UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the fiscal year ended
or
For the transition period from ____________________to ____________________
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes
☐
Indicate
by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 if the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer | ☐ |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statement of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The Company’s common stock did not trade during the year ended December 31, 2023.
Indicate the number of shares outstanding of each the registrant’s classes of common stock, as of the latest practicable date: As of April 1, 2024, there were shares outstanding of the registrant’s common stock $0.0001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
-
Throughout this Report on Form 10-K, the terms “Company,” “we,” “us” and “our” refer to Hapi Metaverse Inc., and “our board of directors” refers to the board of directors of Hapi Metaverse Inc.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can be based only on facts and factors of which we are currently aware. Consequently, forward-looking statements are inherently subject to risks and uncertainties. Actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.
Forward-looking statements can be identified by the use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These statements include, but are not limited to, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis or Plan of Operation” and “Description of Business,” as well as other sections in this report. Such forward-looking statements are based on our management’s current plans and expectations and are subject to risks, uncertainties and changes in plans that may cause actual results to differ materially from those anticipated in the forward-looking statements. You should be aware that, as a result of any of these factors materializing, the trading price of our common stock may decline. These factors include, but are not limited to, the following:
| ● | the availability and adequacy of capital to support and grow our business; |
| ● | economic, competitive, business and other conditions in our local and regional markets; |
| ● | actions taken or not taken by others, including competitors, as well as legislative, regulatory, judicial and other governmental authorities; |
| ● | competition in our industry; |
| ● | changes in our business and growth strategy, capital improvements or development plans; |
| ● | the availability of additional capital to support development; and |
| ● | other factors discussed elsewhere in this annual report. |
The cautionary statements made in this annual report are intended to be applicable to all related forward-looking statements wherever they may appear in this report.
We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.
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TABLE OF CONTENTS
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PART I
Item 1. Business.
Business Description
Hapi Metaverse Inc., formerly known as GigWorld Inc. (the “Company” or “Group”), was incorporated in the State of Delaware on March 7, 2012, and established a fiscal year end of December 31. The Company’s business is focused on serving business-to-business (B2B) needs in e-commerce, collaboration and social networking functions. Our Board determined it was in the best interest of the Company to expand our business plan. On October 15, 2014, through a sale and purchase agreement, the Company acquired all the issued and outstanding stock of HotApp BlockChain Pte. Ltd., formerly known as HotApps International Pte Ltd as HotApp BlockChain Pte. Ltd. (“HIP”) from Singapore eDevelopment Limited (now known as Alset International Limited) (“AIL”),. AIL is our former largest stockholder. HIP owned certain intellectual property relating to instant messaging for portable devices (referred to herein as the “HotApp Application”). On August 30, 2022, AIL entered into a stock purchase with its controlling stockholder, Alset EHome International Inc. (now known as Alset Inc.) (“AI”) in relation to the disposal of 505,341,376 shares of the Company’s common stock, representing approximately 99.69% of the total issued and paid-up share capital of the Company, to Alset EHome International Inc. (now known as Alset Inc.) After this transaction, Alset EHome International Inc. (now known as Alset Inc.) became our largest stockholder.
The HotApp Application is a cross-platform mobile application that incorporates instant messaging and ecommerce. This application can be used on any mobile platform (i.e. IOS Online or Android). The HotApp Application offered messaging and calling services for HotApp Application users (text, photo, audio); however, the messaging and calling services we offered were terminated in 2017.
In December of 2017, the Company’s name was changed from “HotApp International, Inc.” to “HotApp Blockchain Inc.” to reflect the Board of Directors’ determination that it was in the best interest of the Company to expand its activities to include the development and commercialization of blockchain-related technologies.
In 2018, one of our main developments was a broadening of our scope of planned operations into a digital transformation technology business. As a digital transformation technology business, we are committed to enabling enterprises we work with to engage in a digital transformation by providing consulting, implementation and development services with various technologies, including instant messaging, blockchain, e-commerce, social media and payment solutions. We continue to advise businesses in network marketing and brands in block chain services and mobile collaboration.
We are focused on serving business-to-business (B2B) needs in e-commerce, collaboration and supply chains. We will help enterprises and community users to transform their business model with digital economy in a more effective manner. With our platform, users can discover and build their own communities and create valuable content. Enterprises can in turn enhance the user experience with premium content, all of which are facilitated by the transactions of every stakeholder via e-commerce.
Our technology platform consists of instant messaging systems, social media, e-commerce and payment systems, network marketing platforms and e-real estate. We are focused on business-to-business solutions such as enterprise messaging and workflow. We have successfully implemented several strategic platform developments for clients, including a mobile front-end solution for network marketing, a hotel e-commerce platform for Asia and a real estate agent management platform in China. We have also enhanced our technological capability from mobile application development to include blockchain architectural design, allowing mobile-friendly front-end solutions to integrate with software platforms. Our main digital assets at the present time are our applications. We continue to strengthen our technology architecture and develop Application Development Interface (API) for collaboration partners such as network marketing back end service providers. In addition we are continuing our development activities in blockchain in order to prepare for future client opportunities.
In February of 2021, the Company’s name was changed to “GigWorld Inc.”
The direct selling industry has been adopting gig economy practices and relying heavily on digital marketing technology in team development and customer engagement. We have positioned ourselves to serve the growing demand in the transformation of the direct selling industry towards the gig economy.
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The Group has relied significantly on AIL, our former majority stockholder, as its principal sources of funding during the period. AIL, and later, our current majority stockholder, advised us not to depend solely on it for financing. We have increased our efforts to raise additional capital through equity or debt financings from other sources. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such, financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth.
On April 8, 2021, the Company entered into a Securities Purchase Agreement with Value Exchange International, Inc., a Nevada corporation (“VEII”) pursuant to which the Company purchased 6.5 million restricted shares of VEII Common Stock from VEII for an aggregate purchase price of $650,000. The closing of the transaction occurred on April 12, 2021. Pursuant to this Securities Purchase Agreement, the Company was entitled to appoint one nominee to the Board of Directors of VEII. The Company appointed Mr. Lum Kan Fai as its nominee. Mr. Lum is the Vice Chairman of the Company’s Board of Directors. VEII is a provider of customer-centric technology solutions for the retail industry in Hong Kong and certain regions of China and Philippines. On October 17, 2022, the Company entered into a Stock Purchase Agreement (the “Agreement”) with Chan Heng Fai, who is the Chairman of the Company’s Board of Directors and the Chairman, Chief Executive Officer and largest stockholder of Alset Inc., the Company’s majority stockholder. Pursuant to the Agreement, the Company bought an aggregate of 7,276,163 shares of VEII. The Company presently owns approximately 48.68% of the total issued and outstanding shares of Value Exchange International Inc.
In July of 2021, the Company’s indirect subsidiary HotApp International Limited incorporated Smart Reward Express Limited (“Smart Reward”) in Hong Kong. Smart Reward plans to be principally engaged in the business of developing a platform allowing small and medium sized merchants to set-up their own reward program, with the aim of creating a loyalty exchange program for participating merchants.
HotApp International Limited is the owner of 50% of the issued and outstanding shares of Smart Reward. The remaining 50% of the issued and outstanding shares of Smart Reward are held by Value Exchange Int’l (China) Limited, a wholly-owned subsidiary of VEII.
On July 5, 2022, Hapi Cafe Limited (“HCHK”) was incorporated. HCHK plans to be principally engaged in the food and beverage business in Hong Kong.
On October 5, 2022, HCHK acquired MOC HK Limited (“MOC”) principally engaged in the food and beverage business in Hong Kong.
On October 10, 2022, Shenzhen Leyouyou Catering Management Co., Ltd. (“HCCN”) was incorporated in People’s Republic of China principally engaged in the food and beverage business in Mainland China.
In March of 2023, the Company’s name was changed from “GigWorld Inc.” to “Hapi Metaverse Inc.” to reflect the Board of Directors’ determination that it was in the best interest of the Company to position itself as a Metaverse-as-a-Service (MaaS) provider, reflecting its latest strategy embracing Metaverse, A.I., and offline engagement for communities and brands.
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The Company’s consolidated financial statements include the financial position, results of operations and cash flows of the following entities as of December 31, 2023 and 2022, as follows:
| Attributable interest as of, | ||||||||||
Name of subsidiary consolidated under Hapi Metaverse Inc. |
State or other jurisdiction of incorporation or organization |
December
31, 2023 |
December
31, 2022 |
|||||||
| % | % | |||||||||
| HotApp BlockChain Pte.Ltd. (f.k.a. HotApps International Pte. Ltd.) | Singapore | 100.0 | 100.0 | |||||||
| HotApp International Limited | Hong Kong | 100.0 | 100.0 | |||||||
| Gig Stablecoin Inc. (f.k.a. Crypto Exchange Inc.) | Nevada | - | *11 | 100.0 | ||||||
| HWH World Inc. | Delaware | - | *12 | 100.0 | ||||||
| Smart Reward Express Limited | Hong Kong | 50.0 | *1 | 50.0 | *1 | |||||
| Hapi Café Limited | Hong Kong | 100.0 | *2 | 100.0 | *2 | |||||
| MOC HK Limited | Hong Kong | 100.0 | *3 | 100.0 | *3 | |||||
| Shenzhen Leyouyou Catering Management Co., Ltd. | People’s Republic of China | 100.0 | *4 | 100.0 | *4 | |||||
| Hapi Metaverse Inc. | Texas | 100.0 | *5 | 100.0 | *5 | |||||
| Dongguan Leyouyou Catering Management Co., Ltd. | People’s Republic of China | 100.0 | *6 | - | ||||||
| Guangzho Leyouyou Catering Management Co., Ltd. | People’s Republic of China | 100.0 | *7 | - | ||||||
| Hapi Travel Ltd. | Hong Kong | 100.0 | *8 | - | ||||||
| Hapi Acquisition Pte. Ltd. | Singapore | 100.0 | *9 | - | ||||||
| NewRetail-AI Inc. | Nevada | 100.0 | *10 | |||||||
*1 Smart Reward Express Limited (“Smart Reward”) was incorporated in Hong Kong on July 13, 2021 with an issued and paid-up share capital of $1,288 (HK$10,000) comprising 10,000 ordinary shares.
Smart Reward plans to be principally engaged in the business of developing a platform allowing small and medium sized merchants to set-up their own reward program, with the aim of creating a loyalty exchange program for participating merchants.
HotApp International Limited is the owner of 50% of the issued and outstanding shares of Smart Reward. The remaining 50% of the issued and outstanding shares of Smart Reward are held by Value Exchange Int’l (China) Limited, a wholly-owned subsidiary of VEII.
HotApp International Limited holds 5,000 shares of Smart Reward, representing 50% of the total issued and outstanding shares of Smart Reward. HotApp International Limited is a wholly-owned subsidiary of HotApp BlockChain Pte. Ltd., which is a wholly-owned subsidiary of Hapi Metaverse Inc. The remaining 5,000 shares of Smart Reward, representing 50% of the total issued and outstanding shares of Smart Reward, are held by Value Exchange Int’l (China) Limited, a wholly-owned subsidiary of Value Exchange International Inc. Hapi Metaverse Inc. owns 48.55% and 38.1% of the total issued and outstanding shares of Value Exchange International Inc as of December 31, 2023 and December 31, 2022.
Accordingly, the Company in total holds more than 50% of Smart Reward, and Swart Reward is consolidated in the Company’s financial statements.
*2 Hapi Cafe Limited (“HCHK”) was incorporated in Hong Kong on July 5, 2022 with an issued and paid-up share capital of $0.26 (HK$2) comprising 2 ordinary shares. HCHK plans to be principally engaged in the food and beverage business in Hong Kong.
HotApp BlockChain Pte. Ltd. is the owner of 100% of the issued and outstanding shares of HCHK. This business was acquired on September 5, 2022.
*3 MOC HK Limited (“MOC”) was incorporated in Hong Kong on February 16, 2020 with an issued and paid-up share capital of $1.28 (HK$10) comprising 10 ordinary shares. MOC plans to be principally engaged in the food and beverage business in Hong Kong. Hapi Cafe Ltd. is the owner of 100% of the issued and outstanding shares of MOC. This business was acquired on October 5, 2022. And during the acquisition, a goodwill $60,343 had been generated for the Company.
*4 Shenzhen Leyouyou Catering Management Co., Ltd. (“HCCN”) was incorporated in People’s Republic of China on October 10, 2022. HCCN plans to be principally engaged in the food and beverage business in Mainland China.
Hapi Cafe Ltd. is the owner HCCN. This business was acquired on October 10, 2022.
*5 Hapi Metaverse Inc. was incorporated in Texas on November 28, 2022 with an issued and paid-up share capital of $0.1 comprising 100 ordinary shares.
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*6 Dongguan Leyouyou Catering Management Co., Ltd. (“HCDG”) was incorporated in People’s Republic of China on March 1, 2023. HCDG plans to be principally engaged in the food and beverage business in Mainland China.
HCCN is the owner of HCDG. This business was incorporated on March 1, 2023.
*7 Guangzhou Leyouyou Catering Management Co., Ltd. (“HCGZ”) was incorporated in People’s Republic of China on May 19, 2023. HCDG plans to be principally engaged in the food and beverage business in Mainland China.
HCCN is the owner of HCGZ. This business was incorporated on May 19, 2023.
*8 Hapi Travel Ltd. (“HTL”) was incorporated in Hong Kong on September 27, 2019. HTL plans to be principally engaged in the travel business in Hong Kong.
HotApp BlockChain Pte. Ltd. is the owner of HTL. This business was acquired on June 14, 2023 via common control. The acquisition result in a deemed dividend of $214,174 for the Company.
*9 Hapi Acquisition Pte. Ltd. was incorporated in Singapore on June 30, 2023 with an issued and paid-up share capital of $2 comprising 2 ordinary shares.
*10 NewRetail-AI Inc. was incorporated in Nevada on July 31, 2023 with an issued and paid-up share capital of $1,000 comprising 10,000,000 ordinary shares.
*11 The company disposed Gig Stablecoin Inc (“GSI”) to Teledoc Pte. Ltd, on December 31, 2023, for a nominal consideration of $1.00, and $1.00 gain of disposal was disclosed in the income statement. GSI had no assets or liabilities on December 31, 2023.
*12 The company disposed HWH World Inc (“HWHWI”) to Teledoc Pte. Ltd, on December 31, 2023, for a nominal consideration of $1.00, and $1.00 gain of disposal was disclosed in the income statement. HWHWI had no assets or liabilities on December 31, 2023.
Teledoc Pte. Ltd. is a private company, wholly owned by Chan Heng Fai, the Chairman of the Company’s Board of Directors and the Chairman, Chief Executive Officer and largest stockholder of Alset Inc., the Company’s majority stockholder.
Transactions between Entities under Common Control
On June 14, 2023, the Company completed its online travel business acquisition of Hapi Travel Limited, an online travel business started in Hong Kong and under common control of the Company. The accompanying consolidated financial statements include the operations of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date.
As a result of the acquisition of HTL, a deemed dividend of $214,174 was generated as a result of the business combination which represents the purchase price of $214,993 in excess of identifiable equity.
The common control transaction above resulted in the following basis of accounting for the financial reporting periods:
| ● | The acquisition of HTL was accounted for prospectively as of June 14, 2023 as this did not represent a change in reporting entity. |
The acquisition of HTL was under common control and was consolidated in accordance with ASC 850-50. The Consolidated financial statements were not retrospectively adjusted for the acquisition of HTL as of January 1, 2022 for comparative purposes because the historical operations of HTL were deemed to be immaterial to the Company’s consolidated financial statements.
Our Plan of Operations
We believe that we have significant opportunities to further enhance the value we deliver to our users. We intend to pursue the following growth strategy:
| ● | focus in developing technologies enabling enterprise to capture the gig economy opportunities; |
| ● | partner with technology providers offer services for membership management, ecommerce, loyalty reward management, metaverse platform for community; and |
| ● | identify solutions and licensing opportunities in accelerating the digital transformation for direct selling, affiliate marketing, travel membership and O2O (online-to-offline) eCommerce operations. |
Achieved and Target Milestones
In 2023, we have achieved the following milestones:
| ● | Developed a Direct Marketing Platform in mobile app integrating marketing, resources management and product ordering integrated with back end system; | |
| ● | Developed a loyalty program SDK(System Development Kit) for retail mobile Application; | |
| ● | Developed a metaverse product and training platform for collaborative training and product showcasing; and | |
| ● | Developed an Artificial Intelligence Customer Service Chatbot |
Over the next twelve months we plan to:
| ● | Further enhance our software solution to fit the need of direct to consumer commerce with AI an Metaverse services; and |
| ● | Achieve a closer partnership with VEII for Digital transformation of Retail sectors including loyalty programs, Electronic Sales Label management, Know your customer (KYC) solution and AI customer Service. |
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Our Business Model and User Monetization Plan
We plan to generate revenue through the following:
| ● | white label of Hapi Metaverse solutions; |
| ● | metaverse as a service; and |
| ● | digital transformation related consulting services. |
Our Competitiveness in the Businesses in Which we Operate
With the focus on being a service provider, our competitiveness is strengthened by:
| ● | strengthening the methodology for project management and development through continuous improvement through project engagement; |
| ● | understanding the industry’s need, work closely with service providers in the direct selling industry; |
| ● | sharpening technology focus and continuous moving up to new area such as blockchain enabled services, metaverse and artificial intelligence; and |
| ● | operating within effective overhead to reduce operational risk. |
Our Challenges
Our ability to execute our growth strategies is subject to risks and uncertainties, including those relating to our ability to:
| ● | raise additional funding for the continuous development of our technology and project and to pursue our business strategy; |
| ● | maintain the trusted status of our ecosystem; |
| ● | grow our user base, enhance user engagement and create value services for communities and enterprises; |
| ● | market and profit from our service offerings, monetize our user base and achieve profitability; |
| ● | keep up with technological developments and evolving user expectations; |
| ● | effectively manage our growth and control our costs and expenses; |
| ● | address privacy and security concerns relating to our services and the use of user information; |
| ● | identify a management team with owner mentality and proven track record; and |
| ● | changing market behavior for those using competitive platform. |
Please see “Risk Factors” and other information included in this report for a detailed discussion on the above and other challenges and risks.
Our Key Competitive Strengths
We believe building the following will provide us with some key competitive strengthens:
| ● | understanding local market needs - establish brand presence for local enterprises and communities based on the implementation know how for the early adopters; and |
| ● | thin and lean organization structure - to effectively adapt to the growth and shrink of operation based on market and sales pipelines. |
Our Technology
Based on our core technology infrastructure, we are building up additional functions on top of this stable and scalable infrastructure. The system architecture is designed in modular form so that we continue to add new applications modules while we are growing our customer base. In addition, we shall also be able to incorporate third party application module effectively to continue building new services to cope with the digital transformation need of the direct selling industry and supporting them capitalizing on the gig economy opportunity.
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Key aspects or strengths of our technology include:
| ● | scalable infrastructure; |
| ● | quick adaptation to third party services, such as back end systems, payment and logistics; and |
| ● | dedicated to continuous improvement of user experience in local context. |
Regulatory Matters
We are subject to the laws and regulations of those jurisdictions in which we plan to conduct our services, primarily the United States and certain countries in Asia, which are generally applicable to business operations, such as business licensing requirements, income taxes and payroll taxes. In general, the development and operation of our business is not subject to special regulatory and/or supervisory requirements. Please see “Risk Factors” and other information included in this report for further discussion on the above matters.
Employees and Employment Agreements
We currently have 12 employees, 5 employees employed by the e-Commerce business of Hotapp International Limited, 6 employees employed by the Food and Beverage (“F&B”) business of MOC, HCCN and HCDG, and 1 employee employed by the Travel business of Hapi Travel Limited. We expect to maintain our headcounts at current levels with moderate increases in line with business activities for the foreseeable future and if our financing permits. The Company has employees under written contracts that provide for at will termination and include confidentiality clauses.
As of the date of this Report, we have not entered into any employment arrangement with any officers, except for our Chief Executive Officer, Lee Wang Kei. Mr. Lee is paid $2,000 per month by HotApp International Limited, a subsidiary of the Company. Our largest stockholder, Alset Inc., has provided staff without charge to our Company at no incremental effort or cost to Alset’s own operations. We intend to outsource many functions of our business for the immediate future.
Insurance
We do not maintain property insurance, business interruption insurance or general third-party liability insurance, nor do we maintain product liability or key-man insurance.
Additional Information
The U.S. Securities and Exchange Commission maintains an internet website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The periodic reports and other information that the Company files with the Commission are available for inspection on the Commission’s website free of charge as soon as reasonably practicable after they are electronically filed with or furnished to the Commission.
The Company maintains a website at https://www.hapimetaverse.com where you may also access these materials free of charge. We have included our website address as an inactive textual reference only and the information contained in, and that can be accessed through, our website is not incorporated into and is not part of this report on Form 10-K.
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Item 1A. Risk Factors.
An investment in our common stock involves a high degree of risk. Investors should carefully consider the following factors and other information before deciding to invest in our Company. If any of the following risks occur, our business, financial condition, results of operations and prospects for growth would likely suffer. As a result, you could lose all or part of your investment.
Our business is subject to numerous risk factors, including the following:
RISKS RELATED TO OUR FINANCIAL CONDITION
There is substantial doubt about the Company’s ability to continue as a going concern.
The report of Grassi & Co., our independent registered public accounting firm, with respect to our consolidated financial statements as of and for the year ended December 31, 2023 contains an explanatory paragraph as to our potential ability to continue as a going concern. As a result, this may adversely affect our ability to obtain new financing on reasonable terms or at all. Investors may be unwilling to invest in a company that will not have the funds necessary to continue to deploy its business strategies.
Failure to raise additional capital to fund future operations could harm our business and results of operations.
As reflected on our audited consolidated financial statements as of and for the year ended December 31, 2023 contained herein, we have incurred net loss since inception, and have a working capital deficit of $2,979,056. We will require additional financing in order to maintain our corporate existence and to implement our business plans and strategy. The timing and amount of our capital requirements will depend on a number of factors, including our operational results, the need for other expenditures, and competitive pressures. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our then-existing stockholders will likely be reduced significantly. We cannot make assurances that any financing will be available on terms favorable to us or at all. If adequate funds are not available on acceptable terms, our ability to fund our business strategy, ongoing operations, take advantage of unanticipated opportunities, and in turn our business, financial condition and results of operations will be significantly and adversely affected.
RISKS RELATED TO OUR BUSINESS
Management has identified a material weakness in the design and effectiveness of our internal controls, which, if not remediated could affect the accuracy and timeliness of our financial reporting and result in misstatements in our consolidated financial statements.
In connection with the preparation of our Report on Form 10-K, an evaluation was carried out by management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of December 31, 2023. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
During evaluation of disclosure controls and procedures as of December 31, 2023 conducted as part of our annual audit and preparation of our annual consolidated financial statements, management conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective. Management determined that at December 31, 2023, we had a material weakness that relates to the relatively small number of staff who have bookkeeping and accounting functions (this staff is provided by Alset Inc., our largest shareholder, at no cost to us). This limited number of staff prevents us from segregating duties within our internal control system.
This material weakness, which remained unremediated by the Company as of December 31, 2023, could result in a misstatement to the accounts and disclosures that would result in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected. If we do not remediate the material weakness or if other material weaknesses are identified in the future, we may be unable to report our financial results accurately or to report them on a timely basis, which could result in the loss of investor confidence and have a material adverse effect on our stock price as well as our ability to access capital and lending markets.
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Our Company cannot predict if it can achieve profitable operations.
The Company has only had limited operations to date and requires significant additional financing to reach its projected milestones, which include further product development, product marketing and general overhead expenditures. It may be difficult for the Company to attract funding necessary to reach its projected milestones. Moreover, even if it achieves its projected milestones, the Company cannot predict whether it will reach profitable operations.
The coronavirus or other adverse public health developments could have a material and adverse effect on our business operations, financial condition and results of operations.
In December 2019, a novel strain of coronavirus (COVID-19) was first identified in Wuhan, Hubei Province, China, and has since spread to a number of other countries, including the United States. The COVID-19 pandemic’s far-reaching impact on the global economy could negatively affect various aspects of our business. The extent to which the COVID-19 pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted.
The COVID-19 pandemic may adversely impact our potential to expand our business activities. The COVID-19 pandemic has impacted, and may continue to impact, the global supply of certain goods and services in ways that may impact the sale of products to consumers that we, or companies we may partner with, will attempt to make. The COVID-19 pandemic may prevent us from pursuing otherwise attractive opportunities.
In addition, the COVID-19 pandemic could directly impact the ability of our management and service providers to continue to work, and our ability to conduct our operations in a prompt and efficient manner. Our management has shifted to mostly working from home since March 2020, but this has had minimal impact on our operations to date. However our management’s ability to travel has been significantly limited, and limitations on the mobility of our management may slow down our ability to enter into new transactions and expand existing projects.
To date, we have not been required to expend significant resources related to employee health and safety matters related to the COVID-19 pandemic. We have a small management team, however, and the inability of any significant number of our management team to work due to illness or the illness of a family member could adversely impact our operations.
Our business is highly competitive. Competition presents an ongoing threat to the success of our business.
We face significant competition in every aspect of our business, including from companies that provide tools to facilitate the sharing of information, companies that enable marketers to display advertising and companies that provide development platforms for applications developers. We compete with companies that offer full-featured products that replicate the range of communications and related capabilities we provide. We also compete with companies that develop applications, particularly mobile applications, that provide social or other communications functionality, such as messaging, photo- and video-sharing and micro-blogging, and companies that provide web- and mobile-based information and entertainment products and services that are designed to engage users and capture time spent online and on mobile devices. In addition, we face competition from traditional, online, and mobile businesses that provide media for marketers to reach their audiences and/or develop tools and systems for managing and optimizing advertising campaigns.
Most, if not all, of our current and potential competitors may have significantly greater resources or better competitive positions in certain product segments, geographic regions or user demographics than we do. These factors may allow our competitors to respond more effectively than us to new or emerging technologies and changes in market conditions.
Our competitors may develop products, features, or services that are similar to ours or that achieve greater acceptance, may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. Certain competitors could use strong or dominant positions in one or more markets to gain competitive advantage against us in our target market or markets. As a result, our competitors may acquire and engage users or generate revenue at the expense of our own efforts, which may negatively affect our business and financial results.
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We believe that our ability to compete effectively depends upon many factors both within and beyond our control, including:
| ● | the popularity, usefulness, ease of use, performance, and reliability of our products compared to our competitors’ products, particularly with respect to mobile products; |
| ● | the size and composition of our user base; |
| ● | the engagement of our users with our products and competing products; |
| ● | the timing and market acceptance of products, including developments and enhancements to our or our competitors’ products; |
| ● | our ability to monetize our products; |
| ● | customer service and support efforts; |
| ● | acquisitions or consolidation within our industry, which may result in more formidable competitors; |
| ● | our ability to attract, retain, and motivate talented employees, particularly software engineers, designers, and product managers; |
| ● | our ability to cost-effectively manage and grow our operations; and |
| ● | our reputation and brand strength relative to those of our competitors. |
We are a development stage company and we may never generate significant revenues which could cause our business to fail.
We are a development stage company and have generated limited revenues as of the date of this Report. Since inception, the Company has incurred net loss of $13,306,915 and has net working capital deficit of $2,979,056 at December 31, 2023. We expect to operate with net loss for the next financial year-ending December 31, 2024 or longer. We cannot predict the extent of these future net losses, or when we may attain profitability, if at all. If we are unable to generate significant revenue or attain profitability, we will not be able to sustain operations and will have to curtail significantly or cease operations.
We have a limited operating history that investors can use to evaluate us, and the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company.
We were incorporated in Delaware on March 7, 2012. We have no significant financial resources and have recorded minimal revenues in the year ended December 31, 2023. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting a new business enterprise and the highly competitive environment in which we will operate. Since we have a limited operating history, we cannot assure you that our business will be profitable or that we will ever generate sufficient revenues to meet our expenses and support our anticipated activities.
If we do not successfully develop new products and services, our business may be harmed.
Our business and operating results may be harmed if we fail to expand our various product and service offerings (either through internal product or capability development initiatives or through partnerships and acquisitions) in such a way that achieves widespread market acceptance or that generates significant revenue and gross profits to offset our operating and other costs. We may not successfully identify, develop and market new product and service offerings in a timely manner. If we introduce new products and services, they may not attain broad market acceptance or contribute meaningfully to our revenue or profitability. Competitive or technological developments may require us to make substantial, unanticipated capital expenditures in new products and technologies or in new strategic partnerships, and we may not have sufficient resources to make these expenditures. Because the markets for many of our products and services are subject to rapid change, we may need to expand and/or evolve our product and service offerings quickly. Delays and cost overruns could affect our ability to respond to technological changes, evolving industry standards, competitive developments or customer requirements and harm our business and operating results.
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business.
We depend on the services and performance of our key personnel, including Chan Heng Fai, Lee Wang Kei and Lum Kan Fai. The loss of key personnel, including members of management, could disrupt our operations and have an adverse effect on our business.
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Each of Mr. Chan, Mr. Lee and Mr. Lum are engaged in other business ventures, including other technology-related businesses. In order to successfully implement our businesses plans, we will need to recruit additional qualified personnel.
We may incur significant costs to be a public company to ensure compliance with U.S. corporate governance and accounting requirements, and we may not be able to absorb such costs.
We may incur significant costs associated with our public company reporting requirements, costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect these costs to equal at least $130,000 per year, consisting of $10,000 in legal, $100,000 in audit and $20,000 for financial printing and transfer agent fees. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We may not be able to cover these costs from our operations’ revenue and may need to raise or borrow additional funds. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. In addition, we may not be able to absorb these costs of being a public company which will negatively affect our business operations.
Alset Inc. owns a significant amount of the outstanding common stock of the Company and could take actions which other investors may deem as detrimental to the Company.
Alset Inc. beneficially owns approximately 99.553% of the outstanding common stock of our Company as of the date of this filing. Through this ownership, this stockholder has the ability to substantially influence our board, our management, and our policies and business operations. In addition, the rights of the holders of our common stock will be subject to and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Because of this majority ownership, Alset Inc. may cause the Company to engage in business combinations without having to seeking other stockholders’ approval.
Such concentration of ownership also may have the effect of delaying or preventing a change in control, which may be to the benefit of this one stockholder but not in the interest of the other investors. Additionally, minority stockholders would not be able to obtain the necessary stockholder vote to affect any change in the course of our business. This concentration of control could prevent minority stockholders from removing from our Board directors who may be perceived as not performing at an appropriate level.
We may face liability for information displayed on or accessible via our website, and for other content and commerce-related activities, which could cause us to suffer losses.
We could face claims for errors, defamation, negligence, copyright or trademark infringement based on the nature and content of information displayed on or accessible via our website, which could adversely affect our financial condition. Even to the extent that claims made against us do not result in liability, we may incur substantial costs in investigating and defending such claims.
Our insurance, if any, may not cover all potential claims to which we might be exposed to or may not be adequate to indemnify us for all liabilities that we may incur. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage would cause us to suffer losses.
If our costs and expenses are greater than anticipated and we are unable to raise additional working capital, we may be unable to fully fund our operations and to otherwise execute our business plan.
We do not currently have sufficient funds or any agreements for additional funds, for us to continue our business for the next 12 months. Should our costs and expenses prove to be greater than we currently anticipate, or should we change our current business plan in a manner that will increase or accelerate our anticipated costs and expenses, the depletion of our working capital would be accelerated. To the extent it becomes necessary to raise additional cash in the future as our current cash and working capital resources are depleted, we will seek to raise it through the public or private sale of debt or equity securities, funding from joint-venture or strategic partners, debt financing or short-term loans, or a combination of the foregoing. We may also seek to satisfy indebtedness without any cash outlay through the private issuance of debt or equity securities. We currently do not have any binding commitments for, or readily available sources of, additional financing. We cannot give you any assurance that we will be able to secure the additional cash or working capital that we may require to continue our operations.
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If we require additional capital and even if we are able to raise additional financing, we might not be able to obtain it on terms that are not unduly expensive or burdensome to the Company or disadvantageous to our existing stockholders.
If we require additional capital and even if we are able to raise additional cash or working capital through the public or private sale of debt or equity securities, funding from joint-venture or strategic partners, debt financing or short-term loans, or the satisfaction of indebtedness without any cash outlay through the private issuance of debt or equity securities, the terms of such transactions may be unduly expensive or burdensome to the Company or disadvantageous to our existing stockholders. For example, we may be forced to sell or issue our securities at significant discounts to market, or pursuant to onerous terms and conditions, including the issuance of preferred stock with disadvantageous dividend, voting or veto, board membership, conversion, redemption or liquidation provisions; the issuance of convertible debt with disadvantageous interest rates and conversion features; the issuance of warrants with cashless exercise features; the issuance of securities with anti-dilution provisions; and the grant of registration rights with significant penalties for the failure to quickly register. If we raise debt financing, we may be required to secure the financing with all of our business assets, which could be sold or retained by the creditor should we default in our payment obligations.
We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our services and solutions are accessible within an acceptable load time. Additionally, other catastrophic occurrences beyond our control could interfere with access to our services.
A key element to our potential growth is the ability of our users (whom we define as anyone who downloads and uses the app) in all geographies to access our services and solutions within acceptable load times. We may, in the future, experience service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, and denial of service, fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these website performance problems within an acceptable period of time. If our services are unavailable when users attempt to access them as quickly as they expect, users may seek other services to obtain the information for which they are looking, and may not return to use our services as often in the future, or at all. This would negatively impact our ability to attract new users and increase engagement of our existing users. We expect to continue to make significant investments to maintain and improve mobile application performance and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
Our systems are also vulnerable to damage or interruption from catastrophic occurrences such as earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks and other similar events. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems could result in lengthy interruptions in our services.
We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to the growth of our business that may result from interruptions in our services as a result of system failures.
If our security measures are compromised, or if our websites are subject to attacks that degrade or deny the ability of members or customers to access our solutions, or if our member data is compromised, members and customers may curtail or stop to use our solutions.
Our applications will involve the collection, processing, storage, sharing, disclosure and usage of members’ and customers’ information and communications, some of which may be private. We are vulnerable to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service or other attacks and similar disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays, or website shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or other confidential information. If we experience compromises to our security that result in website performance or availability problems, the complete shutdown of our websites, or the loss or unauthorized disclosure of confidential information, such as credit card information, our members or customers may be harmed or lose trust and confidence in us, and decrease the use of our website and services or stop using our services in their entirety, and we would suffer reputational and financial harm.
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In addition, we could be subject to regulatory investigations and litigation in connection with a security breach or related issues, and we could also be liable to third parties for these types of breaches. Such litigation, regulatory investigations and our technical activities intended to prevent future security breaches are likely to require additional management resources and expenditures. If our security measures fail to protect this information adequately or we fail to comply with the applicable credit card association operating rules, we could be liable to both our customers for their losses, as well as the vendors under our agreements with them. In addition, we could be subject to fines and higher transaction fees, we could face regulatory action, and our customers and vendors could end their relationships with us. Any of these developments could harm our business and financial results.
Public scrutiny of internet privacy and security issues may result in increased regulation and different industry standards, which could deter or prevent us from providing our current products and solutions to our members and customers, thereby harming our business.
The regulatory framework for privacy and security issues worldwide is evolving and is likely to remain in flux for the foreseeable future. Practices regarding the collection, use, storage, display, processing, transmission and security of personal information by companies offering online services have recently come under increased public scrutiny. The U.S. government, including the White House, the Federal Trade Commission, the Department of Commerce and many state governments, are reviewing the need for greater regulation of the collection, use and storage of information concerning consumer behavior with respect to online services, including regulation aimed at restricting certain targeted advertising practices and collection and use of data from mobile devices. The FTC in particular has approved consent decrees resolving complaints and their resulting investigations into the privacy and security practices of a number of online, social media companies. Similar actions may also impact us directly.
Our business, including our ability to operate and expand internationally or on new technology platforms, could be adversely affected if legislation or regulations are adopted, interpreted, or implemented in a manner that is inconsistent with our current business practices that may require changes to these practices, the design of our websites, mobile applications, products, features or our privacy policy. In particular, the success of our business is expected to be driven by our ability to responsibly use the data that our members share with us. Therefore, our business could be harmed by any significant change to applicable laws, regulations or industry standards or practices regarding the storage, use or disclosure of data our members choose to share with us, or regarding the manner in which the express or implied consent of consumers for such use and disclosure is obtained. Such changes may require us to modify our products and features, possibly in a material manner, and may limit our ability to develop new products and features that make use of the data that we collect from our members.
We will rely on outside firms to host our servers and to provide telecommunication connections, and a failure of service by these providers could adversely affect our business and reputation.
We will rely upon third party providers to host a number of our servers and provide telecommunication connections. In the event that these providers experience any interruption in operations or cease operations for any reason or if we are unable to agree on satisfactory terms for continued hosting relationships, we would be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves. If we are forced to switch hosting facilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer server ourselves. We may also be limited in our remedies against these providers in the event of a failure of service. A failure or limitation of service or available capacity by any of these third-party providers could adversely affect our business and reputation.
Our products and internal systems rely on software that is highly technical, and if it contains undetected errors, our business could be adversely affected.
Our products and internal systems rely on software, including software developed or maintained internally and/or by third parties, that is highly technical and complex. In addition, our products and internal systems depend on the ability of such software to store, retrieve, process and manage immense amounts of data. The software on which we rely has contained, and may now or in the future contain, undetected errors, bugs or vulnerabilities. Some errors may only be discovered after the code has been released for external or internal use. Errors or other design defects within the software on which we rely may result in a negative experience for users and marketers who use our products, delay product introductions or enhancements, result in measurement or billing errors or compromise our ability to protect the data of our users and/or our intellectual property. Any errors, bugs or defects discovered in the software on which we rely could result in damage to our reputation, loss of users, loss of revenue or liability for damages, any of which could adversely affect our business and financial results.
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A significant or prolonged economic downturn would have a material adverse effect on our results of operations.
Our results of operations are expected to be affected by the level of business activity of our users, many of whom are expected to be businesses. These businesses, in turn, can be affected by general economic conditions and the level of economic activity in the industries and markets that they serve. On an aggregate basis, our clients may be less likely to hire as many senior executives or consultants during economic downturns and periods of economic uncertainty. To the extent our clients delay or reduce hiring senior executives or consultants due to an economic downturn or economic uncertainty, our results of operations will be adversely affected. A continued economic downturn or period of economic uncertainty and a decline in the level of business activity of our clients would have a material adverse effect on our business, financial condition and results of operations.
Any intellectual property rights we develop will be valuable and any inability to protect them could reduce the value of our products, services and brand.
Any trademarks, trade secrets, copyrights and other intellectual property rights that we develop will be important assets to us. There can be no assurance that the protections provided by these intellectual property rights will be adequate to prevent our competitors from misappropriating our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. There are events that are outside of our control that could pose a threat to our intellectual property rights. Additionally, protecting our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results.
We may be subject to intellectual property rights claims in the future, which may be costly to defend, could require the payment of damages and could limit our ability to use certain technologies in the future.
Companies in the Internet, technology and media industries own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As our product usage becomes more wide-spread, the possibility of intellectual property rights claims increases. Our technologies may not be able to withstand any third-party claims or rights against their use. Any intellectual property claims, with or without merit, could be time consuming, expensive to litigate or settle and could divert management resources and attention. An adverse determination also could prevent us from offering our products and services to others and may require that we procure substitute products or services for these members.
With respect to any intellectual property rights claim, we may have to pay damages or stop using technology found to be in violation of a third party’s rights. We may have to seek a license for the technology, which may not be available on reasonable terms and may significantly increase our operating expenses. The technology also may not be available for license to us at all. As a result, we also may be required to develop alternative non-infringing technology, which could require significant effort and expense. If we cannot license or develop technology for any infringing aspects of our business in the future, we may be forced to limit our product and service offerings and may be unable to compete effectively. Any of these results could harm our brand and operating results.
RISKS RELATED TO DOING BUSINESS IN THE PEOPLES REPUBLIC OF CHINA (“PRC”)
Regulations on Tax
PRC Enterprise Income Tax
The PRC enterprise income tax, or EIT, is calculated based on the taxable income determined under the applicable EIT Law and its implementation rules, which became effective on January 1, 2008. The EIT Law imposes a uniform enterprise income tax rate of 25% on all resident enterprises in China, including foreign-invested enterprises.
The EIT Law and its implementation rules permit certain High and New Technologies Enterprises, or HNTEs, to enjoy a reduced 15% enterprise income tax rate subject to these HNTEs meeting certain qualification criteria. In addition, the relevant EIT laws and regulations also provide that entities recognized as Software Enterprises are able to enjoy a tax holiday consisting of a 2-year-exemption commencing from their first profitable year and a 50% reduction in ordinary tax rate in the subsequent three years, while entities qualified as Key Software Enterprises can enjoy a preferential EIT rate of 10%. A number of our PRC subsidiaries and operating entities enjoy these types of preferential tax treatment.
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According to Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met:
● the primary location of the day-to-day operational management is in the PRC;
● decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC;
● the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained in the PRC; and
● 50% or more of voting board members or senior executives habitually reside in the PRC.
We do not believe that we meet any of the conditions outlined in the immediately preceding paragraph.
Under Circular 698, if a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas non-public holding company and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5%, or (ii) does not tax foreign income of its residents, the non-resident enterprise, being the transferor, must report such disposition to the PRC competent tax authority of the PRC resident enterprise. The PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax. As a result, gains derived from such disposition may be subject to a PRC withholding tax rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price which is not on an arm’s length basis and results in reducing the taxable income, the relevant tax authority has the power to make a reasonable adjustment as to the taxable income of the transaction. Circular 698 was retroactively effective on January 1, 2008. On March 28, 2011, the State Administration of Taxation released SAT Public Notice 24 to clarify several issues related to Circular 698. SAT Public Notice 24 became effective on April 1, 2011. According to SAT Public Notice 24, the term “effective tax” refers to the effective tax on the gain derived from disposition of the equity interests of an overseas holding company; and the term “does not impose income tax” refers to cases where the gains derived from disposition of the equity interests of an overseas holding company is not subject to income tax in the country or region where the overseas holding company is a resident. There is uncertainty as to the application of Circular 698.
PRC Business Tax
Pursuant to applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to pay a business tax at the rate of 5% on the revenues generated from providing such services. However, if the services provided are related to technology development and transfer, such business tax may be exempted subject to approval by the relevant tax authorities.
In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. Pursuant to this plan and relevant notices, from August 1, 2013, a value-added tax will generally be imposed to replace the business tax in the transport and shipping industry and some of the modern service industries on a nationwide basis. A value-added tax, or VAT, rate of 6% applies to revenue derived from the provision of some modern services. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the modern services provided. Accordingly, although the 6% VAT rate is higher than the previously applicable 5% business tax rate, no materially different tax cost to us has resulted or do we expect to result from the replacement of the business tax with a VAT on our services.
Regulations Relating to Foreign Exchange and Dividend Distribution
Foreign Exchange Regulation
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries.
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Regulation of Dividend Distribution
The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Chinese-foreign Equity Joint Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of such reserves reaches 50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Labor Laws and Social Insurance
Pursuant to the PRC Labor Law and the PRC Labor Contract Law, employers must execute written labor contracts with full-time employees. All employers must comply with local minimum wage standards. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative and criminal liability in the case of serious violations.
In addition, according to the PRC Social Insurance Law, employers in China must provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing funds.
Regulations on Anti-Monopoly Law
The PRC Anti-Monopoly Law, which took effect on August 1, 2008, prohibits monopolistic conduct, such as entering into monopoly agreements, abuse of dominant market position and concentration of undertakings that have the effect of eliminating or restricting competition.
Regulation of Advertising Services
The principal regulations governing advertising businesses in China are:
● The Advertising Law of the PRC (1994);
● The Advertising Administrative Regulations (1987);
● The Implementing Rules for the Advertising Administrative Regulations (2004); and
● The Administration Rules of Foreign-invested Advertising Enterprises (2008).
These laws, rules and regulations require companies such as ours that engage in advertising activities to obtain a business license that explicitly includes advertising in the business scope from the SAIC or its local branches.
Applicable PRC advertising laws, rules and regulations contain certain prohibitions on the content of advertisements in China (including prohibitions on misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest). Advertisements for anesthetic, psychotropic, toxic or radioactive drugs are prohibited, and the dissemination of advertisements of certain other products, such as tobacco, patented products, pharmaceuticals, medical instruments, agrochemicals, foodstuff, alcohol and cosmetics, are also subject to specific restrictions and requirements.
Advertisers, advertising operators and advertising distributors, including the businesses that certain of the variable interest entities operate, are required by applicable PRC advertising laws, rules and regulations to ensure that the content of the advertisements they prepare or distribute are true and in compliance with applicable laws, rules and regulations. Violation of these laws, rules and regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the SAIC or its local branches may revoke the violator’s license or permit for advertising business operations. In addition, advertisers, advertising operators or advertising distributors may be subject to civil liability if they infringe the legal rights and interests of third parties, such as infringement of intellectual proprietary rights, unauthorized use of a name or portrait and defamation.
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Although advertising services are no longer categorized as a prohibited or restricted area for foreign investment, the Administration Rules of Foreign-invested Advertising Enterprises issued on August 22, 2008 by the SAIC and the Ministry of Commerce, or the MOFCOM, require all foreign investors of advertising enterprises to have a track record in, and mainly engage in, advertising businesses overseas. The establishment of a foreign-invested advertising enterprise is also subject to pre-approval by the SAIC or its local branch.
Regulation Relating to Privacy Protection
Under the ICP Measures, ICPs are prohibited from producing, copying, publishing or distributing information that is humiliating or defamatory to others or that infringes upon the lawful rights and interests of others. Depending on the nature of the violation, ICPs may face criminal charges or sanctions by PRC security authorities for such acts, and may be ordered to suspend temporarily their services or have their licenses revoked.
Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT on December 29, 2011, ICPs are also prohibited from collecting any user personal information or providing any such information to third parties without the consent of a user. ICPs must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for its services. ICPs are also required to properly maintain the user personal information, and in case of any leak or likely leak of the user personal information, ICPs must take remedial measures immediately and report any material leak to the telecommunications regulatory authority.
In addition, the Decision on Strengthening Network Information Protection promulgated by the Standing Committee of the National People’s Congress on December 28, 2012 emphasizes the need to protect electronic information that contains individual identification information and other private data. The decision requires ICPs to establish and publish policies regarding the collection and use of personal electronic information and to take necessary measures to ensure the security of the information and to prevent leakage, damage or loss. Furthermore, MIIT’s Rules on Protection of Personal Information of Telecommunications and Internet Users promulgated on July 16, 2013 contain detailed requirements on the use and collection of personal information as well as the security measures to be taken by ICPs.
The PRC government retains the power and authority to order ICPs to provide an Internet user’s personal information if such user posts any prohibited content or engages in any illegal activities through the Internet.
RISKS RELATED TO OUR COMMON STOCK
Once publicly trading, the application of the “penny stock” rules could adversely affect the market price of our common shares and increase your transaction costs to sell those shares.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
| ● | that a broker or dealer approve a person’s account for transactions in penny stocks; and |
| ● | that a broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| ● | obtain financial information and investment experience objectives of the person; and |
| ● | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
| ● | sets forth the basis on which the broker or dealer made the suitability determination; and |
| ● | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
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Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made concerning the risks of investing in penny stocks in both public offerings and in secondary trading and regarding the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
We do not expect to pay dividends in the future; any return on investment may be limited to the value of our common stock.
We do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the Board of Directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts. There can be no assurance that the Company will ever have sufficient earnings to declare and pay dividends to the holders of our common stock, and in any event, a decision to declare and pay dividends is at the sole discretion of our Board of Directors. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
Our common stock price is likely to be highly volatile which may subject us to securities litigation thereby diverting our resources which may affect our profitability and results of operation.
Once listed, due to the nature of our Company and its business, the market price for our common stock is expected to be limited and highly volatile. The following factors will add to our common stock price’s volatility:
| ● | the number of users of our applications; |
| ● | actual or anticipated variations in our quarterly operating results; |
| ● | announcements of acquisitions; |
| ● | additions or departures of our key personnel; and |
| ● | sales of our common stock. |
Some of these factors are beyond our control. These factors may decrease the market price of our common stock, regardless of our operating performance. In the past, plaintiffs have initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
In addition, as a result of the expected volatility of our stock price, investors may be unable to resell their shares at a fair price or at a price lower than their entry price.
The trading market for our common stock may be limited.
If a market for our common stock develops, it is expected to be limited and thinly traded, and we can provide no assurance to investors that a more robust market will develop. If a market for our common stock does not develop, our stockholders may not be able to resell the shares of our common stock they have purchased and they may lose all of their investment.
By issuing preferred stock, we may be able to delay, defer, or prevent a change of control.
Our Articles of Incorporation permit us to issue, without approval from our stockholders, a total of 15,000,000 shares of preferred stock. Our Board of Directors can determine the rights, preferences, privileges and restrictions granted to, or imposed upon, the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series. It is possible that our Board of Directors, in determining the rights, preferences and privileges to be granted when the preferred stock is issued, may include provisions that have the effect of delaying, deferring or preventing a change in control, discouraging bids for our common stock at a premium over the market price, or that adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock.
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We have not voluntarily implemented various corporate governance measures, in the absence of which stockholders may have more limited protections against interested director transactions, conflicts of interests and similar matters.
We have not yet adopted any corporate governance measures and, since our securities are not yet listed on a national securities exchange, we are not required to do so. We have not adopted corporate governance measures such as an audit or other independent committees of our Board of Directors as we presently have only one independent director. If we expand our board membership in future periods to include additional independent directors, we may seek to establish an audit and other committees of our Board of Directors. It is possible that if our Board of Directors included additional independent directors and if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
Securities analysts may not cover our common stock and this may have a negative impact on our common stock’s market price.
The trading market for our common stock in the future may depend on the research and reports that securities analysts publish about us or our business. We do not have any control over these analysts. There is no guarantee that securities analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect our common stock’s market price, if any. If we are covered by securities analysts, and our stock is downgraded, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to publish regularly reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
Since members of our board of directors are not residents of the United States and certain of our assets are located outside of the United States, you may not be able to enforce a U.S. judgment for claims you may bring against such directors or assets.
Members of our senior management team, including our Chief Executive Officer and Chief Financial Officer, have their primary residences and business offices in Asia, and a portion of our assets and a substantial portion of the assets of these directors are located outside the United States. As a result, it may be more difficult for you to enforce a lawsuit within the United States against these non-U.S. residents than if they were residents of the United States. Also, it may be more difficult for you to enforce any judgment obtained in the United States against our assets or the assets of our non-U.S. resident management located outside the United States than if these assets were located within the United States. We cannot assure you that foreign courts would enforce liabilities predicated on U.S. federal securities laws in original actions commenced in such foreign jurisdiction, or judgments of U.S. courts obtained in actions based upon the civil liability provisions of U.S. federal securities laws.
Item 1B. Unresolved Staff Comments.
Not Applicable
Item 1C. Cybersecurity.
Risk Management and Strategy
We recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data.
Managing Material Risks & Integrated Overall Risk Management
We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. This integration ensures that cybersecurity considerations are an integral part of our decision-making processes at every level. Our management team continuously evaluate and addresses cybersecurity risks in alignment with our business objectives and operational needs.
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Risks from Cybersecurity Threats
We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing.
Item 2. Properties
Our US office is located at 4800 Montgomery Lane, Suite 210, Bethesda MD 20814. We occupy one office at this location free of rent based on a month-to-month arrangement with an affiliate of Alset Inc., the Company’s largest stockholder.
Our HK Office is located on 8th Floor, Skyway Centre, 23 Queen’s Road West, Sheung Wan, Hong Kong. We occupy one office at this location with a monthly rent of $4,757 and the lease will end at 31 Aug, 2025.
Our PRC Office is located on Room 3806, No. 11 Dongcheng Section, Dongcheng Avenue, Dongcheng Street, Dongguan City, Guangdong Province, PRC. We occupy one office at this location with a monthly rent of $3,267 and the lease will end at 10 Mar, 2027.
Item 3. Legal Proceedings.
The Company is not a party to any proceedings, and no such proceedings are known to be contemplated.
There are no material proceedings to which any director, officer or affiliate of the Company, or any beneficial owner of record of more than five percent of any class of voting securities of the Company, or any associate of any such director, office, affiliate of the Company, or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.
Item 4. Mine Safety Disclosure.
Not Applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Presently, there is no established public trading market for our shares of common stock. On June 9, 2015, the Financial Industry Regulatory Authority (“FINRA”), cleared the Company’s request under Rule 15c2-11 for an unpriced quotation on the OTC Bulletin Board and in OTC Link under the symbol HTPN. Since that time, through the date of this Annual Report, the Company has not had any trading in its stock. The Company’s stock symbol is now GIGW and the Company’s new name has been change to Hapi Metaverse Inc.
Holders
As of the date of this filing, we had 4,842 stockholders of record of our common stock.
Dividends
Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements and other factors, which our Board of Directors may deem relevant.
Securities authorized for issuance under equity compensation plans
On July 30, 2018, the Company adopted an Equity Incentive Plan (the “Plan”). The Plan is intended to encourage ownership of our shares by employees, directors and certain consultants to the Company, in order to attract and retain such people, to induce them to work for the benefit of the Company. The Plan provides for the grant of options and/or other stock-based or stock-denominated awards. Subject to adjustment in accordance with the terms of the Plan, 50,000,000 shares of Common Stock of the Company have been reserved for issuance pursuant to awards under the Plan. The Plan will be administered by the Company’s Board of Directors. This Plan shall terminate ten (10) years from the date of its adoption by the Board of Directors. The Plan was approved by the stockholder holding a majority of the Company’s issued and outstanding shares of common stock.
Recent sales of unregistered securities; use of proceeds from registered securities
On December 20, 2018, the Board of Directors of AIL announced its intention to sell up to 3,200,000 shares of the Company to independent third parties at US$0.50 per share for an aggregate cash consideration of up to US$1,600,000. The purpose of this proposed sale was to raise funds to continue to support the general corporate and working capital of the Company, including but not limited to the operating costs of the Company. During 2021, AIL sold 1,449,200 shares of the Company to independent third parties, and AIL owned 99.693% of the Company after such transactions. On August 30, 2022, Alset International Limited entered into a stock purchase with its controlling stockholder, Alset Inc. (formerly known as Alset EHome International Inc.) in relation to the disposal of 505,341,376 shares of the Company’s common stock, representing approximately 99.69% of the total issued and paid-up share capital of the Company at that time, to Alset Inc. After this transaction, Alset Inc. became our largest stockholder. On April 24, 2023, the Company completed the issuance of 711,750 shares of the Company’s common stock to 4,736 individuals for services rendered to the Company. The share-based compensation related to this share issuance is approximately $712.
Performance Graph
Not applicable to smaller reporting companies.
Purchases of Equity Securities by the issuer and affiliated purchasers
During the period covered by this report, the Company did not repurchase any shares of the Company’s common stock.
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Item 6. Selected Financial Data.
Not applicable to smaller reporting companies.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2023 COMPARED TO
YEAR ENDED DECEMBER 31, 2022
Results of Operations
For the years ended December 31, 2023 and 2022
Revenue
Revenue consists primarily of the services rendered to customers in the amount of $28,117 and $28,143, respectively, for the years ended December 31, 2023 and 2022.The Company began generating revenue from a project providing AI chatbot services to Value Exchange Int’l (Hong Kong) Limited, a related company of the company and a subsidiary of VEII located in Hong Kong, on a monthly basis in 2022. Additional revenue also generated from F&B business, MOC and HCDG were $201,873 and $41,772, respectively, for the years ended December 31, 2023 and 2022. And revenue generated from Travel business, HTL, were $24,337 and $0 respectively, for the years ended December 31, 2023 and 2022. Total revenues were $254,327 and $69,915, respectively, for the years ended December 31, 2023 and 2022. The increase in revenue was mainly generated from the F&B business for $160,101 and from the Travel business for $24,337.
Cost of revenue
Cost of revenue consists primarily of outside service fees incurred directly to the project. Total cost of revenue for the years ended December 31, 2023 and 2022 were $9,153 and $9,151, respectively. The cost from F&B revenue were $59,804 and $19,093 respectively, for the years ended December 31, 2023 and 2022, of which $6,401 and $4,821 were depreciation for leasehold improvement respectively. The cost from Travel revenue were $23,137 and $0 respectively, for the years ended December 31, 2023 and 2022. Total cost of revenue for the years ended December 31, 2023 and 2022 were $92,094 and $28,244. The increase in cost of revenue generated from the F&B business for $40,711 and from the Travel business for $23,137.
Operating Expenses
Operating expenses consist primarily of salary and benefits, professional fees, consulting expenses and maintenance expenses of existing software framework. We expect to maintain our operating expenses with moderate changes in line with business activities. Total operating expenses for the years ended December 31, 2023 and 2022 were $963,385 and $411,562, of which $2,912 and $1,524 were depreciation expenses and $8,235 and $295 were rent expenses, respectively. The increase was mainly due to the increase in consulting expenses for the exploration of new project and new market, and $295,090 increase of salaries expenses due to the expansion in the F&B and Travel business.
Other Income (Expense)
Total other income (expenses) for the years ended December 31, 2023 and 2022 were ($6,110,852) and ($1,358,129), of which $66,315 and $11 in interest income, ($6,109,270) and ($1,427,094) in unrealized loss on securities investment, $1 and $3,065 in other income, ($97,622) and ($5) in interest expenses, $29,722 and $62,677 in foreign exchange gain, and $2 and $3,217 in gain on disposal of investment respectively. The increase of other expenses was mainly due to $6,216,898 increase of expenses due to the fair value loss of VEII shares and warrants.
Liquidity and Capital Resources
At December 31, 2023, we had cash of $745,719 and a working capital deficit of $2,979,056. The increase in the working capital deficit during the year ended December 31, 2023 was due to the increase in the amount due to related parties.
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We had a total stockholders’ deficit of $2,563,665 and an accumulated deficit of $13,199,288 as of December 31, 2023 compared with a total stockholders’ deficit of $1,875,788 and an accumulated deficit of $6,288,884 as of December 31, 2022. This difference is primarily due to the net loss incurred during the year.
For the year ended December 31, 2023, we recorded a net loss of $6,912,004.
We had net cash used in operating activities of $816,748 for the year ended December 31, 2023. We had a negative change of $75,030 due to accounts receivable, $2,222 due to prepaid expenses and $139,441 due to change in operating lease liability and $2 due to gain on disposal of subsidiary. A positive change of $6,109,270 due to unrealized loss on security investment, $150,135 in non-cash lease expenses, $3,264 in provision for impairment of accounts receivable $30,936 due to accounts payable and accrued expenses, $7,112 due to security deposit and other receivable and $1,209 due to inventories.
For the year ended December 31, 2022, we recorded a net loss of $1,728,020, excluded the loss from discontinued operations $648.
We had net cash used in operating activities of $402,044 for the year ended December 31, 2022. We had a negative change of $114,620 due to security deposit and other receivable, $2,708 due to accounts receivable, $1,540 due to prepaid expenses and $894 due to inventories, $16,923 due to change in operating lease liability. A positive change of $1,427,094 due to unrealized loss on security investment, $18,535 in non-cash lease expenses and $14,552 due to accounts payable and accrued expenses.
In the year ended December 31, 2023, we had net cash used in investing activities of $2,408,139. We had used $2,400,000 in issuance of convertible loan receivable to related party, $4,127 in the purchase of property and equipment and 4,012 in other investing activities. In the year ended December 31, 2022, we had net cash used in investing activities of $1,817,956. We had used $1,743,735 in the purchase of securities investment, used $70,523 in the acquisition of MOC and used $3,698 in the purchase of property and equipment.
For the year ended December 31, 2023, we had net cash provided by financial activities of $3,557,477, We had a negative change of $214,934 due to acquisition of Hapi Travel via common control. A positive change of $2,400,000 was due to borrowings from related parties and $1,372,411 was due to advances from related parties. For the year ended December 31, 2022, we had net cash provided by financial activities of $2,568,604, of which $2,568,604 was due to advances from related parties.
As of December 31, 2023, we have fixed operating office lease agreements in Hong Kong and the People’s Republic of China.
We will need to raise additional capital through equity or debt financings. However, we cannot be certain that such capital (from our largest shareholder or third parties) will be available to us or whether such capital will be available on a term that is acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial and operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business and pursue our business plan.
We have included disclosures which discuss the matters which create substantial doubt as to whether we will be able to continue to operate as a going concern including the facts that the Company has incurred net operating losses of $13,199,288 from inception though December 31, 2023 and has not yet established an ongoing source of revenue sufficient to cover its operating costs. The ability of the Company to continue as a going concern is dependent on the Company obtaining the adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Critical Accounting Policies
Our discussion and analysis of the consolidated financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, allowance for doubtful accounts, inventory reserves and income taxes. These policies require that we make estimates in the preparation of our consolidated financial statements as of a given date.
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Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
Revenue recognition
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.
Revenue is recognized when (or as) the Company transfers promised goods or services or catering service to its customers in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services or catering service, which occurs when (or as) the Company satisfies its contractual obligations and transfers over control of the promised goods or services or catering service to its customers. Costs to obtain or fulfill a contract are expensed as incurred.
The Company began generating revenue from F&B business by providing quality catering service and a project providing services to Value Exchange Int’l (Hong Kong) Limited, a subsidiary of Value Exchange International, Inc.(“VEII”) located in Hong Kong, on a monthly basis in 2022. VEII is a related party of the Company. Upon receipt of purchase order from this customer, we issue the corresponding invoice and provide the service accordingly. Any payment received from this customer in advance is presented within other payables on the Company’s consolidated balance sheets.
Income taxes
Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as non-current in accordance with ASC 740.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Group did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the years ended December 31, 2023 or 2022, respectively.
Investment in Securities - related party
The Company entered into Securities Purchase Agreements with pursuant to which the Company purchased 6,500,000 and 7,276,163 shares of Value Exchange International, Inc., a Nevada corporation (“VEII”) on April 8, 2021 and October 17, 2022 respectively.
On January 27, 2023, the Company and New Electric CV Corporation (together with the Company, the “Lenders”) entered into a Convertible Credit Agreement (the “Credit Agreement”) with VEII. The Credit Agreement provides VEII with a maximum credit line of $1,500,000 (“Maximum Credit Line”) with simple interest accrued on any advances of the money under the Credit Agreement at 8%. The principal amount of any advance of money under the Credit Agreement (each being referred to as an “Advance”) is due in a lump sum, balloon payment on the third annual anniversary of the date of the Advance (“Advance Maturity Date”). Accrued and unpaid interest on any Advance is due and payable on a semi-annual basis with interest payments due on the last business day of June and last business day of December of each year. A Lender may demand that any portion or all of the unpaid principal amount of any Advance as well as accrued and unpaid interest thereon may be paid by shares of VEII Common Stock in lieu of cash payment.
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VEII must request Advances from the Lenders. Either Lender may elect to separately, fully fund the Advance, or both Lenders may jointly elect to fund the Advance based on Lenders’ agreement on the portion of the Advance to be funded by each Lender. Lenders may severally or jointly reject any request for an Advance and neither Lender has an obligation to fund any Advance under the Credit Agreement. Accordingly, the Company will determine how much to loan to VEII pursuant to the Credit Agreement.
The Credit Agreement grants conversion rights to each Lender. Each Advance shall be convertible, in whole or in part, into shares of VEII Common Stock at the option of the Lender who made that Advance (being referred to as a “Conversion”), at any time and from time to time, at a price per share equal the “Conversion Price” (as defined below). The Conversion Price for a Conversion shall be the average closing price of the VEII Common Stock for the three (3) consecutive trading days prior to date of the Notice of Conversion. The Lenders shall also have certain conversion rights upon a change of control of VEII, or a breach of the Credit Agreement by VEII.
In the event that a Lender elects to convert any portion of an Advance into shares of VEII Common Stock in lieu of cash payment in satisfaction of that Advance, then VEII would issue to the Lender five (5) detachable warrants for each share of VEII Common Stock issued in a Conversion (“Warrants”). Each Warrant will entitle the Lender to purchase one (1) share of Common Stock at a per-share exercise price equal to the Conversion Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant.
On February 23, 2023, Hapi Metaverse loaned VEII $1,400,000 (the “Loan Amount”). The Loan Amount can be converted into shares of VEII pursuant to the terms of the Convertible Credit Agreement for a period of three years. There is no fixed price for the derivative security until Hapi Metaverse converts the Loan Amount into shares of VEII Common Stock.
On September 6, 2023, the Company converted $1,300,000 of the principal amount loaned to VEII into 7,344,632 shares of VEII’s common stock. Under the terms of the Credit Agreement, the Company received common stock warrants to purchase a maximum of 36,723,160 shares of VEII common stock at an exercise price of $0.1770 per share. Such warrants expire five (5) years from date of their issuance.
On December 14, 2023, the company entered into a Convertible Credit Agreement (“Credit Agreement”) with VEII. On December 15, 2023, the company loaned VEII $1,000,000. The Credit Agreement was amended pursuant to an agreement dated December 19, 2023. Under the Credit Agreement, as amended, this amount can be converted into shares of VEII pursuant to the terms of the Convertible Credit Agreement for a period of three years. In the event that the company converts this loan into shares of VEII Common Stock, the conversion price shall be $0.045 per share. In the event that the company elects to convert any portion of the loan into shares of VEII Common Stock in lieu of cash payment in satisfaction of that loan, then VEII will issue to the company five (5) detachable warrants for each share of VEII Common Stock issued in a conversion (“Warrants”). Each Warrant will entitle the company to purchase one (1) share of Common Stock at a per-share exercise price equal to the Conversion Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant. At the time of this filing, the company has not converted the Loan Amount.
Our Chairman, Chan Heng Fai, and another member of our Board of Directors, Lum Kan Fai, are both members of the Board of Directors of VEII. In addition to Mr. Chan, two other members of the Board of Directors of our majority stockholder, Alset Inc., are also members of the Board of Directors of VEII (Mr. Wong Shui Yeung and Mr. Wong Tat Keung). The Company currently owns a total of 21,120,795 shares (representing 48.55%) of VEII. which are recorded at fair value of $1,425,654 and $2,341,948 at December 31, 2023 and December 31, 2022, respectively. ($6,216,897) and ($1,427,094) in unrealized (loss) were recognized during the years ended December 31, 2023 and 2022, respectively.
Off –Balance Sheet Arrangements
As of December 31, 2022, we do not have any off-balance sheet arrangements, as defined under applicable SEC rule.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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Item 8. Financial Statements.
HAPI METAVERSE INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2023 and 2022
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Hapi Metaverse Inc. and Subsidiaries
Bethesda, Maryland
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Hapi Metaverse Inc. and Subsidiaries, (the Company) as of December 31, 2023, and 2022 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s significant accumulated operating losses and working capital deficit raise substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions, and management’s plans regarding those matters, are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
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Emphasis of Matter
The Company has significant transactions with related parties which are described in Notes 9 and 10 of the consolidated financial statements. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis, as the requisite condition of competitive, free market dealings may not exist.
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Investment in Related Party and Convertible Loan Receivable
Critical Audit Matter Description
As discussed in the Company’s consolidated financial statements, the Company has an investment in a related party, Value Exchange International (“VEII”). This investment is comprised of common shares and warrants. The Company also has a convertible loan receivable with VEII. The Company currently holds a 48.55% ownership of VEII as of December 31, 2023. Under ASC 825, the Company elected to account for its equity-method investment in VEII using the fair value option. As a result, all financial interests in the same entity, including the convertible loan receivable, are required to be recorded at fair value. The Company uses publicly available trading data of VEII in calculating its estimate of fair value of its investment in and convertible loan receivable with VEII.
We identified the valuation of the Company’s VEII investment and convertible loan receivable as a critical audit matter. The principal consideration for our determination that this was a critical audit matter resulted from the material balance of the investment and convertible loan receivable and its valuation which required a high degree of subjective and complex judgement.
How the Critical Audit Matter Was Addressed in the Audit
We obtained an understanding of the Company’s investment valuation process, including controls over management’s review of the significant assumptions. We considered the material weaknesses relating to management’s internal controls in determining the nature, timing and extent of audit tests applied in our audit.
Our primary substantive audit procedures with respect to the Company’s valuation of its investment in and convertible loan receivable with VEII, included testing the Company’s valuation calculations by comparing significant inputs to observable sources. Further, we utilized an internal valuation specialist to assist in our assessment of the reasonableness of the methods and significant assumptions utilized by the Company in its valuation models.
We have served as the Company’s auditor since 2022.
April 1, 2024
| 30 |
HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2023 AND 2022
| December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Prepaid expenses and other current assets – related party | ||||||||
| Investment in Securities at Fair Value – related party | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Convertible promissory note receivable – related party | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable and accrued expenses – related party | ||||||||
| Accrued taxes | ||||||||
| Amount due to related parties | ||||||||
| Convertible promissory note payable – related party | ||||||||
| Operating lease liabilities – Current | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease liabilities- Non-current | ||||||||
| Promissory note payable – related party | ||||||||
| TOTAL NON-CURRENT LIABILITIES: | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Preferred stock, $ par value, shares authorized, issued and outstanding as of December 31, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, as of December 31, 2023 and December, 31 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL HAPI METAVERSE INC STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| NON-CONTROLLING INTERESTS | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
| 31 |
HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE YEARS
ENDED DECEMBER 31, 2023 AND 2022
| 12 Months Ended December 31, 2023 | 12 Months Ended December 31, 2022 | |||||||
| Revenues: | ||||||||
| Food & Beverage | ||||||||
| Travel | ||||||||
| Services Rendered – related party | ||||||||
| Total of Revenue | ||||||||
| Cost of revenues | ||||||||
| Food & Beverage – Depreciation | ( | ) | ( | ) | ||||
| Food & Beverage – Cost of revenues | ( | ) | ( | ) | ||||
| Travel – Cost of revenues | ( | ) | ||||||
| Services Rendered – Cost of revenues | ( | ) | ( | ) | ||||
| Total Cost of Revenue | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Depreciation | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| (Loss) from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income – related party | ||||||||
| Interest income | ||||||||
| Other income | ||||||||
| Interest expense – related party | ( | ) | ( | ) | ||||
| Foreign exchange gain (loss) | ||||||||
| Unrealized loss on Securities Investment – related party | ( | ) | ( | ) | ||||
| Gain on disposal of a subsidiary to related party | ||||||||
| Total other expense | ( | ) | ( | ) | ||||
| Loss before taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss from Continuing Operations | ( | ) | ( | ) | ||||
| Net loss from Discontinuing Operations, Net of Tax | ( | ) | ||||||
| Less: Net loss attributable to Non-controlling interests | ( | ) | ( | ) | ||||
| Net loss attributable to common shareholders | ( | ) | ( | ) | ||||
| Other Comprehensive Loss, Net of Tax: | ||||||||
| Foreign currency translation adjustment to common shareholders | ( | ) | ( | ) | ||||
| Foreign currency translation adjustment to Non-controlling interests | ||||||||
| Total other comprehensive loss, Net of Tax: | ( | ) | ( | ) | ||||
| Comprehensive Loss Attributable to Common Stockholders | ||||||||
Net loss | ( | ) | ( | ) | ||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Total Comprehensive Loss Attributable to Common Stockholders | ( | ) | ( | ) | ||||
| Comprehensive Loss Attributable to Non-controlling Interests | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Foreign currency translation adjustment | ||||||||
| Total Comprehensive Loss Attributable to Non-controlling Interests | ( | ) | ( | ) | ||||
| Net loss per common share – basic and diluted | ||||||||
| Continuing Operations | ) | ) | ||||||
| Discontinuing Operations | ) | ) | ||||||
| Basic and diluted Net loss per share | ) | ) | ||||||
| Weighted average number of shares of common stock outstanding - | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
| 32 |
HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
| Common Shares | Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Hapi Metaverse Inc Stockholders’ Deficit | Non- Controlling Interests | Total Stockholders’ Deficit | |||||||||||||||||||||||||
| Balance December 31, 2021 | | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Gain on purchase of Value Exchange Stock from related party | ||||||||||||||||||||||||||||||||
| Net loss for period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance December 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||
| Acquisition of VEII warrants via loan conversion | - | |||||||||||||||||||||||||||||||
| Acquisition of Hapi Travel Limited under Common Control | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss for period | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance December 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
| 33 |
HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
| 12 Months Ended December 31, 2023 | 12 Months Ended December 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss from operation including non-controlling interests | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to cash used in operations: | ||||||||
| Depreciation | ||||||||
| Non-cash lease expenses | ||||||||
| Provision for impairment of account receivable | ||||||||
| Common stock issued for services | ||||||||
| Gain on disposal of subsidiary | ( | ) | ( | ) | ||||
| Unrealized loss on securities investment | ||||||||
| Change in operating assets and liabilities, net of acquisitions: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Prepaid expenses and other current assets – related party | ( | ) | ( | ) | ||||
| Accounts payable, other payable and accrued expenses | ||||||||
| Accounts payable, other payable and accrued expenses-related parties | ( | ) | ||||||
| Operating Lease Liabilities | ( | ) | ( | ) | ||||
| Net cash used in continuing operating activities | ( | ) | ( | ) | ||||
| Net cash used in Discontinued Operating Activities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Issuance of convertible loan receivable to related party | ( | ) | ||||||
| Acquisition of MOC (HK) | ( | ) | ||||||
| Other | ( | ) | ||||||
| Purchase of securities investment – related party | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||
| Borrowings from related parties | ||||||||
| Deemed distribution to indirect shareholder | ( |
) | ||||||
| Advance from related parties | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ||||||||
| Effects of foreign exchange rates on cash and cash equivalents | ( | ) | ( | ) | ||||
| CASH AND CASH EQUIVALENTS at beginning of year | ||||||||
| CASH AND CASH EQUIVALENTS at end of year | ||||||||
| Supplemental schedule of non-cash investing and financing activities | ||||||||
| VEII common shares acquired via conversion of note receivable | ||||||||
| VEII warrants acquired via conversion of note receivable | ||||||||
| Initial Recognition of Operating Lease Right-Of-Use Asset and Lease Liability | ||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
| 34 |
HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES
Hapi Metaverse Inc., formerly GigWorld Inc. (the “Company” or “Group”) was incorporated in the State of Delaware on March 7, 2012 and established a fiscal year end of December 31. The Company’s business is focused on serving business-to-business (B2B) needs in e-commerce, collaboration and social networking functions. The Company also started its Food and Beverage (“F&B”) business in 2022 and its travel business in 2023.
Going Concern
These
financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for
a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business.
Since inception, the Company has incurred net losses of $
Our majority shareholder has advised us not to depend solely on them for financing. The Company has increased its efforts to raise additional capital through equity or debt financing from other sources. However, the Company cannot be certain that such capital (from its shareholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to the Company. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth. In considering our forecast for the next twelve months and the current cash and working capital as of the filing of this Form 10-K, such matters create a substantial doubt regarding the Company’s ability to meet their financial needs and continue as a going concern.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis of consolidation
The consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated.
| 35 |
The Company’s consolidated financial statements include the financial position, results of operations and cash flows of the following entities as of December 31, 2023 and 2022, as follows:
| Attributable interest as of, | ||||||||||
| Name of subsidiary consolidated under Hapi Metaverse Inc. | State or other jurisdiction of incorporation or organization | December 31, 2023 | December 31, 2022 | |||||||
| % | % | |||||||||
| HotApp BlockChain Pte.Ltd. (f.k.a. HotApps International Pte. Ltd.) | Singapore | |||||||||
| HotApp International Limited | Hong Kong | |||||||||
| Gig Stablecoin Inc. (f.k.a. Crypto Exchange Inc.) | Nevada | *11 | ||||||||
| HWH World Inc. | Delaware | *12 | ||||||||
| Smart Reward Express Limited | Hong Kong | *1 | *1 | |||||||
| Hapi Café Limited | Hong Kong | *2 | *2 | |||||||
| MOC HK Limited | Hong Kong | *3 | *3 | |||||||
| Shenzhen Leyouyou Catering Management Co., Ltd. | People’s Republic of China | *4 | *4 | |||||||
| Hapi Metaverse Inc. | Texas | *5 | *5 | |||||||
| Dongguan Leyouyou Catering Management Co., Ltd. | People’s Republic of China | *6 | ||||||||
| Guangzho Leyouyou Catering Management Co., Ltd. | People’s Republic of China | *7 | ||||||||
| Hapi Travel Ltd. | Hong Kong | *8 | ||||||||
| Hapi Acquisition Pte. Ltd. | Singapore | *9 | ||||||||
| NewRetail-AI Inc. | Nevada | *10 | ||||||||
| *1 |
Smart Reward plans to be principally engaged in the business of developing a platform allowing small and medium sized merchants to set-up their own reward program, with the aim of creating a loyalty exchange program for participating merchants.
HotApp
International Limited is the owner of
HotApp
International Limited holds
Accordingly,
the Company in total holds more than
| *2 |
HotApp
BlockChain Pte. Ltd. is the owner of
| *3 |
| 36 |
| *4 |
Hapi Cafe Ltd. is the owner HCCN. This business was acquired on October 10, 2022.
| *5 |
| *6 |
HCCN is the owner of HCDG. This business was incorporated on March 1, 2023.
| *7 |
HCCN is the owner of HCGZ. This business was incorporated on May 19, 2023.
| *8 |
HotApp
BlockChain Pte. Ltd. is the owner of HTL. This business was acquired on June 14, 2023 via common control. The acquisition resulted in a deemed dividend
of $
| *9 |
| *10 |
| *11 |
| *12 |
|
Teledoc Pte. Ltd. is a private company, wholly owned by Chan Heng Fai, the Chairman of the Company’s Board of Directors and the Chairman, Chief Executive Officer and largest stockholder of Alset Inc., the Company’s majority stockholder.
Transactions between Entities under Common Control
On June 14, 2023, the Company completed its online travel business acquisition of Hapi Travel Limited, an online travel business started in Hong Kong and under common control of the Company. The accompanying consolidated financial statements include the operations of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date.
As
a result of the acquisition of HTL, a deemed dividend of $
The common control transaction above resulted in the following basis of accounting for the financial reporting periods:
| ● | The acquisition of HTL was accounted for prospectively as of June 14, 2023 as this did not represent a change in reporting entity. | |
| ● | The acquisition of HTL was under common control and was consolidated in accordance with ASC 850-50. The Consolidated financial statements were not retrospectively adjusted for the acquisition of HTL as of January 1, 2022 for comparative purposes because the historical operations of HTL were deemed to be immaterial to the Company’s consolidated financial statements. |
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, cost and expenses in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s consolidated financial statements include revenue recognition, the useful lives and impairment of property and equipment, valuation allowance for deferred tax assets, and the fair value estimate for the company’s equity securities and convertible note receivable.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents.
Leases
The Company follows FASB ASC Topic 842 in accounting for its operating lease right-of-use assets and operating lease liabilities. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is or contains a lease, the Company assess whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset. The right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease expenses on a straight-line basis over the lease term.
The Company has also utilized the following practical expedients:
| ● | Short-term leases – for leases that are for a period of 12 months or less, the Company will not apply the recognition requirements of ASC 842. | |
| ● | For leases that contain related non-lease components, such as maintenance, the Company will account for these payments as a single lease component. |
| 37 |
Right-of-use of assets
The right-of-use of asset is measured at cost, which comprises the amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received.
Lease liabilities
Lease liability is measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise mainly fixed lease payments.
Foreign currency risk
Because
of its foreign operations, the Company holds cash in non-US dollars. As of December 31,2023, cash of the Group includes, on an as converted
basis to US dollars, $
Investment in Securities at Fair Value – Related Party
The Company currently has an investment in VEII, a related party, consisting of common shares and warrants. The Company had elected the fair value option, or “FVO,” and the Company continues to measure at fair value, those of its assets and liabilities it had previously measured at fair value and for which such election is permitted, and the financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.
Property and Equipment
Property and equipment are recorded at cost, less depreciation. Repairs and maintenance are expensed as incurred. Expenditures incurred as a consequence of acquiring or using the asset, or that increase the value or productive capacity of assets are capitalized (such as removal, and restoration costs). When property and equipment is retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Depreciation is computed by the straight-line method (after considering their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
| Computer equipment | ||||
| leasehold improvement |
Concentrations
Financial
instruments that potentially expose the Group to concentration of credit risk consist primarily of cash. Although the cash at each particular
bank in the United States is insured up to $
| 38 |
Fair value
Fair Value of Financial Instruments
The carrying value of cash, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
| ● | Level 1 – quoted prices in active markets for identical assets and liabilities. | |
| ● | Level 2 – observable market-based inputs or unobservable inputs that are corroborated by market data; and | |
| ● | Level 3 – significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
Revenue recognition
Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services or catering service to customers.
Revenue is recognized when (or as) the Company transfers promised goods or services or catering service to its customers in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services, which occurs when (or as) the Company satisfies its contractual obligations and transfers over control of the promised goods or services or catering service to its customers. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services or catering service in the contract by analyzing customer perspective, immateriality, implicit promises, setup activities, and marketing incentives ; (ii) determination of whether the promised goods or services or catering service are performance obligations including whether they are distinct in the context of the contract by analyze the contract from the perspective of the customer; (iii) measurement of the transaction price, including the constraint on variable consideration by the expected value method and the most likely amount method ; (iv) allocation of the transaction price to the performance obligations based on a relative stand-alone selling price basis, or the price at which the Company would sell the good or service separately to similar customers in similar circumstances ; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. This should only be done once the transaction is complete and your obligation is fulfilled. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services or catering service it transfers to the customer.
Costs to obtain or fulfill a contract are expensed as incurred.
The Company began generating revenue from the food and beverage (“F&B”) business by providing quality catering services in HK since October 2022 and in PRC since January 2023.
A
project providing services to Value Exchange Int’l (Hong Kong) Limited, a subsidiary of Value Exchange International, Inc.(“VEII”)
located in Hong Kong, on a monthly basis in 2022. VEII is a related party of the Company. Upon receipt of purchase order from this customer,
we issue the corresponding invoice and provide the service accordingly. Any payment received from this customer in advance is presented
within other payables on the Company’s consolidated balance sheets. This service was terminated on June 30, 2023 and $
In June 2023, the Company acquired a travel business and began generating revenue by providing travel packaging and ticketing services in HK.
Income taxes
Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as non-current in accordance with ASC 740.
The
impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not
to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has
Foreign currency translation
Items included in the consolidated financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”).
| 39 |
The functional and reporting currency of the Company is the United States dollar (“U.S. dollar”). The financial records of the Company’s subsidiaries located in Singapore, Hong Kong and Mainland China are maintained in their local currencies, the Singapore Dollar (S$), Hong Kong Dollar (HK$) and Chinese Yuan (CN ¥), which are also the functional currencies of these entities.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the functional currency during the year are converted into functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the consolidated statements of operations.
The Company’s entities with functional currency of Singapore Dollar, Hong Kong Dollar and Chinese Yuan, translate their operating results and financial positions into the U.S. dollar, the Company’s reporting currency. Assets and liabilities are translated using the exchange rates in effect on the balance sheet date. Revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of comprehensive income (loss).
For
the year ended December 31, 2023, the Company recorded other comprehensive loss from a translation loss of ($
Comprehensive income (loss)
Comprehensive income (loss) includes gains (losses) from foreign currency translation adjustments. Comprehensive income (loss) is reported in the consolidated statements of operations and comprehensive loss.
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to stockholders by the weighted average number of shares outstanding during the year.
The calculation of diluted net income per unit includes the effects of the assumed conversion of the Company’s outstanding convertible debt, except during the loss periods as the effect would be anti-dilutive.
Non-controlling interests
Non-controlling interests represent the equity in a subsidiary not attributable, directly or indirectly, to owners of the Company, and are presented separately in the consolidated statements of operation and comprehensive income, and within equity in the Consolidated Balance Sheets, separately from equity attributable to owners of the Company.
On
December 31, 2023 and 2022, the aggregate non-controlling interests in the Company were ($
Recent accounting pronouncement
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). The update provides guidance on the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amendment replaces the current incurred loss impairment approach with a methodology to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2023 and this ASU did not have a material impact on its consolidated financial statements.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
Note 3. RESTATEMENT OF FINANCIAL STATEMENTS
Restatement of Previously Issued Financial Statements
During
the preparation of the year ended December 31, 2023 financial statements, the Company identified and corrected its classification
and accounting treatment for its acquisition of Hapi Travel Ltd. as of December 31, 2023. Pursuant to ASC 250, “Accounting
changes and error corrections” issued by FASB and SAB 99 “Materiality” issued by Securities and Exchange
Commission, the Company determined the impact of the error was immaterial. The impact of the error correction is reflected in a
$
The following table summarizes the impacts of the error corrections on the Company’s financial statements for each of the periods presented below:
Consolidated balance sheet
| Impact of correction of error | ||||||||||||
| June 30, 2023 | As previously reported | Adjustments | As restated | |||||||||
| Total assets | $ | $ | ( | ) | $ | |||||||
| Total liabilities | ||||||||||||
| Total stockholders’ deficit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Impact of correction of error | ||||||||||||
| September 30, 2023 | As previously reported | Adjustments | As restated | |||||||||
| Total assets | $ | $ | ( | ) | $ | |||||||
| Total liabilities | ||||||||||||
| Total stockholders’ equity | $ | $ | ( | ) | $ | |||||||
| 40 |
Note 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued expenses and other current liabilities consisted of the following:
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued professional fees | ||||||||
| Other account payable and accrued expenses | ||||||||
| Receipt in advance from customer – related party | ||||||||
| Total | $ | $ | ||||||
Note 5. PROPERTY AND EQUIPMENT, NET
Property and Equipment, net consisted of the following:
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cost | ||||||||
| Leasehold improvement | $ | $ | ||||||
| Computer equipment | ||||||||
| Total cost | $ | $ | ||||||
| Less: accumulated depreciation # | ||||||||
| Leasehold improvement | $ | $ | ||||||
| Computer equipment | ||||||||
| Total accumulated depreciation | $ | $ | ||||||
| NBV at the end of year | ||||||||
| Leasehold improvement | $ | $ | ||||||
| Computer equipment | ||||||||
| Total NBV | $ | $ | ||||||
| # |
Note 6. INCOME TAXES
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statements’ recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2023 and 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
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The provision for income taxes consisted of the following (in $):
| 2023 | 2022 | |||||||
| Current | $ | $ | ||||||
| Deferred | ||||||||
| Total | $ | $ |
| 2023 | 2022 | |||||||
| Income taxes at statutory rate | % | % | ||||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Other | % | % | ||||||
| Effective tax rate | % | % | ||||||
The Company’s effective tax rate was % and % for the years ended December 31, 2023 and 2022, respectively.
The Inflation Reduction Act (“IR Act”) was enacted on August 16, 2022. The IR Act includes provisions imposing a 1% excise tax on share repurchases that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax (“CAMT”) on adjusted financial statement income. The CAMT will be effective for us beginning in fiscal 2024. We currently are not expecting the IR Act to have a material adverse impact to our financial statements.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Lease Liability | 55,966 | 21,631 | ||||||
| Net Operating Loss | 633,599 | 569,569 | ||||||
| Total deferred tax assets | $ | 689,565 | $ | 591,200 | ||||
| Deferred tax liabilities: | ||||||||
| Right-of-Use Assets | (54,495 | ) | (21,364 | ) | ||||
| Total deferred tax liabilities | $ | (54,495 | ) | $ | (21,364 | ) | ||
| Deferred tax assets / (liabilities), net | $ | 635,070 | $ | 569,836 | ||||
| Less valuation allowance | (635,070 | ) | (569,836 | ) | ||||
| Deferred tax asset c/f | $ | - | $ | - | ||||
On December 22, 2017, the Tax Cuts and Jobs Act was signed into legislation, lowering the corporate income tax rate to 21% effective January 1, 2018 and making many other significant changes to the US income tax code. Under ASC740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted.
The Company provided a valuation allowance equal to the deferred income tax assets for period ended December 31, 2022 because it is not presently known whether future taxable income will be sufficient to utilize the loss carry-forwards.
| 42 |
As
of December 31, 2023, the Company had approximately $
The federal income tax returns of the Company are subject to examination by the IRS, generally for three years after they are filed. The tax returns for the years ended December 31, 2023, 2022, 2021 and 2020 are still subject to examination by the taxing authorities.
The Company is authorized to issue billion shares of common stock and million shares of preferred stock. The authorized share capital of the Company’s common stock was increased from million to billion on May 5, 2017. Both share types have a $ par value. As of December 31, 2023 and 2022, the Company had issued and outstanding, and of common stock, and shares of preferred stock respectively
Common Shares:
Pursuant
to the Purchase Agreement, dated October 15, 2014, the Company issued shares of common stock to AIL. Such amount represented
On
July 13, 2015, AIL acquired shares of the Company’s common stock by converting outstanding loans made to the Company into
common stock of the Company at a rate of $ per share (rounded to the nearest full share). After such transactions AIL owned
On
March 27, 2017, the Company entered into a Loan Conversion Agreement with AIL, pursuant to which AIL agreed to convert $
On
December 20, 2018, the Board of Directors of AIL announced its intention to sell up to shares of the Company to independent
third parties at US$ per share for an aggregate cash consideration of up to US$
On
April 24, 2023, the Company completed the issuance of shares of the Company’s common stock to
Preferred Shares:
Preferred Stock were issued as of December 31, 2023 and 2022.
On July 30, 2018, the Company adopted the Equity Incentive Plan (“The Plan”). The Plan is intended to encourage ownership of shares by employees, directors and certain consultants to the Company in order to attract and retain such people, to induce them to work for the benefit of the Company. The Plan provides for the grant of options and/or other stock-based or stock-denominated awards. Subject to adjustment in accordance with the terms of the Plan, shares of Common Stock of the Company have been reserved for issuance pursuant to awards under the Plan. The Plan will be administered by the Company’s Board of Directors. This Plan shall terminate ten () years from the date of its adoption by the Board of Directors. There have been awards issued under the Plan as of December 31, 2023 and 2022.
| 43 |
Note 9. INVESTMENT IN RELATED PARTY
The Company elected the fair value option, or “FVO,” for, and therefore the Company continued to measure at fair value, those of its assets and liabilities it had previously measured at fair value and for which such election is permitted, as provided for under ASC 825-10-15-4, and the financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.( as provided for by ASC 825-10-50-31)
With respect to the above notes, as provided for by ASC 825-10-50-28 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. As provided for by ASC 825-10-50-30 estimated fair value adjustment of the convertible promissory note is presented in a single line item within other income (expense) in the accompanying consolidated statement.
In
April of 2021, the Company acquired shares of Value Exchange International, Inc.’s common stock for an aggregate subscription
price of $
On
September 6, 2023, the Company converted $
On
December 31, 2023, The Company owned shares of VEII’s outstanding common stock and
Financial assets measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of December 31, 2023 and 2022:
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| December 31, 2023 | ||||||||||||||||
| Asset | ||||||||||||||||
| Investment Securities – Fair Value | $ | $ | $ | $ | ||||||||||||
| Warrants – VEII | ||||||||||||||||
| Total Investment in securities at Fair Value | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| December 31, 2022 | ||||||||||||||||
| Asset | ||||||||||||||||
| Investment Securities – Fair Value | $ | $ | $ | $ | ||||||||||||
| Total Investment in securities at Fair Value | $ | $ | $ | $ | ||||||||||||
Fair
value loss on securities investment was ($
| 44 |
Warrants
On
September 6, 2023, the Company received warrants to purchase shares of VEII, a related party listed company. For further details on this
transaction, refer to Note 9 - Related Party Balance and Transactions, As of December 31, 2023 and 2022, the fair value of the warrants
was $
The fair value of the VEII warrants under level 2 category as of September 6, 2023, and December 31, 2023 was calculated using a Black-Scholes valuation model valued with the following weighted average assumptions:
| December 31, | September 6, | |||||||
| 2023 | 2023 | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | ||||||||
| Risk free interest rate | % | % | ||||||
| Annualized volatility | % | % | ||||||
| Dividend Yield | $ | $ | ||||||
| Year to maturity | ||||||||
Changes in the observable input values would likely cause material changes in the fair value of the Company’s Level 2 financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement.
Note 10. RELATED PARTY BALANCES AND TRANSACTIONS
Effective
as of September 1, 2020, Chan Heng Fai resigned as the Acting Chief Executive Officer of the Company, and the Company’s Board of
Directors appointed Lee Wang Kei (“Nathan”) as the Company’s Chief Executive Officer. Alset International Limited is
the Company’s former majority stockholder. On August 30, 2022, Alset International Limited entered into a stock purchase with its
controlling stockholder, Alset Inc. (formerly known as Alset EHome International Inc.) in relation to the disposal of shares
of the Company’s common stock, representing approximately
The Company sold one of its subsidiaries, HWH World Pte. Limited, to Health Wealth Happiness Pte. Ltd (a subsidiary of former majority stockholder Alset International Limited) for consideration of S$ on April 18, 2022. The Company has acquired a company, Hapi Cafe Limited, from Chan Heng Fai (the majority stockholder of Alset Inc.) for consideration of S$ on September 5, 2022. Hapi Cafe is a coffee shop chain initiative in China, Hong Kong and Taiwan consisting of a four-in-one concept, comprising a coffee shop, co-working place, travel, and metaverse show case. Hapi Metaverse technology will be utilized by the Hapi Cafe membership program.
The
Company has a project with an affiliate (a subsidiary of Value Exchange International, Inc.) that commenced in 2022 and terminated on
June 30, 2023. VEII provides IT services and solutions for customers in Asia, covering Helpdesk, Managed Operations, Systems Integration,
and Consulting Services. The project has generated revenue of $
| 45 |
On
January 27, 2023, the Company and New Electric CV Corporation (together with the Company, the “Lenders”) entered into a
Convertible Credit Agreement (the “Credit Agreement”) with Value Exchange International, Inc. (“Value
Exchange”), a Nevada corporation. The Credit Agreement provides Value Exchange with a maximum credit line of $
On
February 23, 2023, the Company and Alset Inc., a Texas corporation (NASDAQ: AEI) (“Alset”) entered into a Subscription Agreement
(the “Subscription Agreement”). Pursuant to the Subscription Agreement, the Company has borrowed $
On
June 14, 2023, the Company acquired Hapi Travel Ltd. from Business Mobile Intelligence Ltd., a company wholly owned by Chan Heng Fai
(the majority stockholder of Alset Inc.), for a consideration of $
On
December 14, 2023, the company entered into a Convertible Credit Agreement (“Credit Agreement”) with VEII. On December 15,
2023, the company loaned VEII $
On
December 15, 2023, the Company and Alset International Limited entered into a Subscription Agreement (the “Subscription Agreement”).
Pursuant to the Subscription Agreement, the Company has borrowed $
| 46 |
Our Chairman, Chan Heng Fai, and another member of our Board of Directors, Lum Kan Fai, are both members of the Board of Directors of VEII. In addition to Mr. Chan, two other members of the Board of Directors of Alset Inc., our majority stockholder, are also members of the Board of Directors of VEII (Mr. Wong Shui Yeung, Mr. Wong Tat Keung and Mr. Lim Sheng Hon, Danny).
Note 11. DISCONTINUED OPERATIONS
Director’s
resolutions of HotApp Blockchain Pte Ltd. passed on April 18, 2022 for the disposal of its investments of shares in HWH World
Pte. Ltd., representing
There
were
The aggregate financial results of discontinued operations were as follows:
Year Ended December 31, 2023 | Year Ended December 31, 2022 | |||||||
| Operating expenses: | ||||||||
| General and administrative | $ | $ | * | |||||
| Total operating expenses | ||||||||
| Income (Loss) from operations | ( | ) | ||||||
| Income (Loss) from discontinued operations | $ | $ | ( | ) | ||||
| * |
Note 12. GOODWILL
The Company continually evaluates potential acquisitions that align with the Company’s plans, namely, starting the F&B business in Asia. Starting an F&B business in Hong Kong, China, and Taiwan can be an excellent opportunity due to the large consumer market, diverse food culture, high demand for international cuisine, favorable business environment, skilled labor force, and opportunities for growth. On October 4, 2022, The Company has completed its first F&B business acquisition of MOC HK Limited (“MOC”), a F&B business started in Hong Kong. The accompanying consolidated financial statements include the operations of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values.
As
a result of the acquisition of MOC, goodwill of $
| 47 |
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed during the year resulted in no impairment losses.
The table below reflects the Company’s estimates of the acquisition date fair value of the assets acquired and liabilities assumed for the 2022 acquisition:
| MOC | ||||
| Acquisition Date | October 4, 2022 | |||
| Purchase Price | ||||
| Cash | $ | |||
| Total purchase consideration | ||||
| Purchase Price Allocation | ||||
| Assets acquired | ||||
| Current assets | ||||
| Property and Equipment, net | ||||
| Operating lease right-of-use assets, net | ||||
| Total assets acquired | ||||
| Liabilities assumed: | ||||
| Current liabilities | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Accrued taxes | ( | ) | ||
| Total liabilities assumed | ( | ) | ||
| Net assets acquired | ||||
| Goodwill | ||||
| Total purchase consideration | $ | |||
The following table summarizes changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022.
| December 31, 2023 | December 31, 2022 | |||||||
| Balance at beginning of the year | $ | $ | ||||||
| Acquisitions | ||||||||
| Foreign currency exchange adjustment | ( | ) | ||||||
| Balance as of end of the year | $ | $ | ||||||
Note 13. LEASES
The
Company has operating leases for its operating office, F&B stores and warehouse in Hong Kong and People’s Republic of
China. The related lease agreements do not contain any material residual value guarantees or material restrictive covenants. Since
the Company’s leases do not provide an implicit rate that can be readily determined, management uses a discount rate based on
the incremental borrowing rate. The Company’s weighted-average remaining lease term relating to its operating leases are
| 48 |
The
current portion of operating lease liabilities and the non-current portion of operating lease liabilities are presented on the balance
sheets. Total lease expenses amounted to $
| December 31, 2023 | December 31, 2022 | |||||||
| Right-of-use assets | $ | $ | ||||||
| Lease liabilities - current | ||||||||
| Lease liabilities - non-current | ||||||||
| Total lease liabilities | $ | $ | ||||||
As of December 31, 2023, the aggregate future minimum rental payments under non-cancelable agreement are as follows (in $):
| Maturity of Lease Liabilities | Total | |||
| 12 months ended December 31, 2024 | $ | |||
| 12 months ended December 31, 2025 | ||||
| 12 months ended December 31, 2026 | ||||
| 12 months ended December 31, 2027 | ||||
| Total undiscounted lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| Operating lease liabilities - Current | ||||
| Operating lease liabilities - Non-current | $ | |||
Note 14. SUBSEQUENT EVENTS
The Company has evaluated events that have occurred after the balance sheet date through the date of this report and determined that there were no subsequent events or transactions that required recognition or disclosure in the consolidated financial statements.
| 49 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of our Report on Form 10-K, an evaluation was carried out by management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) as of December 31, 2023. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
During evaluation of disclosure controls and procedures as of December 31, 2023 conducted as part of our annual audit and preparation of our annual financial statements, management conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were ineffective for those reasons set forth below.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for the preparation and fair presentation of the financial statements included in this annual report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s judgment and estimates concerning effects of events and transactions that are accounted for or disclosed.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
In order to ensure that our internal control over financial reporting is effective, management regularly assesses controls and did so most recently for its financial reporting as of December 31, 2023. This assessment was based on criteria for effective internal control over financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. In connection with management’s evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, management determined that the Company did not maintain effective controls over financial reporting due to limited staff with U.S. GAAP and SEC Reporting experience. Management determined that the ineffective controls over financial reporting constitute a material weakness.
This annual report filed on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
We continue taking steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this Annual Report on Form 10-K, we have not been able to completely remediate the material weaknesses identified above. To remediate such weaknesses, we plan to appoint qualified personnel to establish an audit committee with financial accounting, GAAP, and SEC experience.
Item 9B. Other Information.
None
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Identification of directors and officers
The following table sets forth the name and age of officers and director as of the date hereof. Our executive officers are elected annually by our board of directors. Our executive officers hold their offices until they resign, are removed by the Board, or his successor is elected and qualified.
Directors and Executive Officers
| Name | Age | Position | ||
| Chan Heng Fai | 79 | Executive Chairman of the Board | ||
| Lee Wang Kei | 33 | Chief Executive Officer | ||
| Lum Kan Fai | 61 | Vice Chairman of the Board | ||
| Lui Wai Leung Alan | 53 | Chief Financial Officer |
On October 21, 2014, the Company reported under Form 8-K the Sale & Purchase Agreement (“Purchase Agreement”) with Alset International Limited, formerly known as Singapore eDevelopment Limited, a Singapore exchange listed company, dated October 15, 2014. The Purchase Agreement also granted AIL the right to nominate one member to the Company’s Board of Directors.
The mailing address for each of the officers and directors named above is c/o the Company at: 4800 Montgomery Lane, Suite 210, Bethesda, Maryland 20814.
Business Experience
Mr. Chan has served as a Director since October 2014, as the Executive Chairman of the Company’s Board of Directors since December of 2017, and the Acting Chief Executive Officer from August of 2018 until September 2020. Mr. Chan previously served as the Company’s Chief Executive Officer from December of 2014 until June of 2017. Mr. Chan is an expert in banking and finance, with 45 years of experience in these industries. He has also restructured numerous companies in various industries and countries during the past 40 years. Mr. Chan has served as the Chief Executive Officer of Alset International Limited (“AIL”), a diversified holding company listed on the Catalist of the Singapore Exchange Securities Trading Limited, since April 2014, and has served as a director of AIL since May 2013. Mr Chan has served as Chief Executive Officer of AIL since March 2014 and has served as Executive Chairman of AIL since June 2017. Since March 2018, Mr. Chan has served as a Chairman of the Board and Chief Executive Officer of Alset Inc., a Nasdaq listed company. Mr. Chan has also served as the Chairman of HWH International Inc. (formerly known as Alset Capital Acquisition Corp.), a Nasdaq listed company, since October 2021. Mr. Chan has served as a director of LiquidValue Development Inc., since January 2017, and has served as Chairman of the Board and Chief Executive Officer of LiquidValue Development Inc. since December 2017. Mr. Chan has served as a director of DSS, Inc., an NYSE listed company, since January 2017 and as Chairman of the Board since March 2019. Mr. Chan has served as a director of Value Exchange International Inc., a company listed on OTC Markets, since December 2021. Mr Chan has served as a director of Sharing Services Global Corporation, a company listed on OTC Markets, since April 2020 and has served as a Chairman since July 2021.
Mr. Chan served as a director of Holista CollTech Ltd., an ASX listed company, from July 2013 until June 2021. Mr. Chan has served as a director of OptimumBank Holdings, Inc. a Nasdaq listed company from June 2018 until April 2022.
Mr. Chan’s previous experiences include serving as Managing Chairman of Zensun Enterprises Limited (formerly known as ZH International Holdings Limited and Heng Fai Enterprises Limited), an investment holding company listed on the HKSE, from 1992 to 2015. Mr. Chan was formerly the Managing Director of SingHaiyi Group Ltd. (now known as SingHaiyi Group Pte. Ltd.), a property development company in Singapore which was listed on the Singapore Exchange Mainboard, from March 2003 to September 2013, and the Executive Chairman of China Gas Holdings Limited, a Hong Kong listed investor and operator of city gas pipeline infrastructure in China from 1997 to 2002. Mr. Chan served on the Board of RSI International Systems, Inc., a Toronto Stock Exchange-listed, the developer of RoomKeyPMS, a web-based property management system, from June 2014 to February 2019.
Mr. Chan served as a director of Global Medical REIT Inc., a NYSE listed company, a healthcare facility real estate company, from December 2013 to July 2015. Mr. Chan served as a director of American Housing REIT Inc. from October 2013 to July 2015. Mr. Chan served as a director of Skywest Ltd., a public Australian airline company from 2005 to 2006. Mr. Chan served as a director of Global Med Technologies, Inc., a medical company engaged in the design, development, marketing and support information for management software products for healthcare-related facilities, from May 1998 until December 2005.
| 51 |
Director Qualifications of Chan Heng Fai:
The board of directors appointed Mr. Chan in recognition of his abilities to assist the Company in expanding its business and the contributions he can make to the Company’s strategic direction.
Mr. Lee has served as the Company’s Chief Executive Officer since September of 2020. Mr. Lee previously served as the Company’s Chief Executive Officer from December 2017 until August 2018 and served as the Company’s Chief Technology Officer from June 2017 until August 2018. Mr. Lee has served as a System Architect for the Company since August of 2015, where he has helped lead the Company’s software development, and from April of 2015 to July of 2015, Mr. Lee served as a Consultant to the Company. Mr. Lee has served as Head of Development for DSS Asia Limited since August 2018. Prior to joining the Company, Mr. Lee served as Software Project Manager for Appcraft Asia from 2014-2015 and served as Software Architect for myFunboxx from 2012-2014.
Mr. Lum has served as a member of the Company’s Board of Directors since June of 2015. Mr. Lum served as Chief Technology Officer (“CTO”) from June of 2015 until June of 2017. In June of 2017, the Company appointed Mr. Lum Kan Fai as the Company’s CEO and President, and Mr. Lum resigned as CTO. In December of 2017, Mr. Lum Kan Fai resigned as CEO and President of the Company and was appointed as Vice Chairman of the Company’s Board of Directors. Mr. Lum currently is the President, Digital Group of DSS, Inc. (“DSS”), a NYSE listed company and the President of DSS Asia, a subsidiary of DSS. Mr. Lum is responsible for P&L long term development of DSS’ digital product division and the Asia Pacific operations of DSS. Mr. Lum has served as a member of the Board of Value Exchange International Inc. since May of 2021. Mr. Lum was the founder, and since 2009 has served as Chief Executive Officer, of FUNboxx Ltd. Prior to that, Mr. Lum held senior management positions with Vitop Holding, a HK listed company, York International (Now Johnson Controls), Apple and Datacraft Asia. Mr. Lum graduated from the University of Essex (UK) in 1985, with a first class honor degree in Computer and Communication Engineering.
Director Qualifications of Mr. Lum Kan Fai:
The board of directors appointed Mr. Lum in recognition of his extensive knowledge in information technology business and his ability to assist in the Company’s continuous growth. He has over 30 years of technology business experience in multinational corporations.
Mr. Lui Wai Leung Alan has served as Chief Financial Officer since May 2016. Mr. Lui has been Chief Financial Officer of Alset International Limited, a SGX listed company, since November 2016 and served as its Acting CFO from June 2016. Mr. Lui has served as an Executive Director of Alset International Limited since July 2020. Since October 2016, Mr. Lui has also served as a director of BMI Capital Partners International Ltd, a Hong Kong investment consulting company. Mr. Lui has served as Co-Chief Financial Officer of LiquidValue Development Inc., since December 2017. Mr. Lui has served a Co-Chief Financial Officer of Alset Inc., a Nasdaq listed company, since March 2018. From June of 1997 through March of 2016, Mr. Lui served in various executive roles at Zensun Enterprises Limited (formerly known as ZH International Holdings Limited and Heng Fai Enterprises Limited), an investment holding company listed on the HKSE, including as Financial Controller. Mr. Lui oversaw the financial and management reporting and focusing on its financing operations, treasury investment and management. He has extensive experience in financial reporting, taxation and financial consultancy and management in Hong Kong. Mr. Lui is a Certified Practicing Accountant in Australia and received a Bachelor’s Degree in Business Administration from the Hong Kong Baptist University in 1993.
Section 16(a) Beneficial Ownership Reporting Compliance
Not Applicable.
Corporate Governance
Board of Directors
The varying business experience of each of our directors led to the conclusion that each such party should be a member of our Board of Directors. The minimum number of directors we are authorized to have is one and the maximum is eight. In no event may we have less than one director.
| 52 |
Directors on our Board of Directors are elected for one-year terms and serve until the next annual security holders’ meeting or until their death, resignation, retirement, removal, disqualification, or until a successor has been elected and qualified. All officers are appointed annually by the Board of Directors and serve at the discretion of the Board. Currently, directors receive no compensation for their services on our Board.
All directors will be reimbursed by us for any accountable expenses incurred in attending directors’ meetings provided that we have the resources to pay these fees. We will consider applying for officers and directors’ liability insurance at such time when we have the resources to do so.
Committees of the Board of Directors
Concurrent with having sufficient members and resources, our Board of Directors intends to establish an audit committee and a compensation committee. The audit committee will review the results and scope of the audit and other services provided by the independent auditors and review and evaluate the system of internal controls. The compensation committee will review and recommend compensation arrangements for the officers and employees. No final determination has yet been made as to the memberships of these committees or when we will have sufficient members to establish committees. We believe that we will need a minimum of three independent directors to have effective committee systems.
As of the date hereof, we have not established any Board committees.
Family Relationships
No family relationship exists between any director, executive officer, or any person contemplated to become such.
Director Independence
In light of the relationships between certain members of our Board and our majority stockholder, none of the members of our management can be deemed to be independent. Our board of directors has voluntarily adopted the corporate governance standards defining the independence of our directors imposed by the NASDAQ Capital Market’s requirements for independent directors pursuant to Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market LLC.
Potential Conflicts
None of the members of our management work for the Company on a full-time basis. Both our Executive Chairman and our Chief Financial Officer are employed by our largest stockholder, Alset International Limited, formerly known as Singapore Development Limited, and their services are being temporarily provided to us at no cost. Certain conflicts of interest may arise between us and our officer(s) and director(s) in that they may have other business interests in the future to which they devote their attention, and they may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer’s understanding of his/her fiduciary duties to us.
We will seek to add additional officer(s) and/or director(s) as and when the proper personnel are located and terms of employment are mutually negotiated and agreed, and we have sufficient capital resources and cash flow to make such offers.
We cannot provide assurances that our efforts to eliminate the potential impact of conflicts of interest will be effective.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has, during the past ten years:
| ● | had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time; |
| ● | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences); |
| ● | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; |
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| ● | been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; and |
| ● | been subject or a party to or any other disclosable event required by Item 401(f) of Regulation S-K. |
Code of Business Conduct and Ethics
We currently do not have a Code of Business Conduct and Ethics. We intend to adopt one in the immediate future.
Item 11. Executive Compensation.
EXECUTIVE COMPENSATION
Summary Compensation Table for 2023 and 2022
The following table presents summary information regarding the total compensation awarded to, earned by, or paid to each of the named executive officers for services rendered to us for the calendar years ended December 31, 2023 and December 31, 2022.
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
| Chan Heng Fai, Executive Chairman | 2023 | — | — | — | — | — | ||||||||||||||||||
| Lee Wang Kei, CEO | 2023 | — | — | — | 24,000 | 24,000 | ||||||||||||||||||
| Lum Kan Fai, Director, Vice Chairman | 2023 | — | — | — | — | — | ||||||||||||||||||
| Sanjib Kalita (resigned on September 30, 2022) | 2023 | — | — | — | — | — | ||||||||||||||||||
| Lui Wai Leung Alan, CFO | 2023 | — | — | — | — | — | ||||||||||||||||||
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
| Chan Heng Fai, Executive Chairman | 2022 | — | — | — | — | — | ||||||||||||||||||
| Lee Wang Kei, CEO | 2022 | — | — | — | 24,000 | 24,000 | ||||||||||||||||||
| Lum Kan Fai, Director, Vice Chairman | 2022 | — | — | — | — | — | ||||||||||||||||||
| Sanjib Kalita | 2022 | — | — | — | — | — | ||||||||||||||||||
| Lui Wai Leung Alan, CFO | 2022 | — | — | — | — | — | ||||||||||||||||||
Other than as set forth in the table above, there has been no cash or non-cash compensation awarded to, earned by or paid to any of our officers and directors since inception. On July 30, 2018, the Company adopted the Equity Incentive Plan intended to encourage ownership of Shares by Employees and directors of and certain consultants to the Company in order to attract and retain such people, to induce them to work for the benefit of the Company.
Director Compensation
Our directors will not receive a fee for attending each board of directors meeting or meeting of a committee of the board of directors. All directors will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with attending board of director and committee meetings.
Employment Agreements
As of the date of this report, the Company has not entered into any employment arrangement with any director or officer.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information as of April 1, 2024 with respect to the beneficial ownership of our common stock, the sole outstanding class of our voting securities, by (i) any person or group owning more than 5% of each class of voting securities, (ii) each director, (iii) each executive officer named in the Summary Compensation Table in the section entitled “Executive Compensation” above and (iv) all executive officers and directors as a group. As April 1, 2024, we had 507,610,326 shares of common stock issued and outstanding.
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Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder.
Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of the date of this Form 10-K are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
| Name and Address (1) | Beneficially Owned | Percentage Owned | ||||||
| Greater than 5% Holders | ||||||||
| Alset Inc. (2) | 505,341,376 | 99.55 | % | |||||
| Officers and Directors | ||||||||
| Chan Heng Fai (3) | 505,341,376 | 99.55 | % | |||||
| Lee Wang Kei | 0 | 0 | % | |||||
| Lum Kan Fai | 0 | 0 | % | |||||
| Lui Wai Leung Alan | 0 | 0 | % | |||||
| All directors and officers as a group (4 persons) | ||||||||
| (1) | Unless otherwise stated, the address is 4800 Montgomery Lane, Suite 210, Bethesda MD 20814, the address of the Company |
| (2) | The address is: 4800 Montgomery Lane, Suite 210, Bethesda, Maryland. |
| (3) | Mr. Chan is deemed to be the beneficial owner of those shares owned by Alset Inc. the majority stockholder is a subsidiary of Alset Inc., a Nasdaq-listed company. Mr. Chan is the Chairman and Chief Executive Officer of Alset Inc. Directly and through an entity he owns, Mr. Chan is the largest stockholder of Alset Inc. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
AI is the Company’s majority stockholder. Chan Heng Fai, the Executive Chairman of the Company’s Board of Directors, is also the Chairman and Chief Executive Officer of AI. In addition, Mr. Chan is also the Chairman, Chief Executive Officer and largest stockholder of AIL., which is the subsidiaries of AI. Lui Wai Leung Alan, the Company’s Chief Financial Officer, is also the Co-Chief Financial Officer of AI and the Chief Financial Officer of AIL. As of the date of this report, the Company has not entered into any employment arrangement with any director or officer, except for our Chief Executive Officer, Lee Wang Kei. Mr. Lee is paid $2,000 per month by HotApp International Limited, a subsidiary of the Company.
On December 31, 2014, the Company owed Alset International Limited (AIL), its former majority stockholder, $4,428,438. This amount reflects a loan of $50,000 and the US equivalent of S$5,702,500. It also includes $32,574 in payments made by AIL on behalf of the Company. On December 28, 2014, AIL loaned the Company under a promissory note (the “Note”) $3,988,831 (S$5,250,533.93). The Note is non-interest bearing and matures on June 25, 2015. The Note has no prepayment penalty. The other loans and expenses covered by AIL for the benefit of the Company are not covered under a loan document.
On July 13, 2015, the Company entered into a Loan Conversion Agreement with AIL, pursuant to which AIL converted outstanding loans made to the Company into common stock of the Company at a rate of $5.00 per share (rounded to the nearest full share). The total amount converted consists of outstanding principal in the amount of $5,250,554 Singapore Dollars or $3,888,437 USD as of exchange rate on July 10, 2015, which amount was evidenced by a promissory note in favor of AIL effective December 28, 2014 (“AIL Promissory Note”). The principal amount of $3,888,437 was converted to common stock of the Company, and in exchange, AIL received 777,687 shares of common stock of the Company. The other loans and expenses covered by AIL for the benefit of the Company are not covered under a loan document.
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On March 25, 2015, HotApp BlockChain Pte. Ltd., formerly known as HotApps International Pte Ltd. (“HIP”) acquired 100% of issued share capital in HotApp International Limited, a Hong Kong company, for a cash consideration of HK$1.00 from Mr. Chan Heng Fai, a substantial stockholder and the Company’s Chairman and former CEO. HotApp International Limited is a corporation incorporated in Hong Kong Special Administrative Region of the People’s Republic of China with a total issued share capital of HK$1.00 represented by one (1) issued share at HK$1.00 each. The consideration of the acquisition was based on the issued share capital of HotApp International Limited, which is principally engaged in the sales and marketing of mobile application. HotApp International Limited was dormant and has a net equity deficiency of HK$5,456 due to incorporation expenses as at the date of acquisition.
On January 25, 2017, the Company entered into an Agreement for Services with iGalen International Inc. (“iGalen”), a company specializing in dietary supplements, to provide iGalen with a mobile enterprise resource planning platform (“Mobile App”) for iGalen’s members. Under the terms of the agreement, iGalen, a U.S.-based network marketing company which was 53% owned by AIL, agreed to share 3% of its entire annual global revenue with the Company for the financial year ending December 31, 2017. In exchange, the Company assumed responsibility for maintaining and upgrading the Mobile App platform, as well as providing the required cloud infrastructure. The Company agreed to absorb the cost of development of the Mobile App, and agreed not to charge individual members for use of the Mobile App’s standard functions.
On March 27, 2017, the Company entered into a Loan Conversion Agreement with AIL, pursuant to which AIL agreed to convert $450,890 of debt owed by the Company to AIL into 500,988,889 common shares at a conversion price of $0.0009. The captioned shares were issued on June 9, 2017, and AIL owned 99.979% of the Company after such transactions.
On December 20, 2018, the Board of Directors of AIL announced its intention to sell up to 3,200,000 shares of the Company to independent third parties at US$0.50 per share for an aggregate cash consideration of up to US$1,600,000. The purpose of this proposed sale was to raise funds to continue to support the general corporate and working capital of the Company, including but not limited to the operating costs of the Company. During 2021, AIL sold 1,449,200 shares of the Company to independent third parties, and AIL owned 99.693% of the Company after such transactions.
On August 30, 2022, Alset International Limited entered into a stock purchase with its controlling stockholder, Alset Inc. (formerly known as Alset EHome International Inc.) in relation to the disposal of 505,341,376 shares of the Company’s common stock, representing approximately 99.69% of the total issued and paid-up share capital of the Company, to Alset Inc. After this transaction, Alset Inc. became our largest stockholder.
On April 24, 2023, the Company completed the issuance of 711,750 shares of the Company’s common stock to 4,736 individuals for services rendered to the Company. The share-based compensation related to this share issuance is approximately $712.
On March 27, 2017, AIL and the Company entered into a Preferred Stock Cancellation Agreement, by which AIL agreed to cancel its 13,800,000 shares of Perpetual Preferred Stock issued by the Company. On June 8, 2017, a Certificate of Retirement for 13,800,000 shares of the Perpetual Preferred Stock has been filed with the office of Secretary of State of the State of Delaware.
On October 25, 2018, HotApp BlockChain Pte. Ltd., formerly known as HotApps International Pte. Ltd. (“HIP”) entered into an Equity Purchase Agreement with DSS Asia Limited (“DSS Asia”), a Hong Kong subsidiary of DSS International Inc. (“DSS International”), pursuant to which HIP agreed to sell to DSS Asia all of the issued and outstanding shares of HotApps Information Technology Co. Ltd., also known as Guangzhou HotApps Technology Ltd. (“Guangzhou HotApps”). Guangzhou HotApps was a wholly owned subsidiary of HIP, which was primarily engaged in engineering work for software development, mainly voice over internet protocol. Guangzhou HotApps was also involved in a number of outsourcing projects, including projects related to real estate and lighting.
The parties to the Equity Purchase Agreement agreed that the purchase price for this transaction would be $100,000, which would be paid in the form of a two-year, interest free, unsecured, demand promissory note in the principal amount of $100,000, and that such note would be due and payable in full in two years. The closing of the Equity Purchase Agreement was subject to certain conditions; these conditions were met and the transaction closed on January 14, 2019.
Mr. Chan Heng Fai is the Executive Chairman and a Member of the Board of Directors of the Company. He is also the Chief Executive Officer and Chairman of Alset International Limited, the majority stockholder of the Company. Mr. Chan is the Chairman, Chief Executive Officer and largest stockholder of Alset Inc., Alset International Limited’s majority stockholder. Mr. Chan is also the Chief Executive Officer and Chairman of DSS International and a significant stockholder and Executive Chairman of the Board of DSS, Inc., which is the sole owner of DSS International. Lum Kan Fai, a member of the Board of Directors of the Company, is also an employee of DSS International.
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We believe that the foregoing transactions were in our best interests. Consistent with Section 144 of the Delaware General Corporation Law, it is our current policy that all transactions between us and our officers, directors and their affiliates will be entered into only if such transactions are approved by a majority of the disinterested directors, are approved by vote of the stockholders or are fair to us as a corporation as of the time they were authorized, approved or ratified by the board. We will conduct an appropriate review of all related party transactions on an ongoing basis, and, where appropriate, we will utilize our audit committee for the review of potential conflicts of interest.
Except as set forth above, none of the following persons has any direct or indirect material interest in any transaction to which we are a party since our incorporation or in any proposed transaction to which we are proposed to be a party:
| (A) | Any of our directors or officers; | |
| (B) | Any proposed nominee for election as our director; | |
| (C) | Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our common stock; or | |
| (D) | Any relative or spouse of any of the foregoing persons, or any relative of such spouse, who has the same house as such person or who is a director or officer of any parent or subsidiary of our Company. |
Item 14. Principal Accounting Fees and Services.
The following table indicates the fees paid by us for services performed for the years ended December 31, 2023 and December 31, 2022:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Audit Fees | $ | 84,255 | $ | 61,650 | ||||
| Audit-Related Fees | 31,953 | 15,413 | ||||||
| Tax Fees | 0 | 0 | ||||||
| All Other Fees | 0 | 0 | ||||||
| Total | $ | 116,108 | $ | 77,063 | ||||
Audit Fees. This category includes the aggregate fees billed for professional services rendered by the independent auditors during the years ended December 31, 2023 and December 31, 2022 for the audit of our financial statements and review of previous years’ Form 10-Qs.
Audit-Related Fees. This category includes the aggregate fees billed for professional services rendered by the independent auditors during the years ended December 31, 2023 and December 31, 2022 that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” In 2023 and 2022, such fees were related to expenses incurred in relation to additional services the auditors performed per request of the foreign auditor of one of our subsidiaries.
Tax Fees. This category includes the aggregate fees billed for tax services rendered in the preparation of our federal and state income tax returns.
All Other Fees. This category includes the aggregate fees billed for all other services, exclusive of the fees disclosed above, rendered during the years ended December 31,2023 and December 31, 2022.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
| (a)(1) | List of Financial Statements included in Part II hereof: |
| (a)(2) | List of Financial Statement schedules included in Part IV hereof: |
None
| (a)(3) | Exhibits |
The following exhibits are included herewith:
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| * | Filed with this document |
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HAPI METAVERSE INC. | ||
| Date: April 1, 2024 | By: | /s/ Lee Wang Kei |
| Lee Wang Kei | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: April 1, 2024 | By: | /s/ Lui Wai Leung, Alan |
| Lui Wai Leung, Alan Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Lee Wang Kei | Chief Executive Officer | April 1, 2024 | ||
| Lee Wang Kei | (Principal Executive Officer) | |||
| /s/ Lui Wai Leung, Alan | Chief Financial Officer | April 1, 2024 | ||
| Lui Wai Leung, Alan | (Principal Financial Officer and Principal Accounting Officer) | |||
| /s/ Chan Heng Fai | Executive Chairman of the Board | April 1, 2024 | ||
| Chan Heng Fai | ||||
| /s/ Lum Kan Fai | Vice Chairman of the Board | April 1, 2024 | ||
| Lum Kan Fai |
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