NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and nine months ended March 31, 2018 and 2017
(Unaudited)
NOTE 1 – NATURE OF BUSINESS
Ajia Innogroup Holdings, Ltd., formerly “Wigi4you, Inc.” (the “Company” or “Ajia”) was incorporated in the State of Nevada on March 19, 2014. The Company had intended to provide a website and mobile app to assist event planners in locating performers, bands and speakers, booking locations and planning events in areas around the United States and Canada. However, The Company changed its business plan in 2017 and is currently planning to pursue the business in having self-help photo kiosks to be implemented at major convenient locations, such as shopping mall, buildings near subway stations, etc. to attract customers to use the service. In addition, the Company provides system development consulting and training services. The main revenue for these businesses will be generated from the self-help photo kiosks at which one can do photo printing, Wechat printing, game commemorative photos, copying documents, etc., as well as from consulting contracts.
On December 1, 2017, the Company acquired a ten percent (10%) ownership interest in a collection code project ("Project"), the purpose of which is to improve the marketability and market penetration of Alipay Network Technology Co., Ltd. ("Alipay") collection code system. As a part of the agreement, the Company will share 10% of expenses and profit on the Project (See Note 4).
On April 25, 2018, the Company announced that its wholly owned subsidiary, Guangzhou Shengjia Trading Co., Ltd. of Guangzhou, China (“Shengjia”) has entered into an agreement with Guangzhou Renhai Network Technology Co., Ltd. (“Renhai”) in which Shengjia would replace its 10% interest in the Alipay payment code business development project (“Alipay Project”) (See Note 4), with a 30% interest of Renhai’s new China Mobile project. Renhai has recently reached an agreement with China Mobile Communications Corporation (“China Mobile”) whereby Renhai and China Mobile are to sign an agreement appointing Renhai as one of China Mobile’s marketers in promoting China Mobile’s business products for the period from April 1, 2018 to September 30, 2018. Renhai’s China Mobile agreement will be extended once certain business targets are fulfilled. (See Note 8).
The Company’s activities are subject to significant risks and uncertainties including failing to secure additional funding to operationalize the Company’s website and apps before another company develops similar websites or apps.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies of The Company is presented to assist in understanding the Company’s consolidated financial statements. The accounting policies presented in these footnotes conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the accompanying financial statements. These financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity.
Basis of Presentation
The unaudited financial statements for the period ended March 31, 2018 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information in accordance with Securities and Exchange Commission (SEC) Regulation S-X rule 8-03. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the balance sheet as of March 31, 2018 and the results of operations and cash flows for the period then ended. The financial data and other information disclosed in these notes to the interim financial statements related to the period are unaudited. The results for the period ended March 31, 2018, are not necessarily indicative of the results to be expected for any subsequent quarters or for the entire year ending June 30, 2018.
These unaudited condensed consolidated interim financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended June 30, 2017.
Principles of Consolidation
The consolidated financial statements present the financial position, results of operations and cash flows for the Company and its wholly-owned subsidiaries, Splendor Radiant Corporation, A Jia Creative Holdings Limited, and Guangzhou Shengjia Trading Co., Ltd. Intercompany transactions and balances have been eliminated in consolidation.
Presentation Currency
The Company’s presentation and functional currency is US Dollars (US$). The functional currency of the Company’s subsidiaries, Splendor Radiant Corporation and A Jia Creative Holdings Limited, are in Hong Kong Dollars dollars (“HK$”), and Shengjia Trading Co., Ltd., in Chinese Renminbi (RMB), respectively. All assets and liabilities of the Company are translated into US dollars at the exchange rate prevailing at the balance sheet date. Revenue and expenses are translated at the weighted average exchange rates during the reporting period. The resulting translation adjustments are included in accumulated other comprehensive income.
Gains or losses resulting from transactions denominated in foreign currencies are included in net loss on the statement of operations as incurred. Exchange gains or losses arising from foreign currency transactions are included in the determination of other comprehensive income for the respective periods.
Cash
For purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with maturity of three months or less to be cash equivalents.
Revenue recognition
The Company’s revenue recognition policies are in compliance with FASB ASC 605-35 “Revenue Recognition”. Revenue is recognized when a formal arrangement exists, the price is fixed or determinable, all obligations have been performed pursuant to the terms of the formal arrangement and collectability is reasonably assured.
For the Company’s self-serve kiosks, revenue is recognized when each kiosk satisfies the performance obligation by transferring control of the promised goods or services to the customer.
For the Company’s business in catering system development and training, monthly revenue is recognized when the Company satisfies its obligation by transferring control of the promised goods or performance of services to the customer.
The Company recognizes revenues on sales of its services, based on the terms of the customer agreement. The customer agreement takes the form of either a contract or a customer purchase order and each provides information with respect to the service being sold and the sales price. If the customer agreement does not have specific delivery or customer acceptance terms, revenue is recognized at the time the service is provided to the customer.
Collaborative arrangements
On December 1, 2017 the Company entered into an agreement with Guangzhou Renhai Technology Co. Ltd. Renhai is a service provider involved in a project named “Collection Code” with the sponsor, Alipay (China) Network Technology Co., Ltd. (“Alipay”) (known as the “Project”).
The Company has evaluated the Renhai agreement and determined that it is a collaborative arrangement under FASB ASC Topic 808, Collaborative Arrangements and that Renhai is the principal participant; therefore, the Company will record costs incurred and revenue generated from third parties based on the percentage earned in the financial statements. The Company will re-evaluate whether an arrangement qualifies or continues to qualify as a collaborative arrangement whenever there is a change in either the roles of the participants or the participants’ exposure to significant risks and rewards, dependent on the ultimate commercial success of the endeavor.
The purpose of the Project is to improve the marketability and market penetration of Alipay’s collection code system. Alipay is a mobile phone app owned by Alibaba Group Holding Ltd. Alipay is principally an online payment tool which is one of the apps most people in the People’s Republic of China (“PRC”) are using. The Project shall earn revenues by successfully marketing and attracting users to the Alipay mobile app. The Company is responsible for improving the marketability and market penetration of the Project and is entitled to 10% of net profits earned by the Project.
See note 4 and note 6 for impacts that relate to this agreement.
Fair Value of Financial Instruments
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1
– Quoted prices in active markets for identical assets or liabilities.
Level 2
– Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
– Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eligible financial instruments.
As of March 31, 2018, the carrying value of cash, accounts receivable, accrued expenses and due to related party are required to be measured at fair value, approximated fair value due to the short-term nature and maturity of these instruments.
Use of Estimates
The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial condition and results of operations during the period in which such changes occurred. Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
NOTE 3 – GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern.
Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
As of March 31, 2018, the Company had a working capital deficit of $84,060, and an accumulated deficit of $165,827. This condition among others raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon its ability to eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
In the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with app development. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon internally generated funds and funds from the sale of shares of stock to finance its operations and growth. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
In the past year, the Company funded operations by using cash proceeds received through the issuance of common stock. For the coming year, the Company plans to continue to fund the Company through debt and securities sales and issuances until the Company generates enough revenues through its operations.
NOTE 4 – COLLABORATIVE AGREEMENT
As part of the arrangement with Renhai, the Company exchanged 3,000,000 shares representing 30% of the Company’s common stock at the time of issuance for a ten percent (10%) ownership interest in the Project for a fair value of $128,700 estimated using a discounted future cash flow valuation model. The significant assumptions are the discount rate of 24% and a term of 4 years. The assumptions represent managements best estimate based on the information available.
The total value of common shares of $128,700 is being amortized over the expected measurement period through December 1, 2020. As of March 31, 2018, $10,725 of amortization have been recorded and the unamortized fair value has been recorded as an intangible asset.
This arrangement has been superseded by the agreement with Guangzhou Renhai Network Technology Co., Ltd. subsequent to the end of the period (See Note 8).
NOTE 5
– REVENUE
During the period, the Company’s wholly owned subsidiary, Ajia Creative Holdings Limited, has entered into two consulting contracts with two third party clients, namely Heartful Blessing Catering Investment Limited and Shichirin Food and Beverage Corporation Limited (collectively referred as “the Clients”). These two contracts provide the Company a monthly revenue of US$20,000 and US$10,000 respectively for six months commencing from January 2018 to June 2018. The purpose of the contracts is to develop a catering order system and related training to the Clients.
The software system used to develop the catering order system is provided by Guangzhou Renhai Network Technology Co., Ltd. The Company has signed a software license agreement with Renhai providing the Company the right to use the Renhai software system. While this software system is being tested during an initial trial period, the Company is not required to pay any fee for using the software system during this trial period.
NOTE 6 – COMMON STOCK
On July 10, 2017, Company issued 20,000 share of Common Stock at $0.50 per share for cash proceeds of $10,000.
On December 1, 2017, the Company exchanged 3,000,000 shares of its common stock at a value of $128,700 to acquire 10% ownership of the Project (See Note 4). This amount has been recorded as an intangible asset.
NOTE 7 – RELATED PARTY
TRANSACTIONS
As of March 31, 2018, the Company has a due to related parties balance of $88,953 through advances from shareholders. The advances are unsecured, non-interest bearing, and due on demand.
NOTE 8 – SUBSEQUENT EVENT
On April 25, 2018, the Company announced that its wholly owned subsidiary, Guangzhou Shengjia Trading Co., Ltd. of Guangzhou, China (“Shengjia”) has entered into an agreement with Guangzhou Renhai Network Technology Co., Ltd., in which Shengjia would replace its 10% interest in the Alipay payment code business development project (“Alipay Project”) (See Note 4), with a 30% interest of Renhai’s new China Mobile project. Renhai has recently reached an agreement with China Mobile Communications Corporation (“China Mobile”) whereby Renhai and China Mobile are to sign an agreement appointing Renhai as one of China Mobile’s marketers in promoting China Mobile’s business products for the period from April 1, 2018 to September 30, 2018. Renhai’s China Mobile agreement will be extended once certain business targets are fulfilled. The reason for the replacement is primarily due to significant changes in China’s regulations and practices and these changes have negatively impacted the financial performance of the Alipay Project.
Renhai will maintain a 70% interest of the China Mobile project and will be responsible for the management and overall supervision of the project, and Shengjia will carry out various support functions.