ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management beliefs, and certain assumptions made by our management. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports and documents that we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
Executive Overview
New Asia Holdings, Inc. (the "Company" or "NAHD") was incorporated on March 1, 2001. Since December 2014, we have been in the business of developing highly advanced, proprietary, neural trading models for the financial community.
It is our belief that our state-of-the-art, trainable, algorithms in our models will emulate aspects of the human brain, providing our algorithms with a self-training ability to formalize unclassified information and thus develop an enhanced ability to make forecasts based on the historical information and other data available at their disposal. Our neural networks will not make forecasts, instead, they will analyze price data and uncover opportunities. Using our proprietary neural network, trade decisions will be made based on thoroughly analyzed data (which is not generally possible when using traditional technical analysis methods). We offer a series of "next-generation" tools that can detect subtle non-linear interdependencies and patterns that other methods of technical analysis are unable to uncover.
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 will utilize our in-house proprietary neural trading models to trade our own funds, thus providing added value to our shareholders.
Our proprietary trading models are developed by a team of professional engineers in communications, electronic circuitry design and financial engineering. This diverse team will be the key factor of our successful development of non-traditional and innovative trading models. Our systems are designed to take intelligent positions as the market moves/changes and, upon development, our systems will bring a proven, rigorously tested, track-record. We anticipate that our proprietary algorithmic trading systems will generate superior, risk adjustable, returns for our clients.
The Company's focus is to license its algorithm to licensees, regulated funds, banks and to ultimately trade its own funds to capitalize on 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.
The NAHD systems have been designed to constantly adapt themselves and to take intelligent positions as the market moves/changes. The models are subjected to rigorous testing akin to the volatile trading environment of major financial events/crisis that happened in recent
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history. These models are also programmed to have the ability to learn and adapt new manners of trading, effectively translating the human behavioral of trading into a predictive science. The NAHD cutting edge quantitative strategies and proprietary algorithmic trading system are developed to generate superior risk adjustable returns for its licensees and their clients. Since the adoption of the regulated fund and bank models, the risk profiles required by these regulated funds and banks reflects a lower level of risk, which has resulted in significantly reduced frequency of trading activities over the last several quarters. The Company continues to improve its products and, coupled the self-learning capabilities of the Algorithms the Company is doing its best to provide the basis for improved performance in the coming quarters, however, there is no guarantees that such product improvements will translate to improved financial performance.
On August 25, 2015, the Company completed the acquisition of Magdallen Quant Pte Ltd. (“MQL”). The acquisition was accomplished through a share exchange with Mr. Anthony Ng Zi Qin of 7,422,000 new restricted shares ("Consideration Shares") of common stock of the Company, with a value of $0.41 per share, and an aggregate fair value of $3,043,020, in exchange for the entire issued and outstanding capital of MQL held by Mr. Anthony Ng Zi Qin, consisting of 8,000,100 shares of stock issued at par value of SGD 1.00 per share, or $0.714 on the acquisition date. 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 entered into the Second MQL Addendum to the MQL Agreement (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. On December 11, 2017, the common stocks restricted shares were issued at a fair value of $615,111 which created a cancellation of contingency of $5,158,387 which was recorded as a capital transaction for the year ended December 31, 2017.
The algorithms were placed into commercial operation in November 2015 upon the execution of a Software Licensing Agreement for the deployment of MQL’s proprietary trainable, trading algorithms with New Asia Momentum Limited (“NAML”), a company owned and controlled by NAHD’s Chairman and CEO, Dr. Lin Kok Peng. Under the terms of the Software License Agreement, NAML agreed to pay MQL a license fee and certain other fixed and time and materials fees. Throughout 2016, NAML grew its assets under management (“AUM”) from zero to approximately $2.5 million and had average monthly returns of approximately 10.5% for the twelve months ended December 31, 2016 for its clients. During this period, MQL has continued to make improvements to its original algorithm product-lines:
• Series X Pound/Dollar
• Series Y Pound/Dollar
• Series Z Multi-Asset Currency and Gold
During the second quarter of 2016, NAML, the Company’s licensee, decided to expand into the regulated fund and bank model. In conjunction with this new focus, as previously reported, as previously reported, NAML decided to ask its clients to redeem the AUM and during the year 2017, trading on the aforementioned AUM was terminated. Specifically, and to support NAML’s decision to expand into the regulated fund and bank model, the Series Z (Multi-Asset Currency and Gold) have been improved and redeveloped into the following products:
• 7.42.31
• 7.43.315
• 7.43.325
In January 2017, the Company’s licensee, NAML, entered into an agreement with Ferrell Asset Management Pte Ltd, (“FAMPL”), a wholly-owned subsidiary of Ferrell Financial Group, which started as an exempt fund manager in 2004, and holds a Capital Markets Services License issued by the Monetary Authority of Singapore (the “MAS”) for the provision of fund management services to individuals who are accredited investors (“Accredited Investors”) as defined in Section 4A(1)(a)(i) of the Securities and Futures Act (Chapter 289) of Singapore. The Ferrell Financial Group is an Asia-focused financial services group dedicated to serving the investment and wealth management needs of family offices and private individuals globally. As an independent, privately held group, Ferrell forms strategic partnerships with financial institutions and other relevant organizations to provide customized portfolio solutions for its clients. In January 2017, FAMPL launched “Fueris Fund” to exclusively utilize the Company’s algorithm products. Currently, the AUM for Fueris Fund is at $6.67 million.
The Company had also established a partnership with a Singapore-based fund management firm (the “Singapore Fund”) that is regulated by the MAS. The partnership completed a six-month testing phase during the second quarter of 2017. Subsequent to the completion of the aforementioned testing phase, the Singapore Fund, in its sole discretion, decided to not to move forward with the partnership. The Company continues to actively market its proprietary algorithm products to other regulated funds and banks. The Company has also entered into a partnership with a Hong Kong-based regulated fund management firm, which has commenced a six-month testing phase. If the partnership proceeds, it is expected that aggregate AUM in the partnership will be approximately $5 million to $10 million. The fund has not yet determined whether it will proceed with the partnership.
The focus on the regulated bank and fund model was initiated in 2017 with the launch of the Feuris Fund A with AUM of approximately $6.67 million. Since the adoption of the regulated fund and bank models, the risk profiles required by these regulated funds and banks reflects a lower level of risk, which has resulted in significantly reduced frequency of trading activities over the last several quarters. The Company
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continues to improve its products and, coupled the self-learning capabilities of the Algorithms the Company is doing its best to provide the basis for improved performance in the coming quarters, however, there is no guarantees that such product improvements will translate to improved financial performance.
The Company and its licensee are pursuing additional partnerships agreements with regulated funds for the use of our proprietary trainable trading algorithms, however, as of September 30, 2018, no new partnerships had yet been established. However, notwithstanding these developments, we expect to incur operating losses through the balance of this year because we will be incurring expenses and not generating sufficient revenues. We cannot guarantee that we will be successful in generating sufficient revenues or other funds in the future to cover these operating costs. We expect to cover such shortfall in operating margins through advances from our principal shareholder and other fund-raising measures that the Company deems appropriate.
Results of Operations
Three Months Ended September 30, 2018 and September 30, 2017
We had related party revenue of $0 and $ 0 for the three months ended September 30, 2018 and September 30, 2017, respectively. These revenues resulted from fees received from the Company's licensee, NAML, a company owned and controlled by NAHD’s Chairman and CEO. As discussed above, the Company continues to focus on expansion into the regulated fund and bank model. As of September 30, 2018, due to market conditions that impact trading frequencies and volumes, the Company has yet to receive any significant license fees from the Fueris Fund based on the performance of the algorithms. Furthermore, future revenues are also not expected to be uniform and will demonstrate significant variation from month to month as they reflect variations related to trading volumes and trading performance, accrual of management fees, etc.
Operating expenses were $40,451 for the three-month period ended September 30, 2018, and consisted primarily of general and administrative expenses, outside service expenses and professional fees. This compares with operating expenses for the three-month period ended September 30, 2017 of $37,795, which consisted primarily of general and administrative expenses, and professional fees. The operating expenses at September 30, 2018 were higher than the corresponding operating expenses at September 30, 2017 because professional fees were slightly higher. As a result of the foregoing, we had a net loss from operations of $40,451 and a net loss of $40,451 for the three-month period ended September 30, 2018. We had a net loss from operations of $37,795 and net loss of $1,804,231 for the three-month period ended September 30, 2017, which includes a change in the contingent liability associated with the change in fair value of the securities acquired of ($1,766,436) for the three months ended September 30, 2017.
We expect to incur operating losses through the balance of this year because we will be incurring expenses and may not generate sufficient revenues. We cannot guarantee that we will be successful in generating sufficient revenues or other funds in the future to cover these operating costs. We expect to cover such shortfall in operating margins through advances from our principal shareholder and other fundraising measures that the Company deems appropriate.
Nine Months Ended September 30, 2018 and September 30, 2017
We had related party revenue of $76 and $1,848 for the nine-months ended September 30, 2018 and September 30, 2017, respectively. These revenues resulted from fees received from the Company's licensee, NAML, a company owned and controlled by NAHD Chairman and CEO. As discussed above, the Company has continued to focus on expansion into the regulated fund and bank model. As of September 30, 2018, due to market conditions that impact trading frequencies and volumes, the Company has yet to receive any significant license fees from the Fueris Fund based on the performance of the algorithms. Furthermore, future revenues are also not expected to be uniform and will demonstrate significant variation from month to month as they reflect variations related to trading volumes and trading performance, accrual of management fees, etc.
Operating expenses were $123,425 for the nine-month period ended September 30, 2018, and consisted primarily of general and administrative expenses, outside service expenses and professional fees. This compares with operating expenses for the nine-month period ended September 30, 2017 of $144,534, which consisted primarily of general and administrative expenses, and professional fees. The operating expenses at September 30, 2018 were lower than the corresponding operating expenses at September 30, 2017 because general and administrative expenses and professional fees were lower. As a result of the foregoing, we had a net loss from operations of $123,349 and a net loss of $123,348 for the nine-month period ended September 30, 2018. We had a net loss from operations of $142,686 and net income of $817,524 for the nine-month period ended September 30, 2017, which includes a change in the contingent liability associated with the change in fair value of the securities acquired of $964,860 for the nine months ended September 30, 2017.
We expect to incur operating losses through the balance of this year because we will be incurring expenses and may not generate sufficient revenues. We cannot guarantee that we will be successful in generating sufficient revenues or other funds in the future to cover these operating costs. We expect to cover such shortfall in operating margins through advances from our principal shareholder and other fundraising measures that the Company deems appropriate.
Liquidity and Capital Resources
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We had cash in the amount of $52,156 and $29,650 as of September 30, 2018 and September 30, 2017, respectively. We had net cash used in operating activities of $84,269 for the nine-month period ended September 30, 2018 and $139,540 of net cash used in operating activities for the nine-month period ended September 30, 2017. We had cash flows of $78,989 from financing activities (from advances from our principal shareholder) during the nine-month period ended September 30, 2018 and $96,596 cash flows from financing activities during the six-month period ended September 30, 2017.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Future Financings
We expect that we will continue to rely on advances from our principal shareholder, as well as from other sources of financing, including private placements of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Revenue Recognition
The Company recognizes revenue from the services in accordance with ASC 606,” Revenue Recognition.” The Company recognizes revenue only when all of the following criteria have been met:
i.
The contract with customers exists;
ii.
Performance obligations in the contract has been provided;
iii.
The fees are fixed or determinable;
iv.
The fees are allocated based on the performance obligations in the contract;
v.
Recognized when the performance obligation has been satisfied and the collection is reasonably
assured.
Revenue is realized from Performance Fees received by MQL, the Company’s wholly-owned subsidiary, as described in Part I, Item 1 and Note 5 below. Specifically, in November 2015, MQL, entered into a Software License Agreement with New Asia Momentum Limited (“NAML”), a Company owned and controlled by NAHD's Chairman and CEO, Dr. Lin Kok Peng. In consideration of MQL's performance, NAML agreed to pay MQL in accordance with the following provisions:
i.
License and Other Fixed Price Fees as set forth below:
o
License fees shall be based on profits from the End Users' accounts. The license fee shall be calculated as follows:
o
Where the asset under management from all End Users is less than US$ 10 million, fifteen percent (15%) only of the profits from the End Users' accounts;
o
If the asset under management from all End Users exceed US$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 fifteen percent (15%) only of the profits from the End Users' accounts;
o
On every anniversary date of the MQL Agreement, 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 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 thirty (30) days of the date of the invoice. Expenses may include, but are not
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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 US$500 require NAML’s prior approval.
Recent Accounting Pronouncements
In April 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016–10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606.
We have adopted the provisions of ASU No. 2014-09 on January 1, 2018, using the modified retrospective method. We do not have an adjustment to our operating balance of accumulated deficit for the adoption of this ASU. There was no impact to the statement of operations for any periods presented.