UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 pursuant to Section 12(b) of the Act: None
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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each the registrant’s classes of common stock, as of the latest practicable date: As of August 8, 2024, there were shares outstanding of the registrant’s common stock $ par value.
Throughout this Report on Form 10-Q, 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. 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 quarterly 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
| 3 |
PART I FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
| 4 |
HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2024 AND DECEMBER 31, 2023 (UNAUDITED)
(Unaudited) June 30, 2024 | December 31, 2023 | |||||||
| 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 | $ | |||||||
| 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 June 30, 2024 and December 31, 2023 | $ | $ | ||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, as of June 30, 2024 and December 31, 2023, 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 are an integral part of these unaudited condensed consolidated financial statements.
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HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (UNAUDITED)
| Three Months Ended June 30, 2024 | Three Months June 30, 2023 | Six Months Ended June 30, 2024 | Six Months June 30, 2023 | |||||||||||||
| Revenues: | ||||||||||||||||
| Food & Beverage | $ | $ | $ | $ | ||||||||||||
| Travel | ||||||||||||||||
| Services Rendered – related party | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| Food & Beverage – depreciation | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Food & Beverage – cost of revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Travel – cost of revenues | ( | ) | ||||||||||||||
| Services Rendered – cost of revenues | ( | ) | ( | ) | ||||||||||||
| Total Cost of Revenues | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Depreciation | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| General and administrative | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impairment loss on goodwill | ( | ) | ( | ) | ||||||||||||
| Total operating expenses | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income – related party | $ | $ | $ | $ | ||||||||||||
| Other income | ||||||||||||||||
| Interest expense – related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized gain (loss) on Securities Investment – related party | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Income (loss) before taxes | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Provision for income taxes | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Less: Net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) attributable to common shareholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Other comprehensive income, net of tax: | ||||||||||||||||
Foreign currency translation adjustment to common shareholders | $ | $ | $ | $ | ||||||||||||
Foreign currency translation adjustment to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Total Other comprehensive income, net of tax: | $ | $ | $ | $ | ||||||||||||
| Comprehensive income / (loss) attributable to common stockholders | ||||||||||||||||
| Net income / (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Foreign currency translation adjustment | ||||||||||||||||
| Total Comprehensive income / (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 income (loss) per common share – basic and diluted | ||||||||||||||||
| Basic and diluted net income (loss) per share | $ | $ | ) | $ | ) | $ | ) | |||||||||
| Weighted average number of shares of common stock outstanding - | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (UnAUDITED)
| Common Shares | Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Hapi Metaverse Inc Stockholders’ Deficit | Non-Controlling Interests | Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net income (loss) for the period | - | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | |||||||||||||||||||||||||||||
| Balance June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Common Shares | Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Hapi Metaverse Inc Stockholders’ Deficit | Non-Controlling Interests | Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||
| Net (loss) for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | |||||||||||||||||||||||||||||
| Balance June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (UNAUDITED)
| 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss from operation including non-controlling interests | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operations activities: | ||||||||
| Depreciation | ||||||||
| Non-cash lease expenses | ||||||||
| Provision for impairment of account receivable | ||||||||
| Common stock issued for services | ||||||||
| Impairment loss on goodwill | ||||||||
| Unrealized loss on securities investment – related party | ||||||||
| Change in operating assets and liabilities: | ||||||||
| 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 party | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in continuing operating activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | $ | ( | ) | $ | ( | ) | ||
| Acquisition of MOC (HK) Limited | ( | ) | ||||||
| Acquisition of Hapi Café Co., Limited (TW) | ||||||||
| Net cash provided by (used in) investing activities | $ | $ | ( | ) | ||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||
| Advance from related party | $ | $ | ||||||
| Net cash provided by financing activities | $ | $ | ||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | $ | ( | ) | $ | ( | ) | ||
| Effects of foreign exchange rates on cash and cash equivalents | ||||||||
| CASH AND CASH EQUIVALENTS at the beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS at the end of period | $ | $ | ||||||
| Supplemental schedule of non-cash investing and financing activities | ||||||||
| Initial Recognition of Operating Lease Right-Of-Use Asset and Lease Liability | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
HAPI METAVERSE INC. (FORMERLY KNOWN AS GIGWORLD INC.)
NOTES TO UNAUDITED CONDENSED 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 accumulated 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 financings 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-Q, 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 accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These condensed consolidated financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2023 filed on April 1, 2024. Results of operations for the six months ended June 30, 2024 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2024. The consolidated balance sheet at December 31, 2023 was derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed consolidated financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise.
Basis of consolidation
The condensed 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.
| 9 |
The Company’s condensed consolidated financial statements include the financial position, results of operations and cash flows of the following entities as of June 30, 2024 and December 31, 2023, as follows:
| Attributable interest as of, | ||||||||||
| Name of subsidiary consolidated under Hapi Metaverse Inc. | State or other jurisdiction of incorporation or organization | June 30, 2024 |
December
31, 2023 |
|||||||
| % | % | |||||||||
| HotApp BlockChain Pte. Ltd. | Singapore | |||||||||
| HotApp International Limited | Hong Kong | |||||||||
| 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 | *6 | |||||||
| Guangzho Leyouyou Catering Management Co., Ltd. | People’s Republic of China | *7 | *7 | |||||||
| Hapi Travel Ltd. | Hong Kong | *8 | *8 | |||||||
| Hapi Acquisition Pte. Ltd. | Singapore | *9 | *9 | |||||||
| NewRetail-AI Inc. | Nevada | *10 | *10 | |||||||
| Hapi Cafe Co., Ltd | Taiwan | *11 | - | |||||||
| *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 holds
Accordingly,
the Company in total holds more than
| *2 |
HotApp
BlockChain Pte. Ltd. is the owner of
| 10 |
| *3 | ||
| *4 |
| *5 | ||
| *6 |
| *7 |
| *8 |
HotApp
BlockChain Pte. Ltd. is the owner of HTL. This business was acquired on June 14, 2023 via transaction under common control. The acquisition
result in a deemed dividend of $
| *9 | ||
| *10 | ||
| *11 |
HAPL
is the owner of HCTW. This business was acquired on April 18, 2024 from an independent third party. Goodwill of $
Use of estimates
The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues, cost and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s condensed consolidated financial statements include revenue recognition, the useful lives and impairment of property and equipment, valuation allowance for deferred tax assets.
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.
| 11 |
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. |
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 June 30, 2024, 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 shares of common shares and
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:
| Office Equipment | ||
| Operating Equipment | ||
| Leasehold improvement |
| 12 |
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 $
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.
| 13 |
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 Hong Kong since October 2022 and in the PRC since January 2023. The Company recognizes this revenue at a point in time when the Company provides the product to the customer.
A
project providing services to Value Exchange Int’l (Hong Kong) Limited, a subsidiary of Value Exchange International, Inc.
(“VEII”) located in Hong Kong, was conducted on a monthly basis from 2022 to 2023. 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 airfare and travel accommodation booking services in HK. The Company recognizes this revenue at a point in time when the Company provides the service to the customer.
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”).
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, Mainland China and Taiwan are maintained in their local currencies, the Singapore Dollar (S$), Hong Kong Dollar (HK$), Chinese Yuan (CN ¥) and New Taiwan Dollar (NT$), 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, Chinese Yuan and New Taiwan Dollar, 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).
| 14 |
For
the three and six months ended June 30, 2024, the Company recorded other comprehensive gain from a translation 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 condensed consolidated statements of operation and comprehensive income, and within equity in the Condensed Consolidated Balance Sheets, separately from equity attributable to owners of the Company.
On
June 30, 2024 and December 31, 2023, the aggregate non-controlling interests in the Company were $(
Recent accounting pronouncement
In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
Note 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued expenses and other current liabilities consisted of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued professional fees | ||||||||
| Other account payable and accrued expenses | ||||||||
| Total | $ | $ | ||||||
| 15 |
Note 4. PROPERTY AND EQUIPMENT, NET
Property and Equipment, net consisted of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Cost | ||||||||
| Leasehold improvement | $ | $ | ||||||
| Computer equipment | ||||||||
| Total cost | $ | $ | ||||||
| Less: accumulated depreciation # | ||||||||
| Leasehold improvement | $ | $ | ||||||
| Computer equipment | ||||||||
| Total accumulated depreciation | $ | $ | ||||||
| NBV at the end of period | ||||||||
| Leasehold improvement | $ | $ | ||||||
| Computer equipment | ||||||||
| Total NBV | $ | $ | ||||||
| # | –Total
depreciation expenses charged for the six months ended June 30, 2024 and 2023 were $ |
Note 5. 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
June 30, 2024 and December 31, 2023, The Company owned shares of VEII’s outstanding common stock and
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Financial assets measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of June 30, 2024 and December 31, 2023:
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| June 30, 2024 | ||||||||||||||||
| 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, 2023 | ||||||||||||||||
| Asset | ||||||||||||||||
| Investment Securities – Fair Value | $ | $ | $ | $ | ||||||||||||
| Warrants – VEII | ||||||||||||||||
| Total Investment in securities at Fair Value | $ | $ | $ | $ | ||||||||||||
Fair
value gain on securities investment was $
Fair
value loss on securities investment was $
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 June 30, 2024 and December 31, 2023, the fair value of the
warrants was $
The fair value of the VEII warrants under level 2 category as of June 30, 2024, and December 31, 2023 was calculated using a Black-Scholes valuation model valued with the following weighted average assumptions:
| June 30, 2024 | December 31, 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 6. 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 (“AIL”)
is the Company’s former majority stockholder. On August 30, 2022, AIL entered into a stock purchase agreement 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
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The Company sold one of its subsidiaries, HWH World Pte. Limited, to Health Wealth Happiness Pte. Ltd (a subsidiary of former majority stockholder AIL) 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 showcase. 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.
As
of June 30, 2024, the Company has an amount due to Alset Inc. of $
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,
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 $
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On
December 15, 2023, the Company and AIL entered into a Subscription Agreement (the “Subscription Agreement”). Pursuant to
the Subscription Agreement, the Company has borrowed $
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, three other members of the Board of Directors of Alset Inc., our majority stockholder, are also members of the Board of Directors of VEII (Wong Shui Yeung, Wong Tat Keung and Lim Sheng Hon, Danny).
Note 7. 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 completed its 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 $
On April 18, 2024, the Company completed its F&B business acquisition of Hapi Café Company Limited (“HCTW”), a F&B business started in Taiwan. 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
of the date of acquisition, HCTW had a total of $
As
a result of the acquisition of HCTW, goodwill of $
The table below reflects the Company’s estimates of the acquisition date fair value of the assets acquired and liabilities assumed for the 2024 acquisition:
| HCTW | ||||
| Purchase Price | ||||
| Cash | $ | |||
| Total purchase consideration | $ | |||
| Purchase Price Allocation | ||||
| Assets acquired | ||||
| Current assets | $ | |||
| Deposit | ||||
| Property and Equipment, net | ||||
| Operating lease right-of-use assets, net | ||||
| Total assets acquired | $ | |||
| Liabilities assumed: | ||||
| Current liabilities | $ | ( | ) | |
| Due to related party | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Total liabilities assumed | $ | ( | ) | |
| Net assets acquired | $ | ( | ) | |
| Goodwill | $ | |||
| Total purchase consideration | $ | |||
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 following table summarizes changes in the carrying amount of goodwill for the six months ended June 30, 2024 and the year ended December 31, 2023.
June 30, 2024 | December 31, 2023 | |||||||
| Balance at beginning of the period | $ | $ | ||||||
| Add: acquisition of HCTW | ||||||||
| Less: impairment loss of goodwill of HCTW | ( | ) | ||||||
| Foreign currency exchange adjustment | ( | ) | ||||||
| Balance as of end of the period | $ | $ | ||||||
Note 8. LEASES
The
Company has operating leases for its F&B stores and warehouse in Hong Kong. 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
| 19 |
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 $
June 30, 2024 | December 31, 2023 | |||||||
| Right-of-use assets | $ | $ | ||||||
| Lease liabilities - current | ||||||||
| Lease liabilities - non-current | ||||||||
| Total lease liabilities | $ | $ | ||||||
As of June 30, 2024, the aggregate future minimum rental payments under non-cancelable agreement are as follows:
| Maturity of Lease Liabilities | Total | |||
| 12 months ended June 30, 2025 | $ | |||
| 12 months ended June 30, 2026 | ||||
| 12 months ended June 30, 2027 | ||||
| 12 months ended June 30, 2028 | ||||
| Total undiscounted lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| Operating lease liabilities - current | ||||
| Operating lease liabilities - non-current | $ | |||
Note 9. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the filing date of our Form 10-Q for the six months ended June 30, 2024.
On
July 15, 2024, the Company entered into a Convertible Credit Agreement (“Credit Agreement”) with VEII. On July 15, 2024,
the Company loaned VEII $
| 20 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:
1. our future operating results;
2. our business prospects;
3. any contractual arrangements and relationships with third parties;
4. the dependence of our future success on the general economy;
5. any possible financings; and
6. the adequacy of our cash resources and working capital.
These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of filing of this Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.
Background and business
Hapi Metaverse Inc., formerly known as GigWorld Inc. (the “Company” or “Group”), was incorporated in the State of Delaware on March 7, 2012. The Company’s initial business plan was to be a financial acquisition intermediary which would serve buyers and sellers for companies that are in highly fragmented industries. 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 (“HIP”) from Alset International Limited (“AIL”), formerly known as Singapore eDevelopment Limited. 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 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.
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.
| 21 |
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 and network marketing platforms. 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 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, Alset Inc., 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 is be principally engaged in the food and beverage business in Hong Kong.
| 22 |
On October 5, 2022, HCHK acquired MOC HK Limited (“MOC”) and is 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 and is 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.
On April 18, 2024, HAPL acquired Hapi Café Company Limited (“HCTW”) and is principally engaged in the food and beverage business in Republic of China (Taiwan).
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 plan of operations:
| ● | Operation of global eCommerce marketplace bringing quality lifestyle products; | |
| ● | partner with technology providers to 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 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. |
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During 2024 we plan to:
| ● | Further enhance our software solution to fit the need of direct to consumer commerce with AI an Metaverse services; | |
| ● |
Engage in the Development and operation of a Global eCommerce Marketplace, www.hapi-marketplace.com, primarily for direct to consumer lifestyle products; 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. |
Our Business Model and User Monetization Plan
We plan to generate revenue through the following:
| ● | Operation of global ecommerce marketplace; | |
| ● | IT services in serving retail business sector; 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; | |
| ● | leveraging the membership base for Hapi Cafe and direct marketing business of the group for launching of global marketplace; | |
| ● | Continuous strengthening of new technological development 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.
| 24 |
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 contraction 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.
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. |
Results of Operations
Summary of Key Results
For the unaudited three months period ending June 30, 2024 and 2023
Revenue
Revenue consists primarily of F&B business, MOC, HCDG and HCTW, were $87,153 and $52,904, respectively, for the three months ended June 30, 2024 and 2023. And revenue generated from the travel business, HTL, were $0 and $0 respectively, for the three months ended June 30, 2024 and 2023. Additional revenue also generated services rendered to customers in the amount of $0 and $14,034, respectively, for the three months ended June 30, 2024 and 2023. 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 and this service was terminated on June 30, 2023. Total revenues were $87,153 and $66,938, respectively, for the three months ended June 30, 2024 and 2023. The increase in revenue was mainly generated from HCTW after the acquisition on April 18, 2023.
Cost of revenue
Cost of revenue consists primarily of F&B revenue were $27,783 and $16,284 respectively, for the three months ended June 30, 2024 and 2023, of which $2,531 and $1,578 were depreciation for computer equipment and leasehold improvement respectively. The cost from outside service fees incurred directly to the project, total cost of revenue for the six months ended June 30, 2024 and 2023 were $0 and $4,570, respectively. Total cost of revenue for the three months ended June 30, 2024 and 2023 were $27,783 and $20,854, respectively. The increase in cost of revenue is due to HCTW after the acquisition on April 18, 2023.
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 three months ended June 30, 2024 and 2023 were $708,662 and $173,062, of which $353,616 and $0 were impairment loss on goodwill, $1,032 and $618 were depreciation expenses and $3,512 and ($365) 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 $126,142 increase of salary expenses due to the expansion in the F&B and the travel business, and $353,616 for the impairment on goodwill after the acquisition of HCTW.
Other Income
Total other income for the three months ended June 30, 2024 and 2023 were $1,548,427 and $19,886, of which $22,271 and $27,944 in interest income, $1,639,043 and $68,881 in unrealized gain on securities investment, $515 and $10 in other income, ($40,393) and ($27,923) in interest expenses, and ($73,009) and ($49,046) in foreign exchange loss, respectively. The increase of other income was mainly due to $1,570,162 increase of expenses due to the fair value loss of VEII shares and warrants.
For the unaudited six months period ending June 30, 2024 and 2023
Revenue
Revenue consists primarily of F&B business, MOC, HCDG and HCTW, were $131,876 and $101,427, respectively, for the six months ended June 30, 2024 and 2023. Revenue generated from the travel business, HTL, was $2,380 and $0 respectively, for the six months ended June 30, 2024 and 2023. Additional revenue also generated services rendered to customers in the amount of $0 and $28,074, respectively, for the six months ended June 30, 2024 and 2023. 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, and this service was terminated on June 30, 2023. Total revenues were $134,256 and $129,501, respectively, for the six months ended June 30, 2024 and 2023. The increase in revenue was mainly generated from HCTW after the acquisition on April 18, 2023.
Cost of revenue
Cost of revenue consists primarily of F&B revenue were $41,837 and $35,264 respectively, for the six months ended June 30, 2024 and 2023, of which $2,531 and $6,391 were depreciation for computer equipment and leasehold improvement respectively. The cost from Travel revenue were $2,370 and $0 respectively, for the six months ended June 30, 2024 and 2023. The cost from outside service fees incurred directly to the project, total cost of revenue for the six months ended June 30, 2024 and 2023 were $0 and $9,138, respectively. Total cost of revenue for the six months ended June 30, 2024 and 2023 were $44,207 and $44,402, respectively.
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 six months ended June 30, 2024 and 2023 were $1,029,511 and $427,386, of which $353,616 and $0 were impairment loss on goodwill, $2,009 and $1,089 were depreciation expenses and $5,923 and $3,564 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 $247,144 increase of salary expenses due to the expansion in the F&B and the travel business, and $353,616 for the impairment on goodwill after the acquisition of HCTW.
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Other Income (Expense)
Total other income (expenses) for the six months ended June 30, 2024 and 2023 were ($1,903,990) and ($1,006,989), of which $44,412 and $39,000 in interest income, ($1,747,659) and ($964,331) in unrealized loss on securities investment, $3,637 and $11 in other income, ($80,783) and ($38,970) in interest expenses, and ($123,597) and ($42,699) in foreign exchange loss, respectively. The increase of other expenses was mainly due to $81,116 increase of expenses due to foreign exchange loss, and $783,328 increase of expenses due to the fair value loss of VEII shares and warrants.
Liquidity and Capital Resources
At June 30, 2024, we had cash of $416,722 and a working capital deficit of $5,074,914. The increase in the working capital deficit during the six months ended June 30, 2024 was due to the increase in the loss on investment in securities.
We had a total stockholders’ deficit of $5,270,812 and an accumulated deficit of $16,256,945 as of June 30, 2024 compared with a total stockholders’ deficit of $2,563,665 and an accumulated deficit of $13,414,222 as of December 31, 2023. This difference is primarily due to the net loss incurred during the period.
For the six months ended June 30, 2024, we recorded a net loss of $2,843,452.
We had net cash used in operating activities of $775,192 for the six months ended June 30, 2024. We had a negative change of $43,879 due to related parties accounts receivable, $109,870 due to change in operating lease liability and $26,376 due to accounts payable and accrued expenses. A positive change of $1,747,659 due to unrealized loss on security investment, $113,232 in non-cash lease expenses, $353,616 due to impairment loss on goodwill, $3,859 due to prepaid expenses and $228 due to account receivable in trade.
For the six months ended June 30, 2023, we recorded a net loss of $1,349,276.
We had net cash used in operating activities of $410,873 for the six months ended June 30, 2023. We had a negative change of $58,174 due to accounts receivable, $16,569 due to prepaid expenses and $56,309 due to change in operating lease liability. A positive change of $964,332 due to unrealized loss on security investment, $59,520 in non-cash lease expenses and $9,881 due to accounts payable and accrued expenses.
For the six months ended June 30, 2024, we had net cash provided by investing activities of $873, of which $4,758 negative change was due to purchase of property and equipment, $5,631 positive change was due to the acquisition of HCTW. For the six months ended June 30, 2023, we had net cash used in investing activities of $216,580, of which $214,993 was due to the acquisition of Hapi Travel.
For the six months ended June 30, 2024, we had net cash provided by financial activities of $382,487, of which $382,487 was due to advances from related parties. For the six months ended June 30, 2023, we had net cash provided by financial activities of $562,547, of which $562,547 was due to advances from related parties.
As of June 30, 2024, we have fixed operating office lease agreements in Hong Kong, Taiwan 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 $16,256,945 from inception though June 30, 2024 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.
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Critical Accounting Policies
Our discussion and analysis of the financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these 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 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 financial statements as of a given date.
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 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 Hong Kong since October 2022, in the PRC since January 2023, and in Taiwan since April 2024.
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 $0 of contract liabilities remained as of June 30, 2024. The balance of customer deposits at June 30, 2024 and December 31, 2023 was $0, June 30, 2023, and December 31, 2022 was $2,789, and $2,802, respectively.
In June 2023, the Company acquired a travel business and began generating revenue by providing travel packaging and ticketing services in HK.
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Transfers of Cash to and from Our Subsidiaries
Our equity structure is a direct holding company structure. Within our direct holding company structure, the cross-border transfer of funds between our corporate entities is legal and compliant with the laws and regulations of the PRC. After the foreign investors’ funds enter HMI, the funds can be directly transferred to the PRC operating companies through its subsidiaries. Specifically, HMI is permitted under the Delaware laws to provide funding to our subsidiary, HCHK, in Hong Kong through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. HCHK is also permitted under the laws of Hong Kong to provide funding to HMI through dividend distribution without restrictions on the amount of the funds. As of the date hereof, there have not been any dividends or distributions made between the holding company, its subsidiaries, and to investors. HCHK is also permitted by the laws of the PRC to provide funding in the form of loans or capital injection to HCCN and its subsidiaries for their daily operations.
We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the Board of Directors deems relevant, and subject to the restrictions contained in any future financing instruments. Subject to the Delaware General Corporation Law and our bylaws, our Board of Directors may authorize and declare a dividend to shareholders at such time and of such an amount as it thinks fit if they are satisfied, on reasonable grounds, that immediately following the dividend the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due.
To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our common stock.
Cash dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at up to 10%.
As of the date hereof, our PRC subsidiaries have not made any transfers or distributions. As of the date hereof, no cash or asset transfers have occurred between the Company and its subsidiaries. We do not expect to pay any cash dividends in the foreseeable future. Furthermore, as of the date hereof, no cash generated from one subsidiary is used to fund another subsidiary’s operations and we do not anticipate any difficulties or limitations on our ability to transfer cash between subsidiaries. We have also not installed any cash management policies that dictate the amount of such funds and how such funds are transferred.
PRC Regulations
In accordance with PRC regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise (“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit, as reported in the FIE’s PRC statutory accounts. A FIE is required to allocate at least 10% of its annual after-tax profit to the surplus reserve until such reserve has reached 50% of its respective registered capital (based on the FIE’s PRC statutory accounts). The aforementioned reserves may only be used for specific purposes and may not be distributed as cash dividends. Until such contribution of capital is satisfied, the FIE is not allowed to repatriate profits to its stockholders, unless approved by the State Administration of Foreign Exchange. After satisfaction of this requirement, the remaining funds may be appropriated at the discretion of the FIE’s board of directors. Our subsidiary HCCN is the PRC holding company of the other two PRC subsidiaries, and qualifies as a FIE and is therefore subject to the above-mandated regulations on distributable profits.
Additionally, in accordance with PRC corporate law, a domestic enterprise is required to maintain a surplus reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and may not be distributed as cash dividends. HCDG is the subsidiary of HCCN that conducts operations in China and HCGZ is the subsidiary of HCCN that does not conduct any operations in China, were established as domestic enterprises; therefore, each is subject to the above-mentioned restrictions on distributable profits.
As a result of PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside, prior to payment of dividends, in a general reserve fund, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company as a dividend or otherwise.
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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 condensed 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 based on their characteristics.
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 period ended June 30, 2024 or 2023, 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.
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.
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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 48.68%) of VEII. Which are recorded at fair value of $1,056,039 and $1,425,654 at June 30, 2024 and December 31, 2023, respectively. 1,747,659 and ($964,331) in unrealized (loss) were recognized during the six months ended June 30, 2024 and 2023, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10(f)(1) of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of our Quarterly Report on Form 10-Q, 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 June 30, 2024. 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 June 30, 2024 conducted as part of our preparation of our interim 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 June 30, 2024, we had material weaknesses: 1) in our internal control over financial reporting because our small accounting team; 2) lack of higher-level supervisory or review function, currently furnished by a related-party, manages both bookkeeping and accounting functions and therefore prevents us from segregating duties within our internal control system.
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Changes in the Company’s Internal Controls Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any legal proceedings. Management is not aware of any legal proceedings proposed to be initiated against us. However, from time to time, we may become subject to claims and litigation generally associated with any business venture operating in the ordinary course.
ITEM 1A. RISK FACTORS
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS
Exhibit Number Description
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer |
| 101.INS | Inline XBRL Instance Document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema. |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase. |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase. |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HAPI METAVERSE INC. | ||
| Date: August 8, 2024 | By: | /s/ Lee Wang Kei |
| Lee Wang Kei | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 8, 2024 | By: | /s/ Lui Wai Leung, Alan |
| Lui Wai Leung, Alan | ||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
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