferred stock in one
or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. Accordingly,
the board of directors may issue preferred stock which may convert into large numbers of shares of Common Stock and consequently
lead to further dilution of other shareholders. As of April 22, 2019, 400,000 shares of Series A Convertible Preferred
Shares issued were fully converted to 1,666,667 shares of Common Stock; 500,000 shares of Series B Preferred Shares was issued
and outstanding. On November 2, 2018, we filed a Registration Statement on Form S-1 for the offering of up to 300,000 shares of
Series C Preferred Stock at an offering price of $25.00 per share. The Registration Statement is pending, and we will file an
amendment in response to limited SEC comments as soon as practicable after filing this Form 10-K.
We
are subject to compliance with securities law, which exposes us to potential liabilities, including potential rescission rights.
We
have offered and sold our Common Stock to investors pursuant to certain exemptions from the registration requirements of the Securities
Act of 1933 (the “Securities Act”), as well as those of various state securities laws. The basis for relying on such
exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting
prospective investors and making the offering. We have not received a legal opinion to the effect that any of our prior offerings
were exempt from registration under any federal or state law. Instead, we have relied upon the operative facts as the basis for
such exemptions, including information provided by investors themselves.
If
any prior offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities
if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation
prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption
from the registration or qualification provisions of such state statutes. If investors were successful in seeking rescission,
we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in
fact qualify for the exemptions upon which it has relied, we may become subject to significant fines and penalties imposed by
the SEC and state securities agencies.
Mr.
Ng, our Controlling Shareholder and Chairman controls approximately 54.47% of our common stock and may be able to influence
the outcome of stockholder votes and their interests may differ from other stockholders.
As
of April 22, 2019, Mr. Ng, our controlling stockholder, executive officer and director has voting control of 54.47%
of our voting capital stock, consisting of 1,266,667 shares of our Common Stock (of which 400,000 shares of Common
Stock pledged to secure loan to Mr. Ng) and 500,000 shares of Series B Preferred Stock entitled to a number of votes equal to
51% of all matters subject to vote by the holders of Common Stock. Subject to any fiduciary duties owed to our other stockholders
under Delaware law, the stockholder may be able to exercise significant influence over matters requiring stockholder approval,
including the election of directors and approval of significant corporate transactions, and will have some control over our management
and policies. Some of these persons may have interests that are different from others. For example, these stockholders may support
proposals and actions with which others may disagree. The concentration of ownership could delay or prevent a change in control
of the Company or otherwise discourage a potential acquirer from attempting to obtain control of the Company, which in turn could
reduce the price of our stock. In addition, these stockholders could use their voting influence to maintain our existing management
and directors in office, delay or prevent changes in control of the Company, or support or reject other management and board proposals
that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing
transactions. Reference is made to the disclosure under “Description of Our Capital Stock - Series B Preferred Stock”
below.
We
have never paid cash dividends and do not intend to pay dividends on any investments in the shares of stock of our Company in
the foreseeable future.
We
have never paid any cash dividends, and currently do not intend to pay any dividends for the foreseeable future. The Board of
Directors has not directed the payment of any dividends and does not anticipate paying dividends on the shares for the foreseeable
future and intends to retain any future earnings to the extent necessary to develop and expand our business. Payment of cash dividends,
if any, will depend, among other factors, on our earnings, capital requirements, and the general operating and financial condition,
and will be subject to legal limitations on the payment of dividends out of paid-in capital. Because we do not intend to declare
dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may
never happen, and investors may lose all of their investment in our company.
Our
Common Stock is subject to the “Penny Stock” rules of the SEC and the trading market in our stock is limited, which
makes transactions in our stock cumbersome and may reduce the value of an investment.
The
Securities and Exchange Commission (the “SEC”) has adopted Rule 15g-9 which establishes the definition of a “penny
stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock,
unless exempted, the rules require:
●
|
That
a broker or dealer approve a person’s account for transactions in penny stocks;
|
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|
The
broker or dealer receives a written agreement to the transaction, setting forth the identity and quantity of the penny stock
to be purchased.
|
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
●
|
Obtain
financial information and investment experience objectives of the person; and
|
●
|
Make
a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission
relating to the penny stock market, which, in highlight form:
●
|
Sets
forth the basis on which the broker or dealer made the suitability determination; and
|
●
|
That
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our stock. Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks.
Financial
Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a shareholder’s ability
to trade our Common Stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced
securities will not be suitable for some customers. FINRA requirements make it more difficult for broker-dealers to make a market,
which may limit your ability to buy and sell our stock and have an adverse effect on the market for our Shares.
Our
stock is thinly traded, sale of your holding may take a considerable amount of time.
The
shares of our Common Stock are traded on the OTCQB Market, meaning that the number of persons interested in purchasing our Common
Stock at or near bid prices may be relatively small or non-existent. As a consequence, there may be periods of several days or
more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support continuous sales without an adverse effect on share price. There can be
no assurance that a broader or more active public trading market for our Common Stock will develop or be sustained. Due to these
conditions, we can give you no assurance that you will be able to sell your shares at or near bid prices or at all if you need
money or otherwise desire to liquidate your shares.
Our
share price could be volatile and our trading volume may fluctuate substantially.
The
price of our Common Shares has been and may in the future continue to be extremely volatile, with the sale price fluctuating from
a low of $0.30 to a high of $2.74 during the last three fiscal years. Many factors could impact future price of our common shares,
including:
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|
our
inability to raise additional capital to fund our operations;
|
●
|
our
failure to successfully implement our business objectives and strategic growth plans;
|
●
|
compliance
with ongoing regulatory requirements;
|
●
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market
acceptance of our product;
|
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changes
in government regulations; and
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actual
or anticipated fluctuations in our quarterly financial and operating results; and the degree of trading liquidity in our common
shares.
|
Shares
eligible for future sale may adversely affect the market.
From
time to time, certain of our stockholders may be eligible to sell all or some of their shares of Common Stock by means of ordinary
brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations.
In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current
public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity
securities), current public information and notice requirements. Any substantial sales of our Common Stock pursuant to Rule 144
may have a material adverse effect on the market price of our Common Stock.
Compliance
with changing regulations concerning corporate governance and public disclosure may result in additional expenses.
In
recent years, there have been several changes in laws, rules, regulations and standards relating to corporate governance and public
disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Sarbanes-Oxley
Act of 2002 (“Sarbanes-Oxley”) and various other new regulations promulgated by the SEC and rules promulgated by the
national securities exchanges. The Dodd-Frank Act, enacted in July 2010, expands federal regulation of corporate governance matters
and imposes requirements on publicly-held companies, including us, to, among other things, provide stockholders with a periodic
advisory vote on executive compensation and also adds compensation committee reforms and enhanced pay-for-performance disclosures.
While some provisions of the Dodd-Frank Act were effective upon enactment, others will be implemented upon the SEC’s adoption
of related rules and regulations. The scope and timing of the adoption of such rules and regulations is uncertain and accordingly,
the cost of compliance with the Dodd-Frank Act is also uncertain. In addition, Sarbanes-Oxley specifically requires, among other
things, that we maintain effective internal control over financial reporting and disclosure of controls and procedures. These
and other new or changed laws, rules, regulations and standards are, or will be, subject to varying interpretations in many cases
due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations
and standards are likely to continue to result in increased general and administrative expenses and a diversion of management
time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws,
rules, regulations and standards may make it more difficult and expensive for us to maintain director and officer liability insurance,
and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board
of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability
in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors
and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot
estimate the timing or magnitude of additional costs we may incur as a result.
If
we fail to maintain effective internal controls over financial reporting, the price of our Common Stock may be adversely affected.
Our
internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the
disclosure of which may have an adverse impact on the price of our Common Stock. We are required to establish and maintain appropriate
internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established,
could adversely affect our public disclosures regarding our business, financial condition or results of operations. In addition,
management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to
be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual
or perceived weaknesses that need to be addressed in our internal control over financial reporting or disclosure of management’s
assessment of our internal controls over financial reporting may have an adverse impact on the price of our Common Stock.
Our
quarterly operating results fluctuate and may not predict our future performance accurately. Variability in our future performance
could cause our stock price to fluctuate and decline.
We
expect our quarterly results will fluctuate in the future as a result of a variety of factors, many of which are beyond our control.
These factors include:
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|
changes
in our costs, including interchange and transaction fees charged by credit card associations, and our transaction losses;
|
●
|
changes
in our pricing policies or those of our competitors;
|
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relative
rates of acquisition of new customers;
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seasonal
patterns, including increases during the holiday season;
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delays
in the introduction of new or enhanced services, software and related products by us or our competitors or market acceptance
of these products and services; and
|
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other
changes in operating expenses, personnel and general economic conditions.
|
As
a result, period-to-period comparisons of our operating results may not be meaningful, and you should not rely on them as an indication
of our future performance.
Delaware
law contains provisions that could discourage, delay or prevent a change in control of our Company, prevent attempts to replace
or remove current management and reduce the market price of our stock.
Provisions
in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our
stockholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue
up to ten million shares of “blank check” preferred stock without further stockholder approval. The board of directors
has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights,
preferred stockholders could make it more difficult for a third party to acquire us.
We
are also subject to the anti-takeover provisions of Delaware General Corporation Law (“DGCL”). Under these provisions,
if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that
person for three years without special approval, which could discourage a third party from making a takeover offer and could delay
or prevent a change in control of us. An “interested stockholder” is, generally, a stockholder who owns 15% or more
of our outstanding voting stock or an affiliate of ours who has owned 15% or more of our outstanding voting stock during the past
three years, subject to certain exceptions as described in the DGCL.
ITEM
1B. UNRESOLVED STAFF COMMENTS
The
Company is in the process of filing an amendment to its Registration Statement on Form S-1, Registration No. 333-228125, in response
to limited SEC comments, which amendment will be filed as soon as practicable after filing this Annual Report on Form 10-K.
ITEM
2. PROPERTIES
Our
principal office is located at J1. Multatuli, No. 8A, Medan, Indonesia 20151. Our offices consist of approximately 4,000 square
feet of executive offices and sales and marketing space. The land and building space of our principal office is owned by PT Kinerja
and provided to the Company on a rent-free basis. We believe that these facilities will be sufficient for the next twelve months.
We
believe that our facilities are generally in good condition and suitable to carry on our business. We also believe that, if required,
suitable alternative or additional space will be available to us on commercially reasonable terms.
ITEM
3. LEGAL PROCEEDINGS
We
are not involved in any pending legal proceedings that we anticipate would result in a material adverse effect on our business
or operations.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note
1 – description of business
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. On December 1, 2015, the Company entered into a license agreement with P.T. Kinerja Indonesia (“P.T.
Kinerja” the “Licensor”), 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, as Licensee, 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.
On
August 31, 2018, the Company completed its acquisition of its licensor PT. Kinerja which became a wholly-owned subsidiary of the
Company (Note 3). The result of this acquisition enabled the Company to present its revenue on a gross basis as the principal
going forward. Upon the closing of the acquisition of the Licensor by the Licensee, the License Agreement effectively ceased.
In addition, the acquisition gave the Company the ability to consolidate its IP technology and manage its 1,500 square-feet data
center located in North Sumatra which the Company plans to expand to provide cloud computing services as well as data mining from
the Company’s existing customer base. The Company believes that the acquisition will make the Company more cost efficient
and potentially generate more revenues from other IT services.
On
September 13, 2018, the Company incorporated PT. Kinerja Simpan Pinjam, a new wholly-owned subsidiary, for the purpose of managing
its KFUND brand as a peer-to-peer (P2P) lending platform focusing on micro-lending activities. The Company plans to develop the
KFUND brand mainly targeting the consumer sector to facilitate micro loans ranging from $100 to $1,000 on biweekly or monthly
term. KFUND is still in preparation stage and expected to start in the second quarter of 2019.
Going
Concern
The
accompanying consolidated 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. For the year ended
December 31, 2018, the Company had a net loss of approximately $8,394,000. At December 31, 2018, the Company had an accumulated
deficit of approximately $18,145,000 and a working capital deficit of approximately $3,594,000. These factors raise
substantial doubt about the Company’s ability to continue as a going concern, within one year from the issuance date of
this filing. The Company’s ability to continue as a going concern is dependent on its ability to raise the required additional
capital or debt financing to meet short and long-term operating requirements. During the year ended December 31, 2018, the Company
received net cash proceeds of approximately $1,519,000 from the issuance of new convertible debentures. Subsequent to December
31, 2018, the Company received approximately $771,000 in net cash proceeds from the issuance of new convertible debentures. Additional
financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable
terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly
and materially restrict our operations. The Company continues to pursue external financing alternatives to improve its working
capital position. 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 subsidiaries PT KinerjaPay, PT Kinerja, and
PT Kinerja Simpan Pinjam. All significant inter-company balances and transactions have been eliminated.
Note
2 - Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and judgments that affect the reported amounts of assets, liabilities, and related disclosure of
contingent assets and liabilities at the financial statement date and the reported revenues and expenses during the reporting
periods. On an on-going basis, we evaluate our estimates, including those related to allowances for bad debt and inventory obsolescence,
income taxes, 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.
Foreign
Currency
Non-U.S.
entity operations are recorded in the functional currency of each entity. Results of operations for non-U.S. dollar functional
currency entities are translated into U.S. dollars using average currency rates or actual action date currency rate. Assets and
liabilities are translated using currency rates at period end. Foreign currency translation adjustments are recorded as a component
of accumulated other comprehensive income (loss) within stockholders’ equity.
Cash
and Cash Equivalents
For
financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities
of three months or less to be cash or cash equivalents. There were no cash equivalents as of December 31, 2018 and December 31,
2017.
Accounts
Receivable
Accounts
receivable consist primarily of trade receivables from customers. 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 $9,439 and $0 at December 31, 2018 and December 31, 2017, respectively.
Inventory
Inventories,
which consist of finished goods, are stated at the lower of cost or market value, using the first-in, first-out convention. The
Company regularly reviews its inventory quantities on hand, and when appropriate, records a provision for excess and slow-moving
inventory.
Prepaid
expenses
Prepaid
expenses represent amounts paid in advance to suppliers for professional fees or rent, or other expenses.
Deposits
Deposits
represents 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 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. 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.
Property
and Equipment
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, and 20 years for the building. 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 property and equipment, 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.
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 stock options 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.
Embedded
derivatives are separated from the host contract and carried at fair value when (1) the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate,
standalone instrument with the same terms would qualify as a derivative instrument. The derivative is measured both initially
and in subsequent periods at fair value, with changes in fair value recognized on the Statement of Operations.
Fair
Value of Financial Instruments
FASB
ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets
and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC
825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction
between willing parties. At December 31, 2018 and December31, 2017, the carrying value of certain financial instruments (cash,
accounts payable and accrued expenses, and notes payable) 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
Company did not have any Level 1 or Level 2 assets and liabilities at December 31, 2018. The Derivative liabilities at December
31, 2018, are Level 3 fair value measurements. The Company did not have any Level 1, Level 2 or Level 3 financial assets and liabilities
as of and for the year ended December 31, 2017.
The
table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as
Level 3 for the year ended December 31, 2018:
|
|
2018
|
|
Balance at beginning of the year
|
|
$
|
-
|
|
Initial recognition of conversion feature
|
|
|
851,000
|
|
Reclassification to equity
|
|
|
(61,000
|
)
|
Change in fair value
|
|
|
17,000
|
|
Balance at end of the year
|
|
$
|
807,000
|
|
The
table below sets forth a summary of the changes in the fair value of the Company’s warrant liabilities classified as Level
3 for the year ended December 31, 2018:
|
|
2018
|
|
Balance at beginning of the year
|
|
$
|
-
|
|
Initial recognition of conversion feature
|
|
|
514,000
|
|
Change in fair value
|
|
|
(140,000
|
)
|
Balance at end of the year
|
|
$
|
374,000
|
|
At
December 31, 2018, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures
based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consists,
in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield of a Treasury
note and expected volatility of the Company’s common stock all as of the measurement dates, and the various estimated reset
exercise prices weighted by probability.
When
the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in
current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy
based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur.
For the periods ended December 31, 2018 and 2017, there were no significant transfers of financial assets or financial liabilities
between the hierarchy levels.
Earnings
per Common Share
We
compute net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both basic
and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss)
available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method
and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period
is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS
excludes all dilutive potential shares if their effect is anti-dilutive. For the year ended December 31, 2018, the Company had
approximately $1,742,000 in convertible debentures whose approximately 11,906,000 underlying shares are convertible at the holders’
option at conversion prices ranging from – a fixed conversion price of $1.75 to a variable conversion rate of 60% to 65%
of the defined trading price and approximately 4,293,000 warrants with an exercise price of $2.00 to $0.20, which were not included
in the calculation of diluted EPS as their effect would be anti-dilutive. For the year ended December 31, 2017, the Company had
approximately $570,000 in convertible debentures whose approximately 46,170,000 underlying shares are convertible at the holders’
option at conversion prices ranging from – 60% to 65% of the defined trading price and approximately 3,556,000 warrants
with an exercise price of $2.00 to $1.00, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.
Revenue
from Purchased Products
We
have eight different revenue products, including, Mobile phone prepaid, Kinerja Store,, Payment Gateway Services, Instant Pay
Fees Collection, Marketplace Merchant Partners, Marketplace Merchant Users, Remittance, and Unipin. To date substantially all
our revenue has been earned in the mobile home prepaid product.
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 year ended
December 31, 2018.
For
the year ended December 31, 2017, pursuant to ASC 605, the Company recognized their revenue at net since they were an agent and
not a principal to the various transactions with other financial institutions and or technology companies through their leased
portal. Gross cost of goods sold exceeded gross revenues for the year ended December 31, 2017. We recognized revenue when the
four criteria of revenue have been met which includes 1) Persuasive evidence of an arrangement, 2) services and or delivery being
rendered, 3) the price is fixed or determinable and 4) collectability is reasonably assured.
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.
On
December 22, 2017, the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The
Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant
changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform
Law reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018.
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.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842) The standard requires all leases that have a term of
over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use
asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these
leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs
of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term.
Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use
asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual
periods beginning January 1, 2019 and must be applied on a modified retrospective basis to leases existing at, or entered into
after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We
are currently evaluating the timing of adoption and the potential impact of this standard on our financial position, but we do
not expect it to have a material impact on our results of operations.
In
January 2017, FASB issued ASU 2017-01, “Clarifying the Definition of a Business.” The new guidance clarifies the definition
of a business when evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses.
This guidance was adopted January 1, 2018 and did not have a material impact on the financial position or results of operations.
On
July 13, 2017, the FASB issued a two-part Accounting Standards Update (ASU), No. 2017-11, I. Accounting for Certain Financial
Instruments With Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments
of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception. The ASU is effective
for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
For all other organizations, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. Early adoption is permitted. This guidance was adopted January 1, 2018
and has been applied to the financial instruments issued during the year ended December 31, 2018, which had down round features.
In
August 2018, FASB released ASU 2018-13, Fair Value Measurement (Topic 820) regarding Disclosure Framework – Changes to the
Disclosure Requirements for Fair Value Measurement. The amendments modify the disclosure requirements on fair value measurements
in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statements, including the consideration on costs and
benefits.
In
June 2018, FASB released ASU 2018-07, Compensation – Stock Compensation to improve the Nonemployee Share-Based Payment Accounting.
The amendment is as follow: (1) Consistent with the accounting requirement for employee share-based payment awards, nonemployee
share-based payment award within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an
entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary
to earn the right to benefit from the instruments have been satisfied. (2) Equity-classified nonemployee share- based payment
awards are measured at grant date. The definition of grant date is amended to generally state the date at which a grantor and
a grantee reach a mutual understanding of the key terms and conditions of a share-based payment awards. (3) Consistent with the
accounting for employee share-based payment awards, an entity considers the probability of satisfying performance conditions when
nonemployee share-based payment awards contain such conditions.
Management
does not anticipate that the adoption of these standards will have a material impact on the financial statements.
Management’s
Evaluation of Subsequent Events
The
Company evaluates events that have occurred after the balance sheet date of December 31, 2018, through the date which the consolidated
financial statements were issued. Based upon the review, other than described in Note 11 – Subsequent Events, the Company
did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated
financial statements.
Note
3 – Acquisition of PT KinerJa Indonesia
On August 31, 2018, the
Company acquired 100% of the outstanding shares of its licensor,
PT.
Kinerja, which
had previously issued the Company, as licensee, the exclusive license of the Company’s IP technology. (Note 1) At the date
of the closing of the acquisition,
PT.
Kinerja had 18 million shares issued and outstanding,
of which 75% or 13.5 million the shares were owned by the CEO of the Company. The consideration for the acquisition was $1,200,000,
to be paid by a promissory note which was issued by the Company to PT Kinerja shareholders, all related parties. The promissory
note (the “Note”) bears interest at the rate of 6% per annum and is due twenty-four months from the date of the agreement.
As part of the acquisition, the Company terminated its Service agreement dated February 20, 2016, with PT Kinerja.
In
accordance with
ASC 805-50-30-5,
Transactions Between Entities Under Common Control
,
as
the Company’s CEO
and sole director was in control of both the Company and PT. Kinerja, the acquisition was accounted for under common control
accounting, and therefore the assets acquired and liabilities assumed were recognized at their historical cost basis.
During
periods prior to their acquisition of PT Kinera, the Company could only recognize revenues on a “net basis”
as they were not the principal in the transactions, but as a result of the acquisition, the Company is now the principal, and
the revenues can be recognized on a “gross basis.” In addition, the Company now has the ability to consolidate its
IP technology and manage its 1,500 square-feet data center located in North Sumatra which the Company plans to expand to provide
cloud computing services as well as data mining from the Company’s existing customer base. The Company believes that the
acquisition will make the Company more cost efficient and potentially generate more revenues from other IT services.
The
following table summarizes the allocation of the purchase price to the fair value of the assets acquired on the acquisition date:
Cash
|
|
$
|
23,814
|
|
Receivables
|
|
|
27,537
|
|
Prepaid expenses and other current assets
|
|
|
27,727
|
|
Inventory
|
|
|
2,538
|
|
Building and equipment, net
|
|
|
695,440
|
|
Accounts payable and accrued liabilities
|
|
|
(725,866
|
)
|
Net assets acquired
|
|
$
|
51,190
|
|
Due to the consideration
for the acquisition being the promissory note in the amount of $1,200,000, the excess of the consideration over the carrying value
of the net assets acquired from PT Kinerja of $1,148,810 will be included in additional paid in capital, in accordance with ASC
805-50-30-5, Common Control Accounting.
PT Kinerja contributed
revenues of approximately $39,000 and net loss of $255,000 to the Company for the period from August 31, 2018 to December 31,
2018. The following unaudited pro forma summary presents consolidated information of the Company as if the business combination
had occurred on January 1, 2017:
|
|
Pro
Forma for the
Year
Ended
December
31, 2018
(unaudited)
|
|
|
Pro
Forma for the
Year
Ended
December
31, 2017
(unaudited)
|
|
Revenue
|
|
$
|
2,954,914
|
|
|
$
|
165,421
|
|
Cost of goods sold
|
|
|
2,819,998
|
|
|
|
19,366
|
|
Operating expenses
|
|
|
6,558,479
|
|
|
|
6,099,169
|
|
Other income(expenses)
|
|
|
(1,822,021
|
)
|
|
|
(492,133
|
)
|
Net loss
|
|
$
|
(8,245,584
|
)
|
|
$
|
(6,445,247
|
)
|
Note
4 - Other Assets
Other
assets consist of amounts related to an agreement entered into on July 31, 2017, with Ace Legends Pte. Ltd. in connection with
a partnership in game development, for a period of 18 months. The agreement was amended to commence on December 1, 2017. The agreement
calls for the Company to pay $60,000 in cash and to issue 80,000 shares of common stock of the Company. The shares were valued
at $128,000, based on the trading value of the common stock of the Company on the date of the agreement. The shares were issued
on March 12, 2018. As of December 31, 2018, and 2017, $58,893 and $9,292, respectively, of amortization expense has been
recognized. The balance net of amortization as of December 31, 2018 and December 31, 2017 is $52,415 and $266,045, 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 (Note 6). The Company did not receive cash in connection with this commitment fee note. The Company recognized
the commitment fee as an asset that will be netted with funds received once shares of common stock are issued under the investment
agreement. As of December 31, 2017, no shares had yet been issued under the investment agreement, resulting in the outstanding
asset of $75,000.
On
November 9, 2018, the Company filed a Form NT to withdraw its registration statement related to the offering of shares relating
to the investment agreement, and as a result the $75,000 asset was expensed as a financing cost on the consolidated Statement
of Operations
Note
5 - Fixed Assets
Fixed
assets consist of the following:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Building
|
|
$
|
729,760
|
|
|
$
|
-
|
|
Vehicles
|
|
|
26,713
|
|
|
|
-
|
|
Office Equipment and Furniture
|
|
|
220,417
|
|
|
|
15,792
|
|
|
|
|
976,890
|
|
|
|
15,792
|
|
Less: Accumulated Depreciation
|
|
|
(327,192
|
)
|
|
|
(3,196
|
)
|
|
|
$
|
649,698
|
|
|
$
|
12,596
|
|
Depreciation
expense for the years ended December 31, 2018 and 2017 was $65,086 and $2,875, respectively.
Note
6 – Convertible Notes Payable
On
October 11, 2018, the Company entered into a convertible note with Armada Investment Fund LLC for the principal amount of $55,000,
convertible into shares of common stock of the Company, which matures on July 11, 2019. The note bears interest at 8%, which increases
to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal
outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized
shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being
delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500.
As a result the outstanding balance of the note as of December 31, 2018, was $82,500. The note is convertible at the lesser
of: (i) $1.75; and (ii) 65% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note,
and (iii) 65% multiplied by the market price (as defined in the note. The conversion price shall be adjusted upon subsequent sales
of securities at a price lower than the original conversion price. The discount is increased to 50% if the Company is not DTC
eligible, or if the conversion price falls to below $0.01, and the principal amount of the note shall increase by $15,000. Additionally,
if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding
principal balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have
authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the
first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145%
of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance
of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted
for as a derivative liability on the date the note becomes convertible.
In
connection with the note, the Company issued 150,000 warrants, exercisable at $0.34, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 3.0% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $37,000.
The
Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $70,000,
based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 2.66% and expected
volatility of the Company’s common stock, of 141.14%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $52,000 was immediately expensed as financing costs.
On
October 11, 2018, the Company entered into a convertible note with BHP Capital NY Inc. for the principal amount of $55,000, convertible
into shares of common stock of the Company, which matures on July 11, 2019. The note bears interest at 8%, which increases to
24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding
and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then
the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being delinquent in
their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500. As a result
the outstanding balance of the note as of December 31, 2018, was $82,500. The note is convertible at the lesser of: (i) $1.75;
and (ii) 65% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note, and (iii) 65%
multiplied by the market price (as defined in the note. The conversion price shall be adjusted upon subsequent sales of securities
at a price lower than the original conversion price. The discount is increased to 50% if the Company is not DTC eligible, or if
the conversion price falls to below $0.01, and the principal amount of the note shall increase by $15,000. Additionally, if the
Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal
balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days
the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal
and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a
derivative liability on the date the note becomes convertible.
In
connection with the note, the Company issued 150,000 warrants, exercisable at $0.34, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 3.0% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $37,000.
The
Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $70,000,
based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 2.66% and expected
volatility of the Company’s common stock, of 141.14%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $52,000 was immediately expensed as financing costs.
On
October 11, 2018, the Company entered into a convertible note with Jefferson Street Capital, LLC for the principal amount of $55,000,
convertible into shares of common stock of the Company, which matures on July 11, 2019. The note bears interest at 8%, which increases
to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal
outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized
shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being
delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500.
As a result the outstanding balance of the note as of December 31, 2018, was $82,500. The note is convertible at the lesser
of: (i) $1.75; and (ii) 65% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note,
and (iii) 65% multiplied by the market price (as defined in the note. The conversion price shall be adjusted upon subsequent sales
of securities at a price lower than the original conversion price. The discount is increased to 50% if the Company is not DTC
eligible, or if the conversion price falls to below $0.01, and the principal amount of the note shall increase by $15,000. Additionally,
if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding
principal balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have
authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the
first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145%
of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance
of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted
for as a derivative liability on the date the note becomes convertible.
In
connection with the note, the Company issued 150,000 warrants, exercisable at $0.34, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 3.0% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $37,000.
The
Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $70,000,
based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 2.66% and expected
volatility of the Company’s common stock, of 141.14%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $52,000 was immediately expensed as financing costs.
On
October 16, 2018, the Company entered into a 12% convertible note with Power Up Lending for the principal amount of $43,000, convertible
into shares of common stock of the Company, which matures on July 30, 2019. In an event of default as set forth in the note, the
interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued
interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default
sum increases to 200%. The note was in default due to the Company being delinquent in their filings under the Exchange Act, and
therefore the principal was increased 50%, to $64,500, with the increase being recognized as a penalty expense in the accompanying
Statement of Operations. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After
the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 65% multiplied by
the market price (as defined in the note). The conversion feature does not meet the definition of a derivative during the first
180 days but will meet the definition of a derivative when the conversion price becomes variable and will at that time require
bifurcation and to be accounted for as a derivative liability. During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based
on the redemption date’s passage of time from the date of issuance of the debenture. Per the agreement, the Company is required
at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of
the note.
On
October 29, 2018, the Company entered into a 12% convertible note for the principal amount of $118,000 with JSJ Investments, Inc,
which matures on October 29, 2019, and has a $5,000 OID. The note is convertible commencing 180 days after issuance of the note
(or upon an event of Default), with a variable conversion rate at 60% of market price (as defined in the note). The conversion
rate adjusts if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion
price, in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price.
The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is
not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various
liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely
issuance of the shares upon receipt of a conversion request. Per the agreement, the Company is required at all times to have authorized
and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180
days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the
principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the
debenture, and at 150% after 180 days. The conversion feature meets the definition of a derivative and therefore requires bifurcation
and will be accounted for as a derivative liability on the date the note becomes convertible, either 180 days after issuance or
upon an event of default.
On
October 31, 2018, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with Auctus Funds,
which matures on July 31, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount
of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver
conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As of December
31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and
therefore the note principal balance was increased by $75,000. As a result, the outstanding balance of the note as of December
31, 2018, was $225,000. The note is convertible at a variable conversion rate lessor of (i) lowest closing price during the
previous 25 trading day period, prior to the date of note and (ii) the variable price, which is 60% by market price (lowest closing
price for 25 days prior to conversion). The discount increases by 15% discount if there is a DTC “chill” in effect.,
and an additional 10% if the Company is not DWAC eligible. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10)
transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than
$15,000. The conversion price is adjusted if any 3rd party has the right to convert monies at a discount to market greater than
the conversion price in effect at that time then the holder, may utilize such greater discount percentage. Per the agreement,
the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable
upon full conversion of the note. If the Company does not maintain the reserve shares or fails to replenish then within 3 days
of request, the principal balance increases by $5,000. During the first 180 days the convertible redeemable note is in effect,
the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the
redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition
of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes
convertible.
In
connection with the note, the Company issued 375,000 warrants, exercisable at $0.20, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.24 at issuance date; a risk-free interest rate of 2.91% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $83,000.
The Company estimated
the fair value of the conversion feature derivative embedded in the debenture at issuance at $214,000, based on weighted probabilities
of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.24% and expected volatility of the Company’s
common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of
the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the
excess amount of $147,000 was immediately expensed as financing costs.
On
October 31, 2018, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with EMA Financial
LLC, which matures on July 31, 2019. In an event of default as set forth in the note, the interest rate increases to a default
amount of 22%, and the default sum due becomes 200% of the principal outstanding and accrued interest. Additionally, if the market
price of the Company’s common stock falls below $0.01, the principal shall increase by $25,000. As of December 31, 2018,
the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore
the note principal balance was increased by $150,000. As a result, the outstanding balance of the note as of December 31, 2018,
was $300,000. The note is convertible at a variable conversion rate lessor of (i) the closing price on the day preceding the
issue date and (ii) 60% of either the lowest closing price during 25 days prior to and including the conversion date, or the closing
bid price, whichever is lower. The discount increases by 15% discount if there is a DTC “chill” in effect or closing
price falls below $0.05875. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be
liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. Per the agreement,
the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable
upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem
the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s
passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore
requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
In
connection with the note, the Company issued 312,500 warrants, exercisable at $0.24, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.24 at issuance date; a risk-free interest rate of 2.91% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $68,000.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $214,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.24% and expected
volatility of the Company’s common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability.
This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $132,000 was immediately expensed as financing costs.
On
December 3, 2018, the Company entered into a 12% convertible note with Power Up Lending, for the principal amount of $53,000,
convertible into shares of common stock of the Company, which matures on September 15, 2019. In an event of default as set forth
in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding
and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then
the default sum increases to 200%. The note is convertible during first 180 days after issuance at a fixed conversion price of
$1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 65%
multiplied by the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days
the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal
and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of
a derivative when the conversion price becomes variable and will at that time require bifurcation and to be accounted for as a
derivative liability.
On
January 12, 2018, the Company issued a 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal
amount of $153,000, which note was is due on July 12, 2018. The note was convertible into shares of Common Stock at a conversion
price of $1.75 per share, subject to adjustment based upon the terms of the note including, among others, default in payment at
maturity or a formula based upon a discount from the trading price of the Company’s shares during a period prior to notice
of conversion. The note has been fully converted to common stock on several occasions in July and August 2018 into 478,533 shares
of common stock, based upon an average conversion price of $0.36 per share.
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, which was due on September 7, 2018. In an event of default as set forth in the note, the interest rate increases
to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the
Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%.
The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion
period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 65% multiplied by the market price (as defined
in the note). Per the agreement, the Company is required at all times to have authorized and reserved six times the number of
shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is
in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance,
based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not
meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion
price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability. During September
2018, the note was fully converted into 352,782 shares of common stock, at an average price of $0.24.
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, which note was due on November 1, 2018. In an event of default as set forth in the note, the interest rate increases
to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the
Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%.
As of December 2018, when converted as discussed below, the note was in default due to the Company being delinquent in their
filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $26,500. As a result the
balance of the note was $79,500. The note is convertible for 180 days from inception into shares of Common Stock at a conversion
price of $1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall
equal the lesser of: (i) $1.75; and (ii) 65% multiplied by the market price, as defined in the agreement. Therefore, as of November
1, 2018, the conversion feature met the definition of a derivative and required bifurcation and to be accounted for as a derivative
liability. The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at
$68,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions
used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.24;
a risk-free interest rate of 2.60% and expected volatility of the Company’s common stock, of 141.14%, and the various estimated
reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than
the face amount of the debt, and the excess amount of $15,000 was immediately expensed as financing costs. The note was fully
converted on several dates in December 2018, at which time the derivative fair value of $61,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification with the key valuations assumptions consisting,
in part, of the price of the Company’s common stock of $0.20; a risk-free interest rate of 2.45% and expected volatility
of the Company’s common stock, of 178.15%, and the various estimated reset exercise prices weighted by probability.
On June 13, 2018, the
Company executed a 10% convertible promissory note payable to Crown Bridge Partners in the principal amount of $225,000, with
an OID of $22,500. The first tranche of the note, in the principal amount of $75,000, with an OID of $7,500 for net cash receipt
of $67,500, was paid at closing. Crown Bridge Partners may pay, in its sole discretion, such additional amounts of the consideration
and at such dates as the holder may choose in its sole discretion. On August 21, 2018, a second tranche, for a 10% convertible
promissory note in the amount of $25,000 was executed. Each tranche shall be due twelve months after payment. In an event of default
as set forth in the note, the interest rate increases to a default amount of 15%, and the default sum due becomes 150% of the
principal outstanding and accrued interest. As of December 31, 2018, the note was in default due to the Company being delinquent
in their filings under the Exchange Act with the SEC, and therefore the note principal balance on the first tranche was increased
by $37,500. As a result, the outstanding balance of the first tranche as of December 31, 2018, was $112,500. The note principal
balance on the second tranche was increased by $12,500. As a result, the outstanding balance of the second tranche as of December
31, 2018, was $37,500. The note is convertible at a variable conversion rate of 65% of the lowest closing price during 20
days prior to the conversion date. If at any time while the note is outstanding, the conversion price is equal to or lower than
$0.50, then an additional fifteen percent (15%) discount shall be factored into the conversion price. The discount will also be
increased by 10% if the Company’s common shares are not DTC deliverable. Additionally, if the Company fails to comply with
the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings, even
if the Company subsequently cures such delinquency), the discount shall be increased an additional 15%. Per the agreement, the
Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon
full conversion of the note. The conversion feature met the definition of a derivative and required bifurcation and to be accounted
for as a derivative liability. The Company estimated the fair value of the conversion feature derivative embedded in the first
tranche at issuance at $109,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model.
The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s
common stock of $0.20; a risk-free interest rate of 2.69% and expected volatility of the Company’s common stock, of 158.40%,
and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt
discount being greater than the face amount of the debt, and the excess amount of $34,000 was immediately expensed as financing
costs. The Company estimated the fair value of the conversion feature derivative embedded in the second tranche at issuance at
$36,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions
used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.46;
a risk-free interest rate of 2.45% and expected volatility of the Company’s common stock, of 167.29%, and the various estimated
reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than
the face amount of the debt, and the excess amount of $11,000 was immediately expensed as financing costs.
On
July 27, 2018, the Company executed an 8% fixed back-end convertible promissory note payable to Crossover Capital Fund I, LLC
in the principal amount of $115,000, and is due on March 27, 2019. The note is convertible into shares of Common Stock at a conversion
price of $1.30 per share if converted within 5 months, or thereafter the conversion price shall be equal to the lower of (i) the
fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations
Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon
which a notice of conversion is received by the Company or its transfer agent. The conversion feature does not meet the definition
of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable
and will at that time require bifurcation and to be accounted for as a derivative liability.
On
July 19, 2018, the Company entered into two 10% convertible redeemable notes to GS Capital in the aggregate principal amount of
$250,000, convertible into shares of common stock of the Company, with maturity dates of July 19, 2019. Each note was in the face
amount of $125,000, with an original issue discount of $5,000, resulting in a purchase price for each note of $120,000. The first
of the two notes was paid for by the buyer in cash upon closing, with the second note initially paid for by the issuance of an
offsetting $120,000 secured promissory note issued to the Company by the buyer (“Buyer Note”). The notes are convertible
beginning six months after issuance, at the lower of (i) $0.60 or (ii) 65% of the lowest of trading price for last 20 days, with
the discount increased to 45% in the event of a DTC chill. The second note is not convertible until the buyer has settled the
Buyer Note in cash payment, which must be funded by March 20, 2019. The Buyer Note was funded on January 17, 2019, for gross proceeds
of $114,000. The Buyer Note is included in Notes Receivable in the accompanying financial statements as of December 31, 2018.
During the first six months, the convertible redeemable notes are in effect, the Company may redeem the note at amounts ranging
from 113% to 137% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging
from 60 days to 180 days from the date of issuance of each debenture. The conversion feature does not meet the definition of a
derivative during the first six months, but will meet the definition of a derivative when the conversion price becomes variable
and would at that time require bifurcation and to be accounted for as a derivative liability
On
July 30, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal
amount of $53,000, and is due on May 15, 2019. In an event of default as set forth in the note, the interest rate increases to
a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company
cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As
of December 31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with
the SEC, and therefore the note principal balance was increased by $26,500. As a result, the outstanding balance of the note as
of December 31, 2018, was $79,500. The note is convertible for 180 days from inception into shares of Common Stock at a conversion
price of $1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall
equal the lesser of: (i) $1.75; and (ii) 65% multiplied by the market price, as defined in the agreement. Per the agreement, the
Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon
full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the
note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s
passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative
during the first 180 days, but will meet the definition of a derivative when the conversion price becomes variable and would at
that time require bifurcation and to be accounted for as a derivative liability
On
September 11, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal
amount of $53,000, due on June 30, 2019. In an event of default as set forth in the note, the interest rate increases to a default
amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot
deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As of December
31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and
therefore the note principal balance was increased by $26,500. As a result, the outstanding balance of the note as of December
31, 2018, was $79,500. The note is convertible for 180 days from inception into shares of Common Stock at a conversion price
of $1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall equal
the lesser of: (i) $1.75; and (ii) 65% multiplied by the market price, as defined in the agreement. Per the agreement, the Company
is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion
of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time
from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first
180 days, but will meet the definition of a derivative when the conversion price becomes variable and would at that time require
bifurcation and to be accounted for as a derivative liability
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 $1.30 per share if converted within 8 months, or thereafter the conversion price shall
be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock
as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior
trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. On separate
occasions in June and August 2018, the note has been fully converted into 525,815 shares of common stock based upon an average
conversion price of $0.28.
On
November 3, 2017, the Company entered into an investment agreement (the “Investment Agreement”) with Tangiers Global
LLC (“Tangiers”) pursuant to which the Company agreed to file a registration statement with the SEC registering the
shares underlying the Investment Agreement, which permitted the Company to “put” up to ten million dollars ($10,000,000)
in shares of our Common Stock to Tangiers over a period of up to thirty-six (36) months or until $10,000,000 of such shares have
been put (the “Registration Statement”).
In
connection with the Company’s Investment Agreement with Tangiers, the Company issued Tangiers a commitment fee note in the
amount of $75,000, bearing interest rate of 10% which was due on June 17, 2018. The commitment fee 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 Tangiers notice to convert all or part of this $75,000 note.
On
June 25, 2018, Tangiers elected to convert $75,000 in the principal amount of the commitment fee note, plus a default fee of $7,500,
into 198,317 shares of Common Stock, based upon a default conversion price of $0.42.
On
November 9, 2017, the Company executed a 10% fixed convertible promissory note payable to Tangiers Global LLC in the principal
amount of $330,000. The note, which is due seven and a half months from the date of effective date of payment, was funded by the
investor in the initial sum of $150,000, net of a $15,000 OID on November 15, 2017 and $150,000, net of a $15,000 OID on December
19, 2017. The note is convertible into shares of Common Stock at a conversion price of $1.30 per share if converted within 8 months,
or thereafter the conversion price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2)
lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s
shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the
Company or its transfer agent. On four occasions during July through December 2018 the holder converted $320,000 of the note into
1,544,834 shares of the Company’s common shares at conversion prices ranging from $0.50 to $0.08. There is $10,000 of principal
outstanding as of December 31, 2018.
The
Tangiers Global fixed convertible promissory notes payable and the commitment fee note are guaranteed an interest payment of 10%
of the beginning note balance. As such, the Company had to immediately expense the balances during 2017.
On
May 23, 2017, the Company agreed to convert $100,000 in debt that had been entered into on May 7, 2017 to four related
parties, into 200,000 shares of common stock and 200,000 warrants. Under the original terms the debt was non-convertible and
as a result, the Company incurred a loss of $396,007 in connection with the shares issued, and a loss of $138,007 in connection
with the warrants issued, which was recorded as additional paid-in capital.
In
accordance with ASC 470, the Company has analyzed the beneficial nature of the initial conversion terms of the fixed convertible
notes issued and in the year ended December 31, 2017 determined that a beneficial conversion feature (“BCF”) exists
because the effective conversion price was lower than the quoted market price at the time of the issuance. As of December 31,
2017, the Company recognized a $51,638 BCF, and amortization expenses of $11,983 on the discount. The debt discount related to
the BCF was fully amortized during the year ended December 31, 2018, upon recognition of an additional amortization expense of
$39,655. There was no BCF necessary to recognize in the year ended December 31, 2018, as the majority of stock prices were in
excess of the quoted market price at the time of issuance, or the conversion feature, as discussed above, was required to be bifurcated
and accounted for as a derivative liability.
As
a result of default penalties as discussed above, as well as differences in conversion prices applied by the note holders as compared
to the original terms of the convertible debentures, for the year ending December 31, 2018, the Company recognized a loss on debt
conversion of $176,745.
Several
of the notes were in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and in
accordance with the default terms, the principal on these notes was increased 50%, with the increase of $490,000 being recognized
as a penalty expense in the accompanying Statement of Operations.
The
derivative liability arising from all of the above discussed debentures was revalued at December 31, 2018, resulting in an increase
of the fair value of the remaining derivative liability of $24,000 for the year ended December 31, 2018. During the year
ended December 31, 2018, there was a reclass of $61,000 of the derivative fair value to equity upon the conversions of approximately
$53,000 of principal, and a decrease in the fair value of $7,000 immediately prior to conversion. The key valuation assumptions
used as of December 31, 2018 consist, in part, of the price of the Company’s common stock of $0.20; a risk-free interest
rate of 2.63% and expected volatility of the Company’s common stock ranging from 148.69% to 158.40%, and the various estimated
reset exercise prices weighted by probability. There was not a derivative liability as of December 31, 2017.
As
the conversion features on specified notes have variable conversion prices with no stated floor, the warrants issued with both
the units purchased (Note 8) as well as certain convertible notes, were required to be classified out of equity as liabilities
in October 2018, when the first conversion feature triggered liability classification of the warrants outstanding. The original
fair value recognized for the warrant liability, which includes the warrants issued with convertible debentures issued in October
2018, as disclosed above, totaled $514,000. The key valuation assumptions used as at inception consist, in part, of the price
of the Company’s common stock ranging from $0.27 to $0.20; a risk-free interest rate ranging from 3.04% to 2.28% and expected
volatility of the Company’s common stock ranging from 171.6% to 158.60%. The warrant liability was revalued at December
31, 2018, resulting in a decrease of the fair value of the warrant liability of $140,000 for the year ended December 31, 2018.
The key valuation assumptions used as of December 31, 2018 consist, in part, of the price of the Company’s common stock
of $0.20; a risk-free interest rate ranging from 2.45% to 2.63% and expected volatility of the Company’s common stock ranging
from 148.7% to 178.2%.
As
of December 31, 2018 and 2017, the Company has reserved approximately 126,142,000 and 3,342,000 shares underlying the convertible
notes and warrants per the terms of the agreements, as discussed above.
For
the years ended December 31, 2018 and 2017, the Company has recognized approximately $96,000 and $45,000 in interest expense
related to the notes as described above.
Note
7 - Related Party Transactions
On
August 31, 2018, the Company acquired 100% of the outstanding shares of its licensor,
PT.
Kinerja, which had previously issued the Company, as licensee, the exclusive license of the Company’s IP technology.
(Note 1) At the date of the closing of the acquisition,
PT.
Kinerja had 18 million
shares issued and outstanding, of which 75% or 13.5 million the shares were owned by the CEO of the Company. The consideration
for the acquisition was $1,200,000, to be paid by a promissory note which was issued by the Company to PT Kinerja shareholders,
all related parties. The promissory note (the “Note”) bears interest at the rate of 6% per annum and is due twenty-four
months from the date of the agreement. As part of the acquisition, the Company terminated its Service agreement dated February
20, 2016, with PT Kinerja. In accordance with
ASC 805-50-30-5,
Transactions Between Entities
Under Common Control
, as
the Company’s CEO and sole director was in control of both the Company and PT. Kinerja,
the acquisition was accounted for under common control accounting, and therefore the assets acquired and liabilities assumed were
recognized at their historical cost basis.
On
May 9, 2017, the Company entered into a $50,000 note payable with their CEO and controlling stockholder. The balance is due on
demand and accrues interest at 8% per annum. For the years ending December 31, 2018 and 2017, accrued interest in the amount of
approximately $4,000 and $2,500, respectively, was recognized.
Payable
to related party consists of the note payable with the Company’s CEO and expenses paid on behalf of the CEO. In addition,
during the year ended December 31, 2018, upon the closing of the acquisition (Note 3) the Company assumed the liability of $119,340
owed by the Company’s CEO on the building owned/used by PT. Kinerja. Additionally, the Company assumed an officer loan
in the amount of $672,810, which is non-interest bearing and due on demand.
All
revenue received during 2017 was received through PT Kinerja. PT Kinerja processed payments from the website that the Company
licensed and then remitted the funds to the Company. The Company paid PT Kinerja $324,131 for costs associated with servicing
customers and maintaining the website and license agreement during 2017. As of December 31, 2017, the Company owed $51,759, which
is reflected in accrued expenses.
As
of December 31, 2018 and 2017, the Company was owed an accounts receivable balance of $6,295 and $20,900, respectively,
from sales on the website. Once revenues are positively earned, the Company will owe a 1% royalty fee on net revenues on a
quarterly basis.
Note
8 - Stockholders’ Equity
Series
A Convertible Preferred Stock
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 total net proceeds to the Registrant for issuance and sale of the Series A Convertible Preferred
Stock (the “Preferred Stock”) was $445,000 after payment of due diligence and legal fees related to this transaction.
The Series A Convertible Preferred Stock was convertible into 400,000 shares of the Company’s common stock at a conversion
price of $1.25 per share. In addition, on January 2, 2018, the Company issued to the institutional investor Class N Warrants exercisable
to purchase an additional 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 fair
value of $300,772. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the
date of issuance of $2.19; a risk-free interest rate of 1.92% and expected volatility of the Company’s common stock of 185.51%.
On
July 11, 2018, the Company issued to the institutional investor a total of 416,667 shares of common stock, pursuant to a notice
of conversion dated July 9, 2018, in connection with the conversion of 200,000 shares of the Series A Convertible Preferred Stock,
at an adjusted conversion price of $0.60, which adjustment was subject to an agreement between the Company and the institutional
investor. As a result of the modification to the conversion price, the Company recognized a loss on conversion in the amount of
$190,255. The remainder of the Series A Convertible Preferred Stock was converted subsequent to year end (Note 11).
Series
B Preferred Stock
On
September 30, 2018, the Company’s board of directors authorized the designation of a series B preferred stock consisting
of 500,000 shares with a par value of $0.0001 per share (the “Series B Preferred Stock”).
The
Series B Preferred Stock shall rank senior to the Corporation’s common stock, par value $0.0001 (the “Common Stock”)
but junior to any other class or series of the Corporation’s preferred stock hereafter created.
Except
as otherwise provided herein or by law and in addition to any right to vote as a separate class as provided by law, the holder
of the Series B Preferred Stock shall have full voting rights and powers on all matters subject to a vote by the holders of the
Corporation’s Common Stock and shall be entitled to notice of any shareholders meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote, with respect to any question upon which holders of Common Stock having the right
to vote, including, without limitation, the right to vote for the election of directors, voting together with the holders of Common
Stock as one class. For so long as Series B Preferred Stock is issued and outstanding, the holders of Series B Preferred Stock
shall vote together as a single class with the holders of the Corporation’s Common Stock and the holders of any other class
or series of shares entitled to vote with the Common Stock, with the holders of Series B Preferred Stock being entitled to fifty-one
percent (51%) of the total votes on all such matters regardless of the actual number of shares of Series B Preferred Stock then
outstanding, and the holders of Common Stock and any other shares entitled to vote being entitled to their proportional share
of the remaining 49% of the total votes based on their respective voting power.
Unless
otherwise declared from time to time by the Board of Directors, the holders of shares of the outstanding shares of Series B Preferred
Stock shall not be entitled to receive dividends.
The Series B Preferred
Stock were issued on December 17, 2018, with all 500,000 shares issued to the Company’s CEO and Chairman,
Edwin
Ng. The Company issued the shares to Mr. Ng for the purpose of assuring that he retains voting control of the Company, in expectation
of the Company’s plan to expand its business and operations, which will require it to issue significant additional shares.
The shares were valued at $871,000, by an independent valuation specialist engaged by the Company, based upon industry specific
control premiums, liquidation rights, and the Company’s market cap at the time of the transaction. The Series B Preferred
Stock fair value was based on the value of the voting rights, which was determined using a securities valuation based on the equity
value of the outstanding shares on a fully diluted basis and a control premium calculated at 11.6%. The $871,000 was recognized
as shares issued for services included in general and administrative expenses on the consolidated Statement of Operations.
Series
C Preferred Stock
On
October 5, 2018, the Company’s board of directors authorized the designation of a 11% Series C Cumulative Redeemable Perpetual
Preferred Stock consisting of 2,000,000 shares with a par value of $0.0001 per share (the “Series C Preferred Stock”).
Dividends on the Series C Preferred Stock are cumulative from the date of original issue and will be payable on the fifteenth
day of each calendar month when, as and if declared by our board of directors. Dividends will be payable out of amounts legally
available therefore at a rate equal to 11% per annum per $25.00 of stated liquidation preference per share, or $2.75 per share
of Series C Preferred Stock per year. The Series C Preferred Stock has no stated maturity and will not be subject to any sinking
fund or mandatory redemption. Shares of the Series C Preferred Stock will remain outstanding indefinitely unless the Company decides
to redeem or otherwise repurchase them. The Company is not required to set aside funds to redeem the Series C Preferred Stock.
Commencing
on a date 36 months from the date of original issue of the Series C Preferred Stock, the Company may redeem, at their option,
the Series C Preferred Stock, in whole or in part, at a cash redemption price of $25.00 per share, plus all accrued and unpaid
dividends to, but not including, the redemption date, upon not less than 30 nor more than 60 days’ written notice (the “Redemption
Notice”) to the holders of the Series C Preferred Stock (the “Holders”). The Series C Preferred Stock may also
be redeemed upon the occurrence of a Change of Control, at the Company’s option, in whole or in part, within 120 days after
the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated
and unpaid dividends to, but not including, the redemption date.
Holders
of the Series C Preferred Stock generally will have no voting rights except for limited voting rights if dividends payable on
the outstanding Series C Preferred Stock are in arrears for eighteen or more consecutive or non-consecutive monthly dividend periods.
The
Series C Preferred Stock has a liquidation preference with the right to receive $25.00 per share, plus any accumulated and unpaid
dividends to, but not including, the date of payment, before any payment is made to the holders of our common stock. The Series
C Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, (1) senior to all classes or series of our common stock and to all other equity securities issued by
us other than equity securities referred to in clauses (2) and (3); (2) on a parity with all equity securities issued by us with
terms specifically providing that those equity securities rank on a parity with the Series C Preferred Stock with respect to rights
to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; junior to all equity
securities issued by us with terms specifically providing that those equity securities rank senior to the Series C Preferred Stock
with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding
up; and (4) effectively junior to all of our existing and future indebtedness (including indebtedness convertible into our common
stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by
others in) our existing subsidiaries and any future subsidiaries.
As
of December 31, 2018, there are no shares of the Series C Preferred Stock issued or outstanding.
Series
D Preferred Stock
On
December 11, 2018, the Company’s board of directors authorized the designation of a Convertible Preferred Stock consisting
of 200,000 shares with a par value of $0.0001 per share (the “Series D Preferred Stock”). The Series D Preferred Stock
has no stated maturity and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely
unless the holders decide to convert. The Series D Preferred Stock is convertible into a number of shares of the Company’s
common stock equal to a total of 10% percent of the Company’s outstanding shares of common stock as exists on the date of
issuance, on a fully-diluted basis, which includes all shares of common stock underlying convertible debt or other securities
of the Company convertible into shares of the Company’s common stock, including shares underlying the shares of Series D
Preferred Stock (collectively, the “Convertible Securities”). The Series D Preferred Stock includes anti-dilution
protection rights, whereby for a period of 3 years from the date of issuance of the Series D Preferred Stock, and provided that
the holder of Series D Preferred Stock shall hold at least 15,000 shares of Series D Preferred Stock, the holder shall be entitled
to convert of the shares of Series D Preferred Stock into a number of shares of the Company’s fully-diluted common stock
at the date of conversion.
As
of December 31, 2018, there are no shares of the Series D Preferred Stock issued or outstanding. The Series D Preferred Shares
were issued on January 15, 2019.
Series
E Preferred Stock
On
December 11, 2018, the Company’s board of directors authorized the designation of a Convertible Preferred Stock consisting
of 200,000 shares with a par value of $0.0001 per share (the “Series D Preferred Stock”). The Series D Preferred Stock
has no stated maturity and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely
unless the holders decide to convert. The Series D Preferred Stock is convertible into a number of shares of the Company’s
common stock equal to a total of 15% percent of the Company’s outstanding shares of common stock as exists on the date of
issuance, on a fully-diluted basis, which includes all shares of common stock underlying convertible debt or other securities
of the Company convertible into shares of the Company’s common stock, including shares underlying the shares of Series D
Preferred Stock (collectively, the “Convertible Securities”). The Series D Preferred Stock includes anti-dilution
protection rights, whereby for a period of 3 years from the date of issuance of the Series D Preferred Stock, and provided that
the holder of Series D Preferred Stock shall hold at least 15,000 shares of Series D Preferred Stock, the holder shall be entitled
to convert of the shares of Series D Preferred Stock into a number of shares of the Company’s fully-diluted common stock
at the date of conversion.
As
of December 31, 2018, there are no shares of the Series E Preferred Stock issued or outstanding. The Series E Preferred Shares
were issued on January 15, 2019.
Issuance
of Shares of Common Stock and Warrants for Services
On
December 19, 2018, the Company issued 1,990,000 restricted shares to various investors to replace previously issued shares that
the investors had purchased. The investors’ shares had been misappropriated by a brokerage agent, and the Company made a
decision to take responsibility and therefore reissue the lost shares. The shares were valued at $272,630, based on the market
value of the common stock on the date of issuance, which was recognized as a financing charge on the consolidated statement of
operations.
On
October 8, 2018, the Company issued 37,500 restricted shares to Mr. Stephen Kann as partial consideration for services to be rendered
by Mr. Kann pursuant to his engagement to provide investor relation services to the Company. The services were valued at $10,313,
based on the market value of the common stock on the date of issuance.
During the three months
ended June 30, 2018, the Company issued 614,734 shares to various third parties in consideration for services, valued at $654,981,
using the market value of the common stock on the date of issuance.
On
March 12, 2018, the Company issued 80,000 restricted shares owing to a third party for services under an agreement entered into
in July 31, 2017 (see Note 4).
On
February 18, 2018, the Company issued a total of 218,044 restricted shares to a third party in consideration for services valued
at $276,916 based upon the price of the shares on the date of issuance.
On
February 9, 2018, the Company issued a total of 200,000 restricted shares to two parties in consideration for services valued
at $220,000 based upon the price of the shares on the date of issuance.
On
January 23 and February 14, 2018, the Company issued a total of 200,000 restricted shares to third parties for services valued
at $278,500 based upon the price of the shares on the respective dates of issuance.
Based
on agreement with Bear Creek Capital on January 29, 2018, the Company issued 25,000 restricted shares and was to issue an additional
25,000 shares 120 days from the agreement, provided the Company was still using the service of the party. Consequently, the Company
recorded the stock payable amounting to $34,000 to the party, as the shares were not issued prior to December 31, 2018.
On
January 11, 2018, the Company entered into an advisory agreement with Blockchain Industries, Inc., a public Nevada corporation
and Fintech Financial Consultants, Inc., a Nevada corporation. In connection with the advisory agreement, the Company agreed to
issue 1,000,000 shares, with a fair value of $1,800,000 recognized as consulting expenses, based upon the price of the shares
on the date of issuance.
During
the year ended December 31, 2017, the Company authorized the issuance of 800,000 shares of Common Stock to several service providers,
Lyon Capital LLC, Security Compliance Corp, Amir Uziel Economic Consulting Ltd and JFS Investment Inc. for the services provided
by the entities. These shares were valued using the share price on the date of the grant, ranging from $1.19 to $2.00 resulting
in an expense of $1,182,100.
During
the twelve months ended December 31, 2017, the Company issued also 1,475,000 fully vested shares of the Company common stock and
2,050,000 warrants to consultants as payment for services. As the equity instruments issued are fully vested and non- forfeitable,
the fair value of the grants was recognized as an increase additional paid-in capital at the measurement date. The shares were
valued at the closing price as of the date of the underlying agreements (ranging from $0.65 to $2.93). The warrants were valued
using the Black-Scholes pricing model to estimate the fair value of $1,251,821 and resulted in current recognition in additional
consulting services. The Black-Sholes pricing model assumptions used are as follows: expected dividend yield of 0%; risk-free
interest rate of 1.21%; expected volatility between 179% and 185% and warrant exercise period based upon the stated terms.
Warrant
Exercise
On
January 2, 2018, the Company received $100,000 as a result of the exercise by an institutional investor of 100,000 Class C Warrants
that had been originally issued as part of a unit purchase transaction in April 2017. The Class C Warrants were exercisable for
a period of 12 months to purchase 100,000 shares of common stock at an exercise price of $1.00 per share.
On
January 9, 2018, 363,127 shares were issued under a cashless exercise of warrants.
Common
Stock and Warrants Issued for Cash during the twelve months ended December 31, 2017
During
the three months ended September 30, 2017, the Company authorized the issuance of 181,818 shares of common stock for cash at
$1.10 per share for a total sale of $200,000. As of December 31, 2017, the Company had received $50,000 with respect to these
shares but had not yet issued the shares. As a result, the Company recorded $50,000 in stock payable as of December 31, 2017.
These shares were issued on January 16, 2018.
During
the twelve months ended December 31, 2017, the Company received $902,000 through a placement of 1,359,000 common stock units to
investors for an offering price of $0.50 and $1.00 per unit. Each unit consisted of one share of common stock and one warrant
to purchase common stock. The 964,000 warrants are exercisable at $2.00 and $1.00 and expire one year from the date of issuance.
The warrants were valued using the Black-Scholes pricing model to estimate the relative fair value of $404,767. The Black- Sholes-Merton
pricing model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 1.36%; expected volatility
between 179% and 181% and warrant exercise period based upon the stated terms. The warrants were classified within stockholders’
equity.
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining Contractual
Term (Years)
|
|
Outstanding at January 1, 2017
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,754,714
|
|
|
$
|
1.65
|
|
|
|
2.3
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
3,754,714
|
|
|
$
|
1.65
|
|
|
|
2.3
|
|
Granted
|
|
|
1,537,500
|
|
|
$
|
0.52
|
|
|
|
4.2
|
|
Exercised
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(914,000
|
)
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
4,278,214
|
|
|
$
|
1.28
|
|
|
|
3.3
|
|
Note
9 - Income Taxes
We
have adopted ASC 740 which provides for the recognition of a deferred tax asset based upon the value the loss carry-forwards will
have to reduce future income taxes and management’s estimate of the probability of the realization of these tax benefits.
Our net operating loss carryovers incurred prior to 2008 considered available to reduce future income taxes were reduced or eliminated
through our recent change of control (I.R.C. Section 382(a)) and the continuity of business limitation of I.R.C. Section 382(c).
We
have a current operating loss carry-forward of approximately $4,942,000. We have determined it more likely than not that
these timing differences will not materialize and have provided a valuation allowance against substantially all our net deferred
tax asset.
Future
utilization of currently generated federal and state NOL and tax credit carry forwards may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state
provisions. The annual limitation may result in the expiration of NOL and tax credit carry forwards before full utilization.
The
components of income tax expense for the years ended December 31, 2018 and 2017 consist of the following:
|
|
2018
|
|
|
2017
|
|
Federal Tax statutory rate
|
|
|
21.00
|
%
|
|
|
34.00
|
%
|
Permanent differences
|
|
|
6.79
|
%
|
|
|
0.00
|
%
|
Valuation allowance
|
|
|
(27.79
|
)%
|
|
|
(34.0
|
)%
|
Effective rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Significant
components of the Company’s deferred tax assets as of March 31, 2018 and 2017 are summarized below. The calculations presented
below at December 31, 2017 reflect the new U.S. federal statutory corporate tax rate of 21% effective January 1, 2018 (see Note
2).
Individual
components giving rise to the deferred tax assets are as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax benefit
|
|
$
|
1,058,000
|
|
|
$
|
-
|
|
Net operating loss carryover
|
|
|
1,038,000
|
|
|
|
755,000
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
2,096,000
|
|
|
|
755,000
|
|
Less valuation allowance
|
|
|
(2,096,000
|
)
|
|
|
(755,000
|
)
|
|
|
$
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The
Company’s net deferred tax asset and valuation allowance increased by approximately $1,341,000 for the year end December
31, 2017 to the year ended December 31, 2018.
The Company is not under
examination by any jurisdiction for any tax year. Our federal and state income tax returns are open for fiscal years ending on
or after December 31, 2014. At December 31, 2018, the Company had no material unrecognized tax benefits and no adjustments
to liabilities or operations were required under FASB ASC 740-10.
Note
10 - Commitments and Contingencies
On October 4, 2018, the
Company entered into a Preliminary Share Sale and Purchase Agreement between PT KinerjaPay Indonesia and PT Mitra Distribusi
Utama (“PTMDU”) to acquire PTMDU for Rp40,000,000,000 or approximately $2,758,621. Depending on the amount raised
in the Series C Offering discussed below, the Company intends to use $2,500,000 to $3,000,000 for financing the acquisition of
PTMDU.
On
November 2, 2018, the Company filed a registration statement on Form S-1 for the purpose of offering a total of up to 300,000
shares of its11% Series C Cumulative Redeemable Perpetual Preferred Stock (“Series C Preferred Stock”), at an Offering
price of $25 per share. If the Offering is successful, of which there can be no assurance, the gross proceeds will be $7.5 million.
The Company’s intention is to have these shares of Series C Preferred Stock subject to quotation on the OTCQB.
We
accrue for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been
incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional
information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.
The
Company has no current legal proceeding and did not accrue any loss for contingencies as of December 31, 2018 and 2017.
Note
11 - Subsequent Events
The
Series F Preferred Stock, which were authorized on January 18, 2019, bearing a dividend of 6% per annum, is convertible into shares
of the Company’s Common Stock at an average of $1.80 per share. The Series G Preferred Stock, which were authorized on January
18, 2019, also pays a dividend of 6% per annum and further provides for the Company’s right to force the conversion at $1.80
per share, provided that the KinerjaPay shares are trading at $3.50 per share or higher for a period of 20 days commencing six
months after the date of issuance of the Series G Preferred Stock.
KinerjaPay’s
use of proceeds are to fund the Company’s peer-to-peer lending operations, potential acquisitions and strategic investments
in the Company’s home-based region as part of their expansion plan for 2019. The Company also plans to allocate a certain
portion of the subscription proceeds to repurchase KinerjaPay’s stock in the open market, subject to the rules and regulations
of the SEC.
On
February 22, 2019, the holder of the Series A Convertible Preferred Shares converted an additional 64,000 Series A preferred shares
into a total of 400,000 shares of common stock, at an adjusted conversion price of $0.20, which adjustment was subject to an agreement
between the Company and the institutional investor. As a result of the modification to the conversion price, the Company recognized
a loss on conversion in the amount of $198,240. On April 2, 2019, the holder converted the remaining 136,000 Series A Convertible
Preferred Shares into a total of 850,000 shares of common stock, at an adjusted conversion price of $0.20, which adjustment was
subject to an agreement between the Company and the institutional investor. Additionally, on January 17, 2019, the Company
issued an additional 833,333 common shares for a retroactive modification of the conversion price on the July 9, 2018 conversion.
As a result of the modification to the conversion price, the Company recognized a loss on conversion in the amount of $428,400.
On
January 15, 2019, the 200,000 Series D Preferred Shares (Note 8) were issued to the shareholders of FRS Lending, Inc., a Delaware
corporation (“FRS”) in consideration for the acquisition by the Company of 100% of the capital stock of FRS, which
shall operate on behalf of and provide the Company with services related to the Company’s lending and micro-lending activities
and related lending services in the U.S., Indonesia and internationally, which is a newly developing division that the Corporation
is planning to devote resources to grow its operations. The fair value of the consideration will be determined based on 10% of
the fully diluted common shares of the Company as of the date of issuance.
On
January 15, 2019, the 200,000 Series E Preferred Shares (Note 8) were issued to Company’s CEO and Chairman, Edwin Ng as
compensation for services related to the negotiation with PT. Investa Wahana Group for the commitment agreement for the subscription
of preferred stock discussed above. The fair value of the compensation will be determined based on 15% of the fully diluted common
shares of the Company as of the date of issuance.
Subsequent
to year end, the Company converted approximately $654,000 of principal on their convertible debentures and approximately
$13,000 of accrued interest into 7,562,896 shares of common stock.
Subsequent to year
end, the Company issued a total of 3,750,000 shares of their common stock to various consultants for services. These shares were
valued using the share price on the date of the grant, ranging from $0.38 to $0.62, resulting in an expense of $1,557,000.
On
January 18, 2019, the Company entered into a convertible note with Tangiers Global, LLC for the principal amount of $165,000,
with an OID of $15,000, convertible into shares of common stock of the Company, which matures on January 18, 2020. The note bears
interest at 10%, which increases to 20% upon an event of default. In an event of default as set forth in the note, the outstanding
principal balance increases by 40%.. The note is convertible at 65% multiplied by the lowest closing price during the 15 days
prior to the conversion. The discount increases by 5% discount if there is a DTC “chill” in effect., and an additional
5% if the Company is not DWAC eligible. Per the agreement, the Company is required at all times to have authorized and reserved
five times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible
redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued
interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The
conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative
liability.
On
January 25, 2019, the Company entered into a convertible note with Armada Investment Fund LLC for the principal amount
of $38,500 for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25,
2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the
note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion
shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. The note is convertible at 65%
multiplied by the lowest closing price during the 20 days prior to the conversion. Per the agreement, the Company is required
at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of
the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging
from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging
from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires
bifurcation and will be accounted for as a derivative liability.
On
January 25, 2019, the Company entered into a convertible note with Jefferson Street Capital LLC for the principal amount
of $38,500 for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25,
2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the
note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion
shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. The note is convertible at 65%
multiplied by the lowest closing price during the 20 days prior to the conversion. Per the agreement, the Company is required
at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of
the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging
from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging
from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires
bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
On
January 25, 2019, the Company entered into a convertible note with BHP Capital NY, Inc. for the principal amount of $38,500
for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The
note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the
default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares
or fails to reserve sufficient authorized shares, then the default sum increases to 200%. The note is convertible at 65% multiplied
by the lowest closing price during the 20 days prior to the conversion. Per the agreement, the Company is required at all times
to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During
the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115%
to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date
of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
On
January 28, 2019, the Company executed an 12% convertible promissory note payable to Power Up Lending, LLC in the principal amount
of $48,000, which is due on November 30, 2019. In an event of default as set forth in the note, the interest rate increases to
a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company
cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. The
note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion period,
the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by the market price (as defined in
the note). Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares
that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect,
the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the
redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition
of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable
and would at that time require bifurcation and to be accounted for as a derivative liability.
On
January 30, 2019, the Company executed an 10% convertible promissory note payable to Firstfire Global Opportunities Fund, LLC
in the principal amount of $131,250, for a purchase price of $125,000, which is due on September 30, 2019. In an event of default
as set forth in the note, the interest rate increases to a default amount of 15%, and the default sum due becomes 150% of the
principal outstanding and accrued interest. The note is convertible at 65% multiplied by the lowest closing price during the 25
days prior to the conversion. Per the agreement, the Company is required at all times to have authorized and reserved ten times
the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable
note is in effect, the Company may redeem the note at amounts ranging from 125% to 135% of the principal and accrued interest
balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature
meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
On
February 11, 2019, the Company executed an 8% convertible promissory note payable to Crown Bridge Partners in the principal amount
of $150,000, with an OID of $10,500. The first tranche of the note, in the principal amount of $50,000, with an OID of $3,500
for net cash receipt of $46,500, was paid at closing. Crown Bridge Partners may pay, in its sole discretion, such additional amounts
of the consideration and at such dates as the holder may choose in its sole discretion. Each tranche shall be due eighteen months
after payment. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the
default sum due becomes 150% of the principal outstanding and accrued interest. The note is convertible at a variable conversion
rate of 55% of the lowest closing price during 20 days prior to the conversion date. If at any time while the note is outstanding,
the conversion price is equal to or lower than $0.01 or the Company is not DTC eligible, then an additional fifteen percent (15%)
discount shall be factored into the conversion price, and the principal will be increased by $15,000. The discount will also be
increased by 10% if the Company’s common shares are not DWAC deliverable. Additionally, if the Company fails to comply with
the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings, even
if the Company subsequently cures such delinquency), the discount shall be increased an additional 15%. Per the agreement, the
Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon
full conversion of the note. The conversion feature met the definition of a derivative and required bifurcation and to be accounted
for as a derivative liability.
On
February 28, 2019, the Company executed an 10% fixed convertible promissory note payable to Crossover Capital Fund I, LLC in the
principal amount of $115,000 with a $10,000 OID, which is due on November 28, 2019. In the case of a sale event, as defined in
the agreement, the principal amount of the note increases to 150%. The note is convertible into shares of Common Stock at a conversion
price of the lower of (i) $1.00 per share or (ii) 65% of the lowest trading price for the 20 prior trading days including the
day upon which a notice of conversion is received by the Company or its transfer agent. The discount increases 10% if there is
a DTC “chill” in effect. The conversion price shall be adjusted upon subsequent sales of securities at a price lower
than the original conversion price. During the first 180 days the convertible redeemable note is in effect, the Company may redeem
the note at amounts ranging from 125% to 145% of the principal and accrued interest balance, based on the redemption date’s
passage of time from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized
and reserved five times the number of shares that is actually issuable upon full conversion of the note. The conversion feature
met the definition of a derivative and required bifurcation and to be accounted for as a derivative liability.
On
March 14, 2019, the Company entered into a 12% convertible note for the principal amount of $118,000 with JSJ Investments, Inc,
which matures on March 14, 2020, and has a $5,000 OID. The holder will also deduct $13,000 from the purchase price for legal and
due diligence fees. The note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with
a variable conversion rate at 60% of market price (as defined in the note). The conversion rate adjusts if there are common stock
equivalents issued and in which the aggregate per share price is below the original conversion price, in which case the adjusted
conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount increases to a 55%
discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or DTC eligible, as well
as an additional 5% discount for each event of default. The debenture also includes various liquidated damages for various events,
as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the shares upon receipt
of a conversion request. In an event of default, as defined in the note, the “default amount” shall be calculated
at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by (B) the conversion
price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded at any time between
the issuance date and the date of the event of default .Per the agreement, the Company is required at all times to have authorized
and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180
days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the
principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the
debenture, and at 150% after 180 days. The conversion feature meets the definition of a derivative and therefore requires bifurcation
and will be accounted for as a derivative liability on the date the note becomes convertible, either 180 days after issuance or
upon an event of default.
On
March 25, 2019, the Company executed an 8% convertible promissory note payable to Belridge Capital L.P. in the principal amount
of $137,500, for a purchase price of $125,000, which is due on March 24, 2020. In an event of default as set forth in the note,
the interest rate increases to a default amount of 18%, and the default sum due becomes 130% of the principal outstanding and
accrued interest (the “default redemption amount”). Alternatively, at the election of the holder, the Holder may require
the Company to redeem all or part of the default redemption amount through the issuance of such number of shares of common stock
equal to (x) the default redemption amount, divided by (y) or 55% of the lowest traded price in the 20 trading days prior to the
conversion date. The note is convertible into shares of common stock at a conversion price of the lower of (i) $1.00 per share
or (ii) 61% of the lowest trading price for the 20 prior trading days prior to the conversion date. Per the agreement, the Company
is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full
conversion of the note. The Company may redeem the note at any time the note is outstanding and there is not an event of default,
at amounts ranging in the first 90 days from the date of issuance from 115% to 135% of the principal and accrued interest balance,
based on the redemption date’s passage of time. The note also includes a “most favoured nation” clause, whereby
when the Company enters into any future financing transactions with a third-party investor, the Company must provide the holder
notification of the terms of the new financing transaction, and if the holder determines that the terms of the subsequent investment
are preferable to the original terms of the March 25, 2019 convertible promissory note, the original terms of the note will be
amended and restated, which may include the conversion terms. The conversion feature meets the definition of a derivative and
therefore requires bifurcation and will be accounted for as a derivative liability.