The accompanying notes are an integral part
of these condensed financial statements.
The accompanying notes are an integral part
of these condensed financial statements.
The accompanying notes are an integral part
of these condensed financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,
2020 AND 2019
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS
IWEB, Inc. (the “Company”)
was incorporated under the laws of the State of Nevada on February 17, 2015.
The Company’s original business plan
was to actively engage in providing high impact internet marketing strategies to internet based businesses and people seeking to
create websites, but this business was not successful. On December 12, 2016, 24,997,500 shares of the common stock of the Company,
representing 97.08% of the Company’s issued and outstanding shares of common stock at that time, were sold by Dmitriy Kolyvayko
in a private transaction to Mr. Wai Hok Fung (the “Transaction”) for an aggregate purchase price of $380,000. In
connection with the Transaction, Mr. Kolyvayko released the Company from certain liabilities and obligations arising out of his
service as a director and officer of the Company.
On May 15, 2017, the Company entered into
a share exchange agreement (the “Share Exchange Agreement”) with Enigma Technology International Corporation (“Enigma
BVI”), and all the shareholders of Enigma BVI, namely, Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon and S-Mark
Co. Ltd. (collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of Enigma BVI in
exchange for the issuance to the Shareholders of an aggregate of 31,500,000 restricted shares of IWEB, Inc.’s common stock
(the “Reverse Merger”). The Reverse Merger closed on May 15, 2017. As a result of the Reverse Merger, Enigma BVI is
a wholly-owned subsidiary of the Company.
Enigma BVI was incorporated on February
22, 2017 in the British Virgin Islands.
Digiwork (Thailand) Co., Ltd. (“Digiwork”)
was established and incorporated in Thailand on November 24, 2016. The authorized capital of Digiwork is THB5,000,000 (approximately
$163,452), divided into 500,000 common shares with a par value of THB10 per share, which has been fully paid up as of December
31, 2016.
On May 15, 2017, Enigma BVI, Digiwork and
the shareholders of Digiwork entered into the following commercial arrangements, or collectively, “VIE Agreements,”
pursuant to which Enigma BVI has contractual rights to control and operate the businesses of Digiwork.
Pursuant to an Exclusive Technology Consulting
and Service Agreement, Enigma BVI agreed to act as the exclusive consultant of Digiwork and provide technology consulting and services
to Digiwork. In exchange, Digiwork agreed to pay Enigma BVI a technology consulting and service fee, the amount of which is decided
by Enigma BVI on the basis of the work performed and commercial value of the services and the fee amount to be equivalent to the
amount of net profit before tax of Digiwork on a quarterly basis; provided that the minimum amount of which is no less than THB30,000
(approximately $978) per quarter. Without the prior written consent of Enigma BVI, Digiwork may not accept the same or similar
technology consulting and services provided by any third party during the term of the agreement. All the benefits and interests
generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be Enigma
BVI’s sole and exclusive property. The term of this agreement will expire on May 15, 2027 and may be extended unilaterally
by Enigma BVI with Enigma BVI's written confirmation prior to the expiration date. Digiwork cannot terminate the agreement early
unless Enigma BVI commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up.
Pursuant to an Exclusive Purchase Option
Agreement, the shareholders of Digiwork granted to Enigma BVI and any party designated by Enigma BVI the exclusive right to purchase
at any time during the term of this agreement all or part of the equity interests in Digiwork, or the “Equity Interests,”
at a purchase price equal to the registered capital paid by the shareholders of Digiwork for the Equity Interests, or, in the event
that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law; Pursuant to
powers of attorney executed by each of the shareholders of Digiwork, such shareholders irrevocably authorized any person appointed
by Enigma BVI to exercise all shareholder rights, including but not limited to voting on their behalf on all matters requiring
approval of Digiwork’s shareholders, disposing of all or part of the shareholder's equity interest in Digiwork, and electing,
appointing or removing directors and executive officers. The person designated by Enigma BVI is entitled to dispose of dividends
and profits on the equity interest without reliance of any oral or written instructions of the shareholder. Each power of attorney
will remain in force for so long as the shareholder remains a shareholder of Digiwork. Each shareholder has waived all the rights
which have been authorized to Enigma BVI’s designated person under each power of attorney.
Pursuant to equity pledge agreements, each
of the shareholders of Digiwork pledged all of the Equity Interests to Enigma BVI to secure the full and complete performance of
the obligations and liabilities on the part of Digiwork and each of its shareholders under this and the above contractual arrangements.
If Digiwork or the shareholders of Digiwork breach their contractual obligations under these agreements, then Enigma BVI, as pledgee,
will have the right to dispose of the pledged equity interests. The shareholders of Digiwork agree that, during the term of the
equity pledge agreements, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged
equity interests, and they also agree that Enigma BVI’s rights relating to the equity pledge should not be prejudiced by
the legal actions of the shareholders, their successors or their designees. During the term of the equity pledge, Enigma BVI has
the right to receive all of the dividends and profits distributed on the pledged equity. The equity pledge agreements will terminate
on the second anniversary of the date when Digiwork and the shareholders of Digiwork have completed all their obligations under
the contractual agreements described above.
As a result of the above contractual arrangements,
Enigma BVI has substantial control over Digiwork’s daily operations and financial affairs, election of its senior executives
and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of Digiwork, the Company, via Enigma BVI,
is entitled to consolidate the financial results of Digiwork in its own consolidated financial statements under Financial Accounting
Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable
interest entities, or ASC Topic 810.
Digiwork was set up pursuant to a joint
business agreement among its shareholders on August 4, 2016 and as amended and restated on March 31, 2017 (“JBA”). Pursuant
to the JBA, Digiwork is obligated to pay a total of $10,000,000 to S-Mark Co. Ltd., a shareholder of Digiwork or Digiwork Co.,
Ltd. (“Digiwork Korea”), a wholly owned subsidiary of S-Mark. As consideration for such payments, Digiwork Korea agreed
to provide research and development services to Digiwork for a period of five years commencing on March 31, 2017. On December 31,
2016, an initial payment of $100,000 was paid to Digiwork Korea.
On July 10, 2017, the parties to the JBA
entered into an amendment to the Amended and Restated Joint Business Agreement which amended the total payment from $10,000,000
to $1,100,000. In May 2018, the final payment of $1,000,000 was paid to Digiwork Korea. Towards the end of 2019, management
started discussions with Digiwork Korea to review the scope of the research and development with respect of the coding technology.
On March 5, 2020, the parties entered into Amendment No. 2 to the Amended and Restated Joint Business Agreement, pursuant to which
Digiwork Korea agreed to provide research and development services to Digiwork until December 31, 2020. Upon expiration of its
services, Digiwork Korea shall repay $150,000 to Digiwork. Prepaid R&D payments to Digiwork Korea were $301,099 and $391,274
as of March 31, 2020 and December 31, 2019, respectively.
Digiwork Korea also agreed to grant Digiwork
full and exclusive licenses to any new launches, developments, improvements and any other intellectual property rights of coding
technology developed by Digiwork Korea until December 31, 2020. The territories for such licenses are in Thailand, Vietnam, Myanmar,
Laos, Cambodia, United Arab Emirates and Qatar.
Digiwork was authorized by Digiwork Korea
to be an official licensee and distributor of its technology exclusively in Thailand, Vietnam, Myanmar, Laos, Cambodia, United
Arab Emirates and Qatar, and the authorization covers all four categories of Digiwork Korea’s coding technology: image, audio,
web and security coding. This technology enables governments and enterprises around the world to give digital identities to media
and objects that computers can sense and recognize, and to which they can react.
Digiwork is a technology development and
services provider specializing in coding services in various industries and markets.
On March 7, 2018, the Company filed a Certificate
of Change with the State of Nevada (the “Certificate”) to effect a 1-for-2 reverse stock split of the Company’s
authorized shares of common stock, par value $0.0001 (the “Common Stock”), accompanied by a corresponding decrease
in the Company’s issued and outstanding shares of Common Stock (the “Reverse Stock Split”) such that, following
the consummation of the Reverse Stock Split, the number of authorized shares of Common Stock was reduced from 150,000,000 to 75,000,000. The
Reverse Stock Split became effective on March 13, 2018.
During 2019, One Belt One Network Holdings
Limited, a British Virgin Island company (the “OBON BVI”) and 70% owned subsidiary of IWEB, Inc., OBON Corporation
Company Limited, a Thailand Company (the “OBON Thailand”) and the shareholders of OBON Thailand (namely, Mr. Ratanaphon
Wongnapachant, Mr. Wanee Watcharakangka and Ms. Chanikarn Lertchawalitanon, the “OBON Thailand Shareholders”) entered
into the following agreements, or collectively, the “Variable Interest Entity or VIE Agreements,” pursuant to which
OBON BVI has contractual rights to control and operate the business of OBON Thailand (the “VIE”). OBON Thailand was
established as our VIE for our business expansion and development in Thailand, which imposes certain restrictions on foreign invested
companies.
The VIE Agreements are as follows:
|
1.
|
Exclusive Technology Consulting and Service Agreement by and between OBON BVI and OBON Thailand. Pursuant to the Exclusive Technology Consulting and Service Agreement, OBON BVI agreed to act as the exclusive consultant of OBON Thailand and provide technology consulting and services to OBON Thailand. In exchange, OBON Thailand agreed to pay OBON BVI a technology consulting and service fee, the amount of which is decided by OBON BVI on the basis of the work performed and commercial value of the services, and the fee amount is to be equivalent to the amount of net profit before tax of OBON Thailand on a quarterly basis; provided that the minimum amount of which shall be no less than THB30,000 (approximately $978) per quarter. Without the prior written consent of OBON BVI, OBON Thailand may not accept the same or similar technology consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be OBON BVI’s sole and exclusive property. The term of this agreement will expire on June 3, 2029 and may be extended unilaterally by OBON BVI with OBON BVI's written confirmation prior to the expiration date. OBON Thailand cannot terminate the agreement early unless OBON BVI commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up.
|
|
2.
|
Exclusive Purchase Option Agreements by and among OBON BVI, OBON Thailand and each of OBON Thailand Shareholders. Pursuant to the Exclusive Purchase Option Agreements, each of OBON Thailand Shareholders granted to OBON BVI and any party designated by OBON BVI the exclusive right to purchase at any time during the term of this agreement all or part of the equity interests in OBON Thailand, or the “Equity Interests,” at a purchase price equal to the registered capital paid by each of OBON Thailand Shareholders for the Equity Interests, or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law. Pursuant to a power of attorney executed by each of OBON Thailand Shareholders, each of them irrevocably authorized any person appointed by OBON BVI to exercise all shareholder rights, including but not limited to voting on his/her behalf on all matters requiring approval of OBON Thailand’s shareholder, disposing of all or part of the shareholder's equity interest in OBON Thailand, and electing, appointing or removing directors and executive officers. The person designated by OBON BVI is entitled to dispose of dividends and profits on the equity interest without reliance on any oral or written instructions of OBON Thailand Shareholders. The power of attorney will remain in force for so long as each of OBON Thailand Shareholders remains the shareholder of OBON Thailand. Each of OBON Thailand Shareholders has waived all the rights which have been authorized to OBON BVI’s designated person under power of attorney.
|
|
3.
|
Equity Pledge Agreements by and among OBON BVI, OBON Thailand and each of OBON Thailand Shareholders. Pursuant to the Equity Pledge Agreements, each of OBON Thailand Shareholders pledged all of the Equity Interests to OBON BVI to secure the full and complete performance of the obligations and liabilities on the part of OBON Thailand and him/her under this and the above contractual arrangements. If OBON Thailand or OBON Thailand Shareholders breaches their contractual obligations under these agreements, then OBON BVI, as pledgee, will have the right to dispose of the pledged equity interests. Each OBON Thailand Shareholders agrees that, during the term of the Equity Pledge Agreement, he/she will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests, and he/she also agrees that OBON BVI’s rights relating to the equity pledge should not be prejudiced by the legal actions of the shareholder of OBON Thailand, his successors or designees. During the term of the equity pledge, OBON BVI has the right to receive all of the dividends and profits distributed on the pledged equity. The Equity Pledge Agreement will terminate on the second anniversary of the date when OBON Thailand and OBON Thailand Shareholders have completed all their obligations under the contractual agreements described above.
|
As a result of the above contractual arrangements,
OBON BVI has substantial control over OBON Thailand’s daily operations and financial affairs, election of its senior executives
and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of OBON Thailand, the Company, via OBON
BVI, is entitled to consolidate the financial results of OBON Thailand in its own consolidated financial statements under ASC Topic
810.
On September 6, 2019, OBON Thailand, a
Variable Interest Entity or VIE of OBON BVI, which is a 70% owned subsidiary of IWEB, Inc. entered into a Networking and WiFi Devices
Installation Agreement (the “Agreement”) with CatBuzz TV Company Limited, a Thailand Company (“CatBuzz TV”).
Pursuant to the Agreement, OBON Thailand
will lease and install network systems, WiFi devices and related accessories for CatBuzz TV and provide maintenance services. CatBuzz
TV agrees to pay OBON Thailand compensation for the network systems, WiFi devices and the accessories and maintenance services
with a monthly fee based upon the location and type of device, which fees range from 600 Bath (approximately $20) to 2,500 Baht
(approximately $83) per device per month.
This Agreement has a term of 5 (five) years
from the execution date of the Agreement. Upon the end of the term, if not agreed otherwise, both parties agree to extend the term
of the Agreement for additional 2 (two) year terms, under the same terms or according to mutually agreeable terms determined by
both parties in the future.
As of March 31, 2020, OBON Thailand has
not yet derived any revenue pursuant to this Agreement.
Organization and Reorganization
Enigma BVI was incorporated on February
22, 2017 in the British Virgin Islands with limited liability as an investment holding company. Upon incorporation, Enigma BVI
issued 50,000 shares at $1 each. Prior to the reorganization, Enigma BVI was owned 57.5% by Mr. Ratanaphon Wongnapachant, 2.5%
by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd., a KOSDAQ-listed corporation and 100% shareholder of Digiwork Korea.
Digiwork (Thailand) Co. Ltd was incorporated
in Thailand with limited liability on November 24, 2016. Digiwork was also owned 57.5% by Mr. Ratanaphon Wongnapachant, 2.5%
by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd.
On May 15, 2017, Enigma BVI, Digiwork and
the shareholders of Digiwork entered into the abovementioned VIE Agreements, pursuant to which Enigma BVI has contractual rights
to control and operate the businesses of Digiwork. The change in control of and the acquisition of Digiwork by Enigma BVI have
been accounted for as common control transactions in a manner similar to a pooling of interests, and there was no recognition of
any goodwill or excess of the acquirers’ interest in the net fair value of the acquirees’ identifiable assets, liabilities
and contingent liabilities over cost at the time of the common control combinations. Therefore, this transaction was recorded at
historical cost with a reclassification of equity from retained profits to additional paid in capital to reflect the deemed value
of consideration given in the local jurisdiction and the capital structure of Enigma BVI.
On May 15, 2017, the Company entered into
a share exchange agreement (the “Share Exchange Agreement”) with Enigma Technology International Corporation (“Enigma
BVI”), and all the shareholders of Enigma BVI, namely, Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon, and
S-Mark Co. Ltd. (collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of Enigma
BVI in exchange for the issuance to the Shareholders of an aggregate of 31,500,000 restricted shares of IWEB, Inc.’s common
stock (the “Reverse Merger”). The Reverse Merger closed on May 15, 2017. As a result of the Reverse Merger, Enigma
BVI is a wholly-owned subsidiary of the Company.
On May 15, 2017, the Company filed a Current
Report on Form 8-K with the Securities and Exchange Commission (“SEC”) announcing the completion of the business combination
between the Company and Enigma BVI in accordance with the terms of the Share Exchange Agreement. As a result of the transaction,
Enigma BVI is a wholly owned subsidiary of the Company, and the former shareholders of Enigma BVI became the holders of approximately
84% of the Company’s issued and outstanding capital stock on a fully-diluted basis immediately after the transaction. The
acquisition was accounted for as a recapitalization effected by a share exchange, wherein Enigma BVI is considered the acquirer
for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward
at their book value and no goodwill has been recognized.
In September 2018, the Company incorporated
Marvelous ERA Limited in the British Virgin Islands as a wholly-owned subsidiary (“Marvelous ERA”). Marvelous ERA is
the 70% majority owner of One Belt One Network Holdings Limited, a British Virgin Islands company (“OBON BVI”), which
was incorporated in October 2018. OBON BVI is the sole parent of One Belt One Network (HK) Limited, a company organized under the
laws of Hong Kong SAR in October 2018.
In June 2019, OBON BVI, OBON Thailand and
the shareholders of OBON Thailand entered into the abovementioned VIE agreements, pursuant to which OBON BVI has contractual rights
to control and operate the business of OBON Thailand.
In December
2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China,
which has spread rapidly to many parts of the world, including Thailand and the U.S. In March 2020, the World Health Organization
declared the COVID-19 a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office
buildings and facilities in Thailand.
Substantially all of our revenues are generated
in Thailand. The Company’s business and services and results of operations have been adversely
affected and could continue to be adversely affected by the COVID-19 pandemic. In response to the evolving dynamics
related to the COVID-19 outbreak, the Company is following the guidelines of local authorities as it prioritizes the health and
safety of its employees, contractors, suppliers and business partners. Our office in Thailand has been closed and all of the Company’s
employees in Thailand have been working from home since March 23, 2020 until May 7, 2020. The quarantines,
travel restrictions, and the temporary closure of office buildings have negatively impacted our business
including our wifi installation project. Our suppliers have negatively been affected, and could continue to be negatively affected
in their ability to supply and ship wifi related devices and parts to us. Our customers that are negatively impacted by the outbreak
of COVID-19 may reduce their budgets to purchase our products and services, which may materially adversely impact our revenue.
Some of our customers may require additional time to pay us or fail to pay us at all, which could significantly increase the amount
of accounts receivable and require us to record additional allowances for doubtful accounts. The outbreak of COVID-19 has disrupted
our supply chain and logistics and caused shortage of active installation workers and service providers for our project and might
continue impose negative impact to our business operations. Some of our customers, contractors, suppliers and other business partners
are small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable
to an epidemic outbreak and slowing macroeconomic conditions. If the SMEs that we work with cannot weather the COVID-19 and the
resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations
may be materially and adversely impacted.
The global economy
has also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the duration and intensity
of its impacts. The Thailand and global growth forecast is extremely uncertain, which would seriously affect investment in infrastructures
including building wifi network and related installation business.
While the potential
economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result
in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our
liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business
and the value of our common stock.
Further, as we
do not have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing
in the future in the event that we require additional capital. We currently believe that our financial resources will be adequate
to see us through the outbreak. However, in the event that we do need to raise capital in the future, outbreak-related instability
in the securities markets could adversely affect our ability to raise additional capital.
Consequently, our results of operations
has been adversely, and may be materially, affected, to the extent that the COVID-19 harms the Thailand and global economy. Any
potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding
the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19
or treat its impact, almost all of which are beyond our control.
Going
Concern
The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going concern. The Company has a history of recurring net
losses and a significant accumulated deficit. At March 31, 2020, the Company had an accumulated deficit of $2,822,268. These conditions
raise substantial doubt about our ability to continue as a going concern. The Company’s plan for continuing as a going concern
included improving its profitability, and obtaining additional debt financing, loans from existing directors and shareholders and
private placements of capital stock for additional funding to meet its operating needs. There can be no assurance that we will
be successful in our plans described above or in attracting equity or alternative financing on acceptable terms, or if at all.
These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial
statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S.
GAAP”).
The
interim condensed consolidated financial information as of March 31, 2020 and for the three month periods ended March 31, 2020
and 2019 have been prepared without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures,
which are normally included in consolidated financial statements prepared in accordance with U.S. GAAP have not been included.
These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and accompanying
footnotes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, previously
filed with the SEC on April 9, 2020.
In the opinion of management, all adjustments
and disclosures necessary for a fair presentation of these condensed consolidated financial statements, which are of a normal and
recurring nature, have been included. The results reported in the condensed consolidated financial statements for any interim periods
are not necessarily indicative of the results that may be reported for the entire year.
Use of Estimates
The preparation of these financial statements
in conformity with U.S. GAAP requires management of the Company to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, the Company evaluates its estimates
based 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 sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below
are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company
believes are the most critical to fully understanding and evaluating its consolidated financial statements.
Basis of Consolidation and Noncontrolling
Interests
The consolidated financial statements include
the financial statements of the Company, its subsidiaries and VIE entities. All significant inter-company balances and transactions
within the Company have been eliminated upon consolidation.
A subsidiary is an entity in which (i) the
Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint or
remove the majority of the members of the board of directors or to cast a majority of votes at the meeting of the board of directors
or to govern the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders
or equity holders.
For the Company's non-wholly owned subsidiaries,
a noncontrolling interest is recognized to reflect a portion of equity that is not attributable, directly or indirectly, to the
Company. Consolidated net income in the consolidated income statements includes net income (loss) attributable to noncontrolling
interests. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests
in the Company's consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under
financing activities in the consolidated statements of cash flows.
VIE Consolidation
Digiwork
Digiwork is owned as to 57.5% by Mr. Ratanaphon
Wongnapachant, 2.5% by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd., a KOSDAQ-listed corporation. For the consolidated
VIE, management made evaluations of the relationships between the Company and the VIE and the economic benefit flow of contractual
arrangements with the VIE. In connection with such evaluation, management also took into account the fact that, as a result of
such contractual arrangements, the Company controls the shareholders’ voting interests in the VIE. As a result of such evaluation,
management concluded that Enigma BVI is the primary beneficiary of its consolidated VIE.
Owing predominantly to the Thailand legal
restrictions on foreign ownership, Enigma BVI currently conducts the coding business in Thailand through Digiwork, which it effectively
controls through a series of contractual arrangements. The Company consolidates in its consolidated financial statements of the
VIE of which the Company is the primary beneficiary.
The following financial information of
Digiwork is included in the accompanying consolidated financial statements:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash at bank and on hand
|
|
$
|
1,025
|
|
|
$
|
377
|
|
Prepayments and deposits
|
|
|
301,270
|
|
|
|
391,463
|
|
Other receivables
|
|
|
2,358
|
|
|
|
2,582
|
|
Amount due from a fellow subsidiary
|
|
|
-
|
|
|
|
849
|
|
Property, plant and equipment, net
|
|
|
4,334
|
|
|
|
5,409
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
308,987
|
|
|
$
|
400,680
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accruals
|
|
$
|
12,144
|
|
|
$
|
13,239
|
|
Amount due to a director
|
|
|
443,967
|
|
|
|
487,991
|
|
Amount due to Enigma BVI
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
$
|
1,456,111
|
|
|
$
|
1,501,230
|
|
|
|
For the three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
152,489
|
|
|
$
|
82,072
|
|
|
|
For the three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash used in operating activities
|
|
$
|
(207
|
)
|
|
$
|
(46,046
|
)
|
Net cash provided by investing activities
|
|
|
112
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
807
|
|
|
|
49,510
|
|
OBON Thailand
OBON Thailand is owned 90.9% by Ms. Chanikarn
Lertchawalitanon, 0.1% by Wanee Watcharakangka, and 9.0% by Mr. Ratanaphon Wongnapachant. For the consolidated VIE, management
made evaluations of the relationships between the Company and the VIE and the economic benefit flow of contractual arrangements
with the VIE. In connection with such evaluation, management also took into account the fact that, as a result of such contractual
arrangements, the Company controls the shareholders’ voting interests in the VIE. As a result of such evaluation, management
concluded that OBON BVI is the primary beneficiary of its consolidated VIE.
OBON
Thailand was established as a VIE for the Company’s business expansion and development in Thailand, which imposes certain
restrictions on foreign invested companies. The Company consolidates in its consolidated financial statements of the VIE
of which the Company is the primary beneficiary.
The following financial information of
OBON Thailand is included in the accompanying consolidated financial statements:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash at bank and on hand
|
|
$
|
128,862
|
|
|
$
|
687,008
|
|
Other receivables
|
|
|
12,044
|
|
|
|
12,160
|
|
Prepayments and deposits
|
|
|
102,045
|
|
|
|
110,084
|
|
Amount due from a director
|
|
|
406,728
|
|
|
|
124
|
|
Deposits paid for acquisition of property, plant and equipment
|
|
|
293,578
|
|
|
|
322,689
|
|
Property, plant and equipment, net
|
|
|
31,461
|
|
|
|
22,050
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
974,718
|
|
|
$
|
1,154,115
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accruals
|
|
$
|
93,603
|
|
|
$
|
35,089
|
|
Short-term loan
|
|
|
852,405
|
|
|
|
865,625
|
|
Amounts due to fellow subsidiaries
|
|
|
166,666
|
|
|
|
167,515
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
$
|
1,112,674
|
|
|
$
|
1,068,229
|
|
|
|
For the three months ended March 31, 2020
|
|
Revenues
|
|
$
|
-
|
|
|
|
|
|
|
Net loss
|
|
$
|
225,914
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(79,789
|
)
|
Net cash used in investing activities
|
|
|
(438,928
|
)
|
Net cash used in financing activities
|
|
|
-
|
|
OBON Thailand has not earned any revenue since its inception.
Property, plant and equipment
Property, plant and equipment are recorded
at cost less accumulated depreciation and accumulated impairment. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets.
|
|
Estimated useful lives
(years)
|
|
Office and computer equipment
|
|
|
5
|
|
Software
|
|
|
5
|
|
Expenditure for maintenance and repairs
is expensed as incurred.
The gain or loss on the disposal of property,
plant and equipment is the difference between the net sales proceeds and the lower of the carrying value or fair value less cost
to sell the relevant assets and is recognized in general and administrative expenses in the consolidated statements of comprehensive
loss.
Impairment of Long-lived Assets
In accordance with ASC 360-10-35, we review
the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. Based on the existence of one or more indicators of impairment, the Company measures
any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of
future cash flows requires significant management judgment based on the Company’s historical results and anticipated results
and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model
is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived
assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets
exceed the fair value of the assets. No impairment has been recorded by the Company as of March 31, 2020 and December 31, 2019.
Revenue Recognition
Revenue is principally comprised of image
coding services revenue, and represents the fair value of the consideration received or receivable for the provision of services
in the ordinary course of the Company's activities and is recorded net of value-added tax ("VAT"). Under the new revenue
standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects
the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues
following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations
in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligation.
Revenues are recognized when the customer
obtains control of our product or services, which may occur at a point in time or over time depending on the terms and conditions
of the agreement.
Neither the Company, its subsidiaries or
VIEs earned any revenue for the three months ended March 31, 2020 and 2019.
Leases
Effective
with adoption of Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (the new lease standard) on January 1, 2019, the
Company determines if an arrangement is a lease at inception. Operating lease right-of-use (ROU) assets and liabilities
are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose,
the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company’s
leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement
date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate
based on its understanding of what its credit rating would be. The ROU asset also includes any lease payments made prior to commencement
and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate
the lease when it is reasonably certain that it will exercise such options.
Operating leases are included in operating
lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current on the Company’s
consolidated balance sheets.
Foreign Currency and Foreign Currency Translation
The functional currency of the Company
and its subsidiaries is US$. The Company's VIEs with operations in Thailand use their respective local currency, Thai Baht (“THB”),
as their functional currency. An entity’s functional currency is the currency of the primary economic environment in which
it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s
judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and
market, expenses, financing and inter-company transactions and arrangements.
Foreign currency transactions denominated
in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing
at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are
re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement
are included in the statements of comprehensive loss.
The financial statements are presented
in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance
sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period.
Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’
equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange
rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the
reporting currency are recorded in accumulated other comprehensive income in the balance sheets.
Translation of amounts from THB into U.S.
dollars has been made at the following exchange rates:
Balance sheet items, except for equity accounts
|
|
|
|
March 31, 2020
|
|
THB32.7000 to $1
|
|
December 31, 2019
|
|
THB29.7500 to $1
|
|
|
|
|
|
Income statement and cash flows items
|
|
|
|
For the three months ended March 31, 2020
|
|
THB31.2785 to $1
|
|
For the three months ended March 31, 2019
|
|
THB31.6251 to $1
|
|
Research and Development
Research and development costs are paid
to Digiwork Korea, which is providing research and development services to Digiwork commencing from March 31, 2017 and ending on
December 31, 2020. Research and development costs are recognized in general and administrative expenses and expensed as incurred.
Research and development expense was $57,371 and $58,464 for the three months ended March 31, 2020 and 2019, respectively.
Income Taxes
Income taxes are accounted for using an
asset and liability approach which requires the recognition of income taxes payable or refundable for the current year and deferred
tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial
statements or tax returns. Deferred income taxes are determined based on the differences between the accounting basis and the tax
basis of assets and liabilities and are measured using the currently enacted tax rates and laws. Deferred tax assets are reduced
by a valuation allowance, if based on available evidence, it is considered that it is more likely than not that some portion of
or all of the deferred tax assets will not be realized. In making such determination, the Company considers factors including future
reversals of existing taxable temporary differences, future profitability, and tax planning strategies. If events were to occur
in the future that would allow the Company to realize more of its deferred tax assets than the presently recorded net amount, an
adjustment would be made to the deferred tax assets that would increase income for the period when those events occurred. If events
were to occur in the future that would require the Company to realize less of its deferred tax assets than the presently recorded
net amount, an adjustment would be made to the valuation allowance against deferred tax assets that would decrease income for the
period when those events occurred. Significant management judgment is required in determining income tax expense and deferred tax
assets and liabilities.
Thailand Withholding Tax on Dividends
Dividends payable by a foreign invested
enterprise in Thailand to its foreign investors are subject to a 10% withholding tax, unless any foreign investor’s jurisdiction
of incorporation has a tax treaty with Thailand that provides for a different withholding arrangement.
Uncertain Tax Positions
Management reviews regularly the adequacy
of the provisions for taxes as they relate to the Company’s income and transactions. In order to assess uncertain tax positions,
the Company applies a more likely than not threshold and a two-step approach for tax position measurement and financial statement
recognition. For the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight
of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than
50% likely to be realized upon settlement.
Net loss per share of common stock
The Company has adopted ASC Topic 260,
“Earnings per Share,” (“EPS”) which requires presentation of basic EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS
computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the period.
|
|
For the three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss attributable to ordinary stockholders of IWEB, Inc.
|
|
$
|
(500,685
|
)
|
|
$
|
(268,932
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding – basic and diluted
|
|
|
40,220,396
|
|
|
|
40,197,751
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
The calculation of basic net loss per share
of common stock is based on the net loss attributable to ordinary stockholders of IWEB, Inc. for the three months ended March 31,
2020 and 2019 and the weighted average number of ordinary shares outstanding.
The Company has no potentially dilutive
securities, such as options or warrants, currently issued and outstanding.
Segments
The Company evaluates a reporting unit
by first identifying its operating segments, and then evaluates each operating segment to determine if it includes one or more
components that constitute a business. If there are components within an operating segment that meets the definition of a business,
the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable,
when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically
similar and, if so, the operating segments are aggregated.
Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier hierarchy
to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy
also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The three-tier fair value hierarchy is:
Level 1 – observable inputs that
reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – include other inputs that
are directly or indirectly observable in the market place.
Level 3 – unobservable inputs which
are supported by little or no market activity.
The carrying value of the Company’s
financial instruments, including cash at banks and on hand and balances with related parties approximate their fair value due to
their short maturities.
Comprehensive Income
Comprehensive income is defined as the
change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting
from investments from owners and distributions to owners. Accumulated other comprehensive income includes cumulative foreign currency
translation adjustment.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held
at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces
the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized
cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2019. The Company adopted the guidance effective January 1, 2020, and the guidance did not have a material impact on the Company’s
condensed consolidated financial statements.
In August 2018, the FASB issued ASU
2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,
which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy.
The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
The Company adopted the guidance effective January 1, 2020, and the guidance did
not have a material impact on the Company’s condensed consolidated financial statements.
In December 2019, the FASB issued
ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain
exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application
among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods
within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard
retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect
adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact this update
will have on its financial statements.
NOTE 3 - BALANCES WITH RELATED PARTIES
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Due from shareholders
|
|
$
|
1,250
|
|
|
$
|
1,250
|
|
|
|
|
|
|
|
|
|
|
Due from (to) directors
|
|
|
|
|
|
|
|
|
Mr. Ratanaphon Wongnapachant
|
|
$
|
337,042
|
|
|
$
|
(163,319
|
)
|
Mr. Wai Hok Fung
|
|
$
|
(44,872
|
)
|
|
|
(44,872
|
)
|
The
balances with shareholders and directors detailed above as of March 31, 2020 and December 31, 2019 are unsecured, non-interest
bearing, receivable and repayable on demand. Subsequent to March 31, 2020, Mr. Ratanaphon Wongnapachant repaid $337,042 to the
Company.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and equipment, net consist
of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Office and computer equipment
|
|
$
|
41,006
|
|
|
$
|
32,958
|
|
Software
|
|
|
2,711
|
|
|
|
1,566
|
|
Less: Accumulated depreciation
|
|
|
(7,922
|
)
|
|
|
(7,065
|
)
|
|
|
$
|
35,795
|
|
|
$
|
27,459
|
|
Depreciation
expenses charged to the statements of comprehensive loss for the three months ended March 31, 2020 and 2019 were $1,656 and
$728, respectively.
NOTE 5 - COMMON STOCK
On March 13, 2020, the Company entered
into several Securities Purchase Agreements with certain investors, pursuant to which the Company sold to the such investor in
a private placement an aggregate of 108,460 shares of the Company’s common stock, par value $0.0001 per share, at a purchase
price of $2.00 per share for an aggregate offering price of $216,920 (the “Private Placement”). The Private Placement
was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933,
as amended.
NOTE 6 –SHORT-TERM LOAN
As of March 31, 2020 and December 31, 2019,
short-term loan represents a loan of $852,405 and $865,625 advanced from an unrelated party to the Company. The loan is unsecured,
bearing 30% interest per annum and repayable by November 2020. Interest of $88,977 and $25,613 was accrued (included in accruals)
as of March 31, 2020 and December 31, 2019, respectively.
NOTE
7 - INCOME TAXES
(a)
|
The local (United States) and foreign components of loss before income taxes were comprised of the following:
|
|
|
For three months ended 31,
|
|
|
|
2020
|
|
|
2019
|
|
Tax jurisdictions from:
|
|
|
|
|
|
|
- Local
|
|
$
|
(119,511
|
)
|
|
$
|
(116,664
|
)
|
- Foreign, representing:
|
|
|
|
|
|
|
|
|
BVI
|
|
|
(70,545
|
)
|
|
|
(51,640
|
)
|
HK
|
|
|
-
|
|
|
|
(26,508
|
)
|
Thailand
|
|
|
(378,403
|
)
|
|
|
(82,072
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(568,459
|
)
|
|
$
|
(276,884
|
)
|
United States of America
The Company is incorporated in the State
of Nevada and is subject to the U.S. federal tax and state tax. The Tax Cuts and Jobs Act of (“TCJ Act”) was signed
into law in December 2017, and among its many provisions, it imposed a mandatory one-time transition tax on undistributed international
earnings and reduced the U.S. corporate income tax rate to 21%, effective January 1, 2018. No provision for income taxes in the
United States has been made as the Company had no taxable income for the three months ended March 31, 2020 and 2019.
British Virgin Islands
Under the current laws of the British Virgin
Islands, entities incorporated in British Virgin Islands are not subject to tax on their income or capital gains.
Thailand
The statutory corporate income tax rate
in Thailand (“CIT”) is 20%.
Digiwork, assuming a paid-in capital not
exceeding 5 million Thai baht (THB) ($152,905) at the end of any accounting period and income from the sale of goods and/or the
provision of services not exceeding THB 30 million ($917,431) in any accounting period, is subject to CIT in Thailand at the following
reduced rates:
Net profit
|
|
|
|
Nil – THB300,000 ($9,174)
|
|
|
0
|
%
|
THB300,000 – THB3,000,000 ($91,743)
|
|
|
15
|
%
|
Over THB3,000,000 ($91,743)
|
|
|
20
|
%
|
A reconciliation of loss before income
taxes to the effective tax rate as follows:
|
|
For three months ended 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(568,459
|
)
|
|
$
|
(276,884
|
)
|
Statutory income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax credit computed at statutory income tax rate
|
|
|
(119,376
|
)
|
|
|
(58,146
|
)
|
Reconciling items:
|
|
|
|
|
|
|
|
|
Non-deductible expenses
|
|
|
29,713
|
|
|
|
11,125
|
|
Tax effect of tax exempt entity
|
|
|
14,815
|
|
|
|
10,844
|
|
Rate differential in different tax jurisdictions
|
|
|
3,784
|
|
|
|
2,014
|
|
Valuation allowance on deferred tax assets
|
|
|
71,064
|
|
|
|
34,163
|
|
|
|
|
|
|
|
|
|
|
Total tax expenses
|
|
$
|
-
|
|
|
$
|
-
|
|
(b)
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of March 31, 2020 and December 31, 2019 are presented below
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards:
|
|
|
|
|
|
|
|
|
- United States of America
|
|
$
|
180,572
|
|
|
$
|
155,475
|
|
- Thailand
|
|
|
186,136
|
|
|
|
156,264
|
|
|
|
|
366,708
|
|
|
|
311,739
|
|
Less: Valuation allowance
|
|
|
(366,708
|
)
|
|
|
(311,739
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has accumulated net operating
loss carryovers of approximately $859,869 and $740,358 as of March 31, 2020 and December 31, 2019, respectively, which are available
to reduce future taxable income. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry
forwards of $145,660 for federal income tax reporting purposes may be subject to annual limitations. A change in ownership may
limit the utilization of the net operating loss carry forwards in future years. The tax losses will begin to expire in 2035.
As of March 31, 2020, and December 31,
2019, the entities in Thailand had net operating loss carry forwards of $930,678 and $781,318, respectively, which will expire
in various years through 2024.
Management believes that it is more likely
than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits
in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.
NOTE
8 - SEGMENT INFORMATION
The Company’s segments are business
units that offer different products and services and are reviewed separately by the chief operating decision maker (the “CODM”),
or the decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s CODM is the
Company’s Chief Executive Officer.
The Company used to have one reportable
segment, being technology development and provision of coding services in various industries and markets. Starting from the last
quarter of fiscal 2019, there is one additional segment, consisting of the leasing and installation of network systems, WiFi devices
and related accessories.
For the three months ended March 31, 2020
|
|
Technology
development and
services provider
specializing in
coding services in
various
industries and
markets
|
|
|
Lease and install
network systems,
WiFi devices and
related accessories
|
|
|
Corporate
unallocated
(note)
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
General and administrative expenses
|
|
|
(128,720
|
)
|
|
|
(58,879
|
)
|
|
|
(119,511
|
)
|
|
|
(307,110
|
)
|
Loss from operations
|
|
|
(128,720
|
)
|
|
|
(58,879
|
)
|
|
|
(119,511
|
)
|
|
|
(307,110
|
)
|
Finance expenses
|
|
|
-
|
|
|
|
(64,913
|
)
|
|
|
-
|
|
|
|
(64,913
|
)
|
Other expense
|
|
|
(94,314
|
)
|
|
|
(102,122
|
)
|
|
|
|
|
|
|
(196,436
|
)
|
Loss before income tax
|
|
|
(223,034
|
)
|
|
|
(225,914
|
)
|
|
|
(119,511
|
)
|
|
|
(568,459
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
(223,034
|
)
|
|
|
(225,914
|
)
|
|
|
(119,511
|
)
|
|
|
(568,459
|
)
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
$
|
449,055
|
|
|
$
|
974,718
|
|
|
$
|
421
|
|
|
$
|
1,424,194
|
|
As of December 31, 2019
|
|
$
|
597,087
|
|
|
$
|
1,153,991
|
|
|
$
|
421
|
|
|
$
|
1,751,499
|
|
Note: The Company does not allocate its
assets located and expenses incurred outside Hong Kong and Thailand to its reportable segments because these assets and activities
are managed at a corporate level.
The Company primarily operates in Thailand.
Substantially all the Company’s long-lived assets are located in Thailand.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
Rental expense of the Company was $33,009
and $33,545 for the three months ended March 31, 2020 and 2019, respectively.
On October 1, 2019, the Company entered
into a lease for office space in Hong Kong for the period of one year, at HKD55,000 (approximately $7,051) per month.
The
Company has entered into a lease for office space located in Din Daeng Sub-district, din Daeng District, Bangkok, Thailand for
the period from February 21, 2017 to February 20, 2020, at THB127,120 ($3,887) per month. The Company early terminated the
lease effective in July 2019.
On
August 1, 2019 and OBON Thailand entered into a rental agreement with Mr. Thanawat Wongnapachant, brother of the Company’s
CEO, to lease an office space from Mr Thanawat Wongnapachant for a period of twelve months at THB50,000 ($1,529) per
month.
On November 1, 2019, OBON Thailand entered
into an additional rental agreement with Mr. Thanawat Wongnapachant, brother of the Company’s CEO, to lease an office
space property from Mr. Thanawat Wongnapachant for a period of twelve months at THB70,000 ($2,141) per month.
For
the three months ended March 31, 2020, the Company paid rental amounts of $11,509 to Mr. Thanawat Wongnapachant that are
included in General and administrative expenses.
As of March 31, 2020, all the outstanding
leases are short-term leases. The total minimum future lease payments are $63,409 payable in the twelve months ending March 31,
2021.
Capital Commitments
As of March 31 2020, the Company had the
following contracted capital commitments:
|
|
March 31, 2020
|
|
For purchases of equipment, payable in the twelve months ending March 31, 2021
|
|
$
|
1,006,301
|
|
Employment Agreement
On October 1, 2019, Enigma BVI entered
into a three-year employment agreement with Hok Fung Wai, the president of the Company, to serve as Enigma BVI’s general
manager from October 1, 2019 to October 1, 2022. Enigma BVI may, in its absolute discretion, terminate the employment agreement,
with one month notice or for cause. The agreement provides Mr. Wai a monthly salary of HK$45,000 (approximately $5,769). During
the three months ended March 31, 2020, salaries paid to Mr. Wai totaled $23,654.
NOTE 10 - THAILAND AND HONG KONG CONTRIBUTION PLANS
In accordance with the rules and regulations
of Thailand, the employees of the VIEs established in Thailand are required to participate in a defined contribution retirement
plan organized by local government. Contributions to this plan are expensed as incurred and other than these monthly contributions,
the VIE has no further obligation for the payment of retirement benefits to its employees. For the three months ended March 31,
2020 and 2019, the VIEs contributed a total of $437 and $199, respectively, to this plan.
The Company also makes payments to a defined
contribution plan for the benefit of employees employed in Hong Kong. Amounts contributed during the three months ended March 31,
2020 and 2019 were $577 and $1,290, respectively.
NOTE 11 - CERTAIN RISKS AND CONCENTRATIONS
Credit risk
At March 31, 2020 and December 31, 2019,
the Company’s cash and cash equivalents included bank deposits in accounts maintained in Thailand. The Company does not experience
any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
Foreign currency risk
As a result of the operations in Thailand,
the Company is exposed to foreign exchange risk arising from the currency exposures primarily with respect to THB. The Company's
VIEs with operations in Thailand use their respective local currency, THB, as their functional currency. Although a majority of
their total revenues, their payroll and other operating expenses are incurred and paid in Thai baht, the payment of R&D services
provided by Digiwork Korea is required to be made in the U.S. dollar. As of March 31, 2020 and December 31, 2019, the Company owed
Enigma BVI and Digiwork Korea $1,000,000 for such R&D services, respectively.
NOTE 12 - SUBSEQUENT EVENTS
The Company evaluated all events and transactions
that occurred after March 31, 2020 up through the date the Company issued these financial statements on May 29, 2020.
Coronavirus (COVID-19)
In December 2019, a novel strain of coronavirus
(COVID-19) surfaced. Subsequent, COVID-19 has spread rapidly to many parts of the world,
including Thailand. The epidemic has resulted in quarantines and travel restrictions in Thailand, and elsewhere around the world.
Substantially all of our revenues are concentrated
in Thailand. Consequently, the COVID-19 outbreak may materially adversely affect our business operations, financial condition and
operating results for 2020, including but not limited to material negative impact to our total revenues, slower collection of accounts
receivables and additional allowance for doubtful accounts. Because of the significant uncertainties surrounding the COVID-19 outbreak,
the extent of the business disruption and the related financial impact cannot be reasonably estimated at this time.