NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
Note 1: Organization and Summary of Significant Accounting Policies
ORGANIZATION
New Asia Holdings, Inc. (formerly known as DM Products, Inc, previously known as Midwest E.S.W.T. Corp, and previously known as Effective Sport Nutrition Corporation) (“we”, “our”, the "Company" or "NAHD") was incorporated on March 1, 2001. Prior to December 2014, we were in the business of locating inventive products and introducing these products (such as the Banjo Minnow Fishing Lure System) through a Direct Response Model, a form of marketing that allows potential consumers direct access to the seller without the necessity of traditional retail. In December 2014, the Company underwent a change in control as a result of approximately 90% of the then issued and outstanding shares of common stock of the Company being acquired by New Asia Holdings, Ltd. (wholly owned by Lin Kok Peng, Ph.D.) (“NAHL”) and other accredited investors and management adopting a new business plan based on developing highly advanced, proprietary, neural trading models for the financial community.
We offer trading software solutions to clients on the basis of a "Software as a Service (SaaS)" licensing and delivery models with licensed users availing themselves of service-based contractual arrangements. In addition, we expect to utilize our in-house proprietary neural trading models to trade our own funds in the future in order to provide added value to our shareholders.
The Company's focus is to capitalize the large volume of the 24 hours Forex markets to achieve capital appreciation over a medium- to long- term basis, combined with the usage of a good wealth vehicle in order to control risk, profit from both bull or bear markets, maximize liquidity and economic resilience.
On September 7, 2015, Mr. Scott C. Kline ("Mr. Kline") resigned as Secretary and General Counsel of the Company. The resignation was not as a result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices. On that date, Mr. Jose A. Capote ("Mr. Capote") was appointed to serve as the Company's Secretary and Vice President. There is no family relationship between Mr. Capote and any of the Company's directors or officers. Mr. Capote is currently a shareholder of the Company through his 50% ownership of Earth Heat Ltd.
On August 19, 2016, the Company and Anthony Ng Zi Qin entered into an Addendum (the “First MQL Addendum”) to the Share and Purchase Agreement (the “MQL Agreement”) to extend the August 25, 2016 anniversary date for the adjustment of issued shares for an additional period of 12 months. On November 10, 2017, the Company and Anthony Ng Zi Qin signed an Addendum (the “Second MQL Addendum”) to the MQL Agreement, as amended, pursuant to which the Company agreed to issue an aggregate of 3,339,900 shares of common stock, in satisfaction of the shortfall in the value of the shares issued. See Notes 4 and 5.
Basis of Presentation
The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim consolidated financial information and with the instructions to Securities and Exchange Commission ("SEC") Form 10-Q and Article 8 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature and considered necessary for a fair presentation of its financial condition and results of operations for the interim periods presented in this Quarterly Report on Form 10-Q have been included. Operating results for the interim periods are not necessarily indicative of financial results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts payable, and advances from shareholder. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates, unless otherwise disclosed in these financial statements.
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The Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) Topic 820, "Fair Value Measurements and Disclosures," requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, "Financial Instruments," defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
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Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
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Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
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The Company currently has a purchase price contingency that is discussed in Note 4.
At September 30, 2017, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
Description
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Fair Value as of September 30, 2017
|
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Fair Value Measurements at September 30, 2017 Using Fair Value Hierarchy
|
|
|
|
|
Level 1
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Level 2
|
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Level 3
|
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Contingent consideration for business combination
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$
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6,029,557
|
|
|
|
6,029,557
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
6,029,557
|
|
|
|
6,029,557
|
|
|
|
-
|
|
|
|
-
|
|
The $6,029,557 contingent liability represents the difference between the agreed upon value of the shares issued in connection with the acquisition of Magdallen Quant Pte Ltd (“MQL”), which was $7,142,857, and the current value of the issued shares as of September 30, 2017, which was $1,113,300. On November 10, 2017, the Company and Anthony Ng Zi Qin entered into the Second MQL Addendum, pursuant to which the Company agreed to issue an aggregate of 3,339,900 shares of common stock, in full satisfaction of the shortfall.
At December 31, 2016, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
Description
|
Fair Value As of December 31, 2016
|
|
Fair Value Measurements at December 31, 2016 Using Fair Value Hierarchy
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Contingent consideration for business combination
|
|
|
6,994,417
|
|
|
|
6,994,417
|
|
|
|
-
|
|
|
|
-
|
|
Total
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|
$
|
6,994,417
|
|
|
$
|
6,994,417
|
|
|
|
-
|
|
|
|
-
|
|
The earnings per share (“EPS”) is reported as basic and diluted per ASC 260. The securities to be issued pursuant to the MQL Agreement, as amended, that could dilute the EPS were excluded from the diluted EPS because the Company has a loss from operations and inclusion of such securities would have been antidilutive for the periods presented.
Note 2: Going Concern
The accompanying unaudited interim consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has substantial losses, has a working capital deficit of $529,948 (not including the contingent liability of
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$6,029,557), and is in need of additional capital to grow its operations so that it can become profitable. These matters, among others, raise substantial doubt about our ability to continue as a going concern.
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In view of these matters, the ability of the Company to continue as a going concern is dependent upon growth of revenues and the ability of the Company to raise additional capital. Management believes that the deployment of its proprietary trainable trading algorithms in 2016, improvements and modifications to the algorithms, and the change in focus in 2016 to the regulated fund and bank and model, which has resulted in several successfully completed transactions by New Asia Momentum Limited (“NAML”), the Company’s licensee, to increase the assets under management (“AUM”) will result in increased revenues. NAML is a company owned and controlled by Dr. Lin Kok Peng, the Company’s Chairman and CEO. The unaudited interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 3: Related Party Transactions
There were advances in the aggregate amount of $96,596 from New Asia Holdings Limited (“NAHL”), a significant shareholder, during the nine-month period ended September 30, 2017. The total advances due to NAHL are $562,550 and $465,954 as of September 30, 2017 and December 31, 2016, respectively. Of these amounts, $316,533 of the advances constitute unsecured interest-free loans to the Company that were due to be repaid by October 31, 2015. In accordance with the terms of the advances, if the Company was unable to repay these advances by such date, NAHL, in its sole discretion, had the option to extend the repayment deadline or convert all or a portion of the advances into common stock of the Company at a conversion price of $0.02 per share. As of September 30, 2017, NAHL had not yet exercised its option to convert the advances to shares of common stock, and therefore, the advances remained as an interest-free loan to the Company as of September 30, 2017.
The Company paid $4,000 to Legal & Compliance, LLC, its legal counsel, for services that Legal & Compliance, LLC provided to New Asia Energy, Inc. (“NAEI”), a company that, up until December 19, 2016 had been managed by Dr. Lin Kok Peng as CEO and by Mr. Capote as Secretary.. Legal & Compliance, LLC was also legal counsel to NAEI until December 19, 2016. The Company advanced a consultancy payment in the amount of $650 to Ms. Tricia F. Jones, for administrative services rendered to NAEI, related to the turnover of NAEI records to the new management of NAEI. The Company decided to write off the entire amount, totaling $4,650., and is shown as bad debt – related party in the income statement at September 30, 2017.
On September 7, 2015, Mr. Jose A. Capote was appointed to serve as the Company's Secretary and Vice President. There is no family relationship between Mr. Capote and any of the Company's directors or officers. Mr. Capote is currently a beneficial shareholder of the Company through his 50% ownership of Earth Heat Ltd. The Company has paid Mr. Capote consulting fees for acting in the capacity as Secretary and Vice President of the Company in the amount of $13,500 and $13,500 for the nine-months ended September 30, 2017 and September 30, 2016, respectively.
The Company pays New Asia Momentum Pte Ltd (“NAMPL”), a Singapore private company owned and controlled by Dr. Lin Kok Peng, Chairman and CEO of the Company, fees for the rental of office space and for administrative services in its Singapore headquarters. The Company has paid NAMPL $34,523 and $11,734 for the nine-month periods ended September 30, 2017 and 2016, respectively.
In November 2015, MQL, the Company's wholly-owned subsidiary, entered into a Software License Agreement with NAML, a company owned and controlled by NAHD's Chairman and CEO, Dr. Lin Kok Peng. Pursuant to the terms of the Software License Agreement, NAML agreed to pay MQL in accordance with the following provisions:
(i)
License and other fixed price fees as set forth below:
·
License fees shall be based on profits from the end users’ accounts. The license fee shall be calculated as follows:
o
Where the AUM from all end users is less than $10 million, 15% only of the profits from the end users' accounts;
o
If the AUM from all end users exceed $10 million, MQL's fees shall be separately agreed on between MQL and NAML, and if MQL and NAML are unable to agree on such apportionment, MQL shall still be entitled to 15% only of the profits from the end users' accounts;
o
On every anniversary date of the Software License Agreement, the parties will review the performance of the licensed software and may, by mutual agreement between MQL and NAML, vary the license fee.
(ii)
Time & Material (“T&M”) Fees: The charges for performance of any T&M tasks due to work orders will be billed monthly for charges incurred in the previous monthly period and are due and payable within 30 days of the date of the invoice. Expenses may include, but are not limited to, reasonable charges for materials, office and travel expenses, graphics, documentation, research materials, computer laboratory and data processing, and out-of-pocket expenses reasonably required for performance. Expenses for travel and travel-related expenses and individual expenses in excess of $500 require NAML’s prior approval.
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NAML paid MQL a total of $3,181 and $27,237 in related party revenue for the nine-month periods ended September 30, 2017 and 2016, respectively. MQL has an accounts receivable balance with NAML of $0 as of September 30, 2017 and $1,333 as of December 31, 2016.
Pursuant to the MQL Agreement, and the First MQL Addendum, relating to the Company's acquisition of issued and outstanding shares of MQL in exchange for restricted shares of common stock of the Company, if the average trading price of the Company's shares based on the 7 days closing price over the period immediately before the second anniversary date (August 25, 2017) of the MQL Agreement and the seventh day falling on the first anniversary date of the MQL Agreement is below $1.00, the Company shall issue additional shares to Anthony Ng Zi Qin to make up the difference between the value of the consideration shares based on such 7 days closing history and the sum of SGD 10,000,000. The difference between the fair value of the securities acquired and the value of the shares issued ($4,099,837), as well as the positive change in the common stock share price ($964,860) for the period ended September 30, 2017 created a contingent liability in the amount of $6,029,557 and $6,994,417 as of September 30, 2017 and December 31, 2016, respectively. The positive change in common share price occurred because the stock price increased as of September 30, 2017 compared to December 31, 2016. On November 10, 2017, the Company and Anthony Ng Zi Qin entered into the Second MQL Addendum, pursuant to which the parties agreed that the Company would issue an aggregate of 3,339,900 shares in satisfaction of the shortfall in the value of the shares issued pursuant to the MQL Agreement, as amended. Such shares will be issued no later than the end of the fourth quarter of 2017. As of September 30, 2017, and the date of this filing, no shares have been issued. As the Second MQL Addendum was entered into subsequent to September 30, 2017 and no shares have been issued, the Second MQL Addendum is considered prospective and contingent liability is reflected on the balance sheet per the original terms of the MQL Agreement, as amended.
Note 4: Commitments and Contingencies
The Company entered into an Office Service Agreement on September 12, 2017, with Premier Business Centers “PBC”). Under the terms of the agreement, PBC granted the Company a license to use the facilities and services of PBC at 15615 Alton Parkway Suite 450, Irvine, CA 92618. The basic term of this agreement is month to month commencing August 1, 2017 with monthly fixed fees of $950.
In addition, the Company pays NAMPL, a Singapore private company owned and controlled by Dr. Lin Kok Peng, Chairman and CEO of the Company, fees for the rental of office space and for administrative services in its Singapore headquarters. The Company has paid NAMPL $34,523 and $11,734 for the nine-month periods ended September 30, 2017 and 2016, respectively.
Pursuant to the MQL Agreement, and the First MQL Addendum, if the average trading price of the Company's shares based on the 7 days closing price over the period immediately before the second anniversary date (August 25, 2017) of the MQL Agreement and the seventh day falling on the first anniversary date of the MQL Agreement is below $1.00, the Company shall issue additional shares to Anthony Ng Zi Qin to make up the difference between the value of the consideration shares based on such 7 days closing history and the sum of SGD 10,000,000. The difference between the fair value of the securities acquired and the value of the shares issued ($4,099,837), as well as the positive change in the common stock share price ($964,860) for the period ended September 30, 2017 created a contingent liability in amount of $6,029,557 and $6,994,417 as of September 30, 2017 and December 31, 2016, respectively. The positive change in common share price occurred because the stock price increased as of September 30, 2017 compared to December 31, 2016. On November 10, 2017, the Company and Anthony Ng Zi Qin entered into the Second MQL Addendum, pursuant to which the parties agreed that the Company would issue an aggregate of 3,339,900 shares in satisfaction of the shortfall in the value of the shares issued pursuant to the MQL Agreement, as amended. Such shares will be issued no later than the end of the fourth quarter of 2017. As of September 30, 2017, and the date of this filing, no shares have been issued. As the Second MQL Addendum was entered into subsequent to September 30, 2017 and no shares have been issued, the Second MQL Addendum is considered prospective and contingent liability is reflected on the balance sheet per the original terms of the MQL Agreement, as amended.
Note 5: Subsequent Event
On November 10, 2017, the Company and Anthony Ng Zi Qin entered into the Second MQL Addendum, pursuant to which the parties agreed that the Company would issue an aggregate of 3,339,900 shares in satisfaction of the shortfall in the value of the shares issued pursuant to the MQL Agreement, as amended. Such shares will be issued no later than the end of the fourth quarter of 2017. As of September 30, 2017, and the date of this filing, no shares have been issued. As the Second MQL Addendum was entered into subsequent to September 30, 2017 and no shares have been issued, the Second MQL Addendum is considered prospective and contingent liability is reflected on the balance sheet per the original terms of the MQL Agreement, as amended. The Parties agreed to amend the MQL Agreement to provide for the issuance of new shares on the basis of the following clauses:
If the average trading price of the Purchaser's shares based on the 7 days closing price over the period immediately before the second anniversary date of the S&P Agreement and the 7th day falling on the second anniversary date of this Agreement is below USD 1.00, the Purchaser shall issue a total of 3,339,900 additional shares to the Vendor (“Additional Shares”).
These Additional Shares shall be issued no later than the end of the quarter immediately following the second anniversary date of this Agreement, shall be subject to the same adherence with applicable securities laws and restrictions as the shares originally issued as
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Consideration Shares, and that any time required for adherence to applicable securities laws and restrictions shall apply from the date of issue of these Additional Shares
As of September 30, 2017, and the date of the filing, no shares have been issued. As the addendum was agreed to subsequent to September 30, 2017 and no shares have been issued, the addendum is considered prospective and contingent liability is reflected on the balance sheet per the original terms of the agreement.