Notes
to Unaudited Consolidated Financial Statements
1.
The Company and Significant Accounting Policies
Organizational
Background
KinerjaPay
Corp. (the “Company”) is a Delaware corporation, was incorporated under the laws of the State of Delaware on February
12, 2010 as Solarflex Corp. The business plan of Solarflex was to develop a commercial application of the design in a patent of
a “Solar element and method of manufacturing the same.” On November 10, 2015, this plan was abandoned and all related
contracts and agreements related to the solar energy business ceased.
On
December 1, 2015, the Company entered into a license agreement with P.T. Kinerja Indonesia (“P.T. Kinerja”), an entity
organized under the laws of Indonesia and controlled by Mr. Edwin Ng, our chairman, CEO and control stockholder, for an exclusive,
world-wide license to use and commercially exploit certain technology and intellectual property and its website, KinerjaPay.com.
Pursuant to the License Agreement, the Company was granted the exclusive, world-wide rights to the KinerjaPay IP, an e-commerce
platform that provides users with the convenience of e-wallet service for bill transfer and online shopping and is among the first
portals to allow users the convenience to top-up phone credit. In conjunction with this agreement, the Company changed its name
from Solarflex Corp. to KinerjaPay Corp. On April 6, 2016, P.T. Kinerja Pay Indonesia, a wholly-owned subsidiary of the Company,
was organized under the laws of Indonesia.
On
August 31, 2018, the Company completed its acquisition of PT. Kinerja Indonesia, the licensor of the Company’s
IP technology and controlled by Edwin Ng, our CEO and principal shareholder. The result of this acquisition will enable the Company
to consolidate all of its previous accumulated gross revenue to date. At the same time, the Company will end its existing service
agreement with PT. Kinerja Indonesia dated February 20, 2016. In addition, the Company now has the ability to consolidate its
IP technology and manage its 1,500 square-feet data center located in North Sumatra which the Company plans to expand to provide
cloud computing services as well as data mining from the Company’s existing customer base. The Company believes that
the acquisition will make the Company more cost efficient and potentially generate more revenues from other IT services. The terms
of the acquisition provide for the payment of $1,200,000 to PT Kinerja Indonesia’s previous shareholders, as follows:
(i) As soon as the acquisition is in effect, the Service Agreement between the Company and its subsidiary and PT Kinerja Indonesia
is terminated, and the Company is obliged to distribute the shares of KinerjaPay Corp (“KPAY”) amounting to 1,333,333
shares; and (ii) The acquisition will be paid by the Buyer pursuant to the terms of a promissory note (the “Note”)
payable on a date twenty-four (24) months from the date of this Agreement, bearing the interest at the rate of 6% per annum, and
shall be subject to the Buyer’s right to repay the Note.
The
accompanying consolidated financial statements of the Company were prepared from the accounts of the Company under the
accrual basis of accounting.
Basis
of Presentation:
The
accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established
sufficient revenue to cover its operating costs, and as such, has incurred an operating loss since inception. Further, as of September
30, 2018, the cash resources of the Company were insufficient to meet its current business plan. These and other factors raise
substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not
include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Principles
of Consolidation:
The
financial statements include the accounts of KinerjaPay Corp. and its wholly-owned subsidiaries, P.T. Kinerja Pay
Indonesia and P.T. Kinerja Indonesia. All significant inter-company balances and transactions have been eliminated.
Significant
Accounting Policies
Use
of Estimates:
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from the estimates.
Cash
and Cash Equivalents:
For
financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities
of three months or less to be cash or cash equivalents. There were no cash equivalents as of September 30, 2018 and December 31,
2017.
Property
and Equipment:
New
property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items,
repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected
in the operating results in the period the event takes place.
Valuation
of Long-Lived Assets:
We
review the recoverability of our long-lived assets including equipment, goodwill and other intangible assets, when events or changes
in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment
is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and
without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment
loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based
on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived
assets, as well as other fair value determinations.
Other
Assets:
Other
assets consist of cash payments made to Ace Legends Pte. Ltd. in connection with a partnership in game development for a total
of $100,000 and $60,000, as of September 30, 2018 and December 31, 2017, respectively. The Company entered into an agreement with
Ace Legends Pte Ltd on July 31, 2017, but the agreement was amended subsequently to commence on December 1, 2017. The agreement
is for a period of 18 months and as part of the agreement, the Company agreed to issue 80,000 shares of common stock that were
valued at $128,000 the date of the agreement. The shares were issued on March 7, 2018 reducing other assets and stock payable.
As of September 30, 2018, and December 31, 2017, $58,893 and $9,292 of amortization expense has been recognized, respectively.
On
November 3, 2017, the Company issued a commitment fee note payable of $75,000 to Tangiers Global, LLC (“Tangiers”)
in connection with an investment agreement as discussed throughout the report. The Company did not receive cash in connection
with this commitment fee note. We recorded the commitment fee as an asset that will be netted with funds received once shares
of common stock are issued under the investment agreement. No shares have been issued under the terms of the investment agreement.
On
November 9, 2018, the Company filed a Form NT to withdraw its regiatration statement related to the offering of
shares relating to the investment agreement.
Accounts
Receivable:
Accounts
receivable consist primarily of trade receivables from customers. The Company provides an allowance for doubtful trade receivables
equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and
market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful
trade receivables was $11,936 and $0 at September 30, 2018 and December 31, 2017, respectively.
Stock-Based
Compensation:
Stock-based
awards are accounted for using the fair value method in accordance with ASC 718, Share-Based Payments. Our primary type of share-based
compensation consists of stock options. We use the Black-Scholes option pricing model in valuing options. The inputs for the valuation
analysis of the options include the market value of the Company’s common stock, the estimated volatility of the Company’s
common stock, the exercise price of the warrants and the risk-free interest rate.
Accounting
For Obligations And Instruments Potentially To Be Settled In The Company’s Own Stock: We account for obligations and instruments
potentially to be settled in the Company’s stock in accordance with FASB ASC 815, Accounting for Derivative Financial Instruments.
This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially
settled in, the Company’s own stock.
Fair
Value of Financial Instruments:
FASB
ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets
and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC
825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction
between willing parties. At September 30, 2018 and December 31, 2017, the carrying value of certain financial instruments (cash
and cash equivalents, accounts payable and accrued expenses.) approximates fair value due to the short-term nature of the instruments
or interest rates, which are comparable with current rates.
Fair
Value Measurements:
The
Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three
levels of inputs which prioritize the inputs used in measuring fair value are:
Level
1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that
the Company has the ability to access.
Level
2: Inputs to the valuation methodology include:
-
Quoted prices for similar assets or liabilities in active markets;
-
Quoted prices for identical or similar assets or liabilities in inactive markets;
-
Inputs other than quoted prices that are observable for the asset or liability;
-
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If
the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term
of the asset or liability.
Level
3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The
assets or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and
minimize the use of unobservable inputs. The following table presents assets that were measured and recognize at fair value on
September 30, 2018 and December 31, 2017 and the years then ended on a recurring basis:
Fair
Value Measurements at September 30, 2018
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets for Identical Assets
|
|
|
|
Significant
Other Observable
Inputs
|
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
Total
|
|
|
|
(Level
1)
|
|
|
|
(Level
2)
|
|
|
|
(Level
3)
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
assets and liabilities at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Fair
Value Measurements at December 31, 2017
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets for Identical Assets
|
|
|
|
Significant
Other Observable
Inputs
|
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
Total
|
|
|
|
(Level
1)
|
|
|
|
(Level
2)
|
|
|
|
(Level
3)
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
assets and liabilities at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
When
the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in
current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy
based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur.
For the periods ended September 30, 2018 and December 31, 2017, there were no significant transfers of financial assets or financial
liabilities between the hierarchy levels.
Revenue
from Purchased Products:
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue
when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be
reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met:
(1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has
occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably
assured.
There
was no impact on the Company’s financial statements as a result of adopting Topic 606 for the nine months ended September
30, 2018 and 2017, or the twelve months ended December 31, 2017.
Earnings
per Common Share:
We
compute net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both basic
and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss)
available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method
and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period
is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS
excludes all dilutive potential shares if their effect is anti-dilutive.
Common
Stock Split:
On
January 15, 2016, we declared a reverse split of our common stock. The formula provided that every thirty (30) issued and outstanding
shares of common stock of the Corporation be automatically split into one (1) share of common stock. The reverse split was effective
upon receipt of approval from FINRA. Except as otherwise noted, all share, option and warrant numbers have been restated to give
retroactive effect to this split. All per share disclosures retroactively reflect post-split shares.
Inventories
Inventories
are stated at the lower of cost or market value, using the first-in, first-out convention. Inventories consist of raw materials
in the form of coins and finished goods, such as instant noodles for sale. The gold-plated coins were manufactured in connection
with the far-future plan of coin offerings and supposed to be distributed at the first launch of the coin offering. However, the
Company has determined not to proceed at this time with the previously announced coin offering and may, in fact, abandon
the coin offering. As of September 30, 2018, and December 31, 2017, the Company had inventories of $24,311 and $0, respectively.
Income
Taxes:
We
have adopted ASC 740, Accounting for Income Taxes. Pursuant to ASC 740, we are required to compute tax asset benefits for net
operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements
because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future
years.
We
must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates
and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition
of revenue and expense for tax and financial statement purposes.
Deferred
tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and
liabilities using the tax rates and laws in effect when the differences are expected to reverse. ASC 740 provides for the recognition
of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets
is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit
from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We have determined it more likely
than not that these timing differences will not materialize and have provided a valuation allowance against substantially all
of our net deferred tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related
valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we
would record the related adjustment to income during the period in which we make the determination. Our tax rate may also vary
based on our results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.
In
addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations.
We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether,
and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary,
we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer
necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded
tax liability is less than we expect the ultimate assessment to be.
ASC
740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and
for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax
is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available
tax benefits not expected to be realized.
Uncertain
Tax Positions:
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. In accordance with the guidance of FASB ASC 740-10, Accounting for Uncertain Income Tax Positions, the benefit of a
tax position is recognized in the financial statements in the period during which, based on all available evidence, management
believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet
the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent
likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits
in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the
taxing authorities upon examination.
Our
federal and state income tax returns are open for fiscal years ending on or after December 31, 2013. We are not under examination
by any jurisdiction for any tax year. At September 30, 2018 we had no material unrecognized tax benefits and no adjustments to
liabilities or operations were required under FASB ASC 740-10.
Recent
Issued Accounting Standards
In October 2018, FASB released ASU 2018-17,
Consolidation (Topic 810), regarding Targeted Improvements to Related Party Guidelines for Variable Interest Entities. The amendments
in this Update affect reporting entities that are required to determine whether they should consolidate a legal entity under the
guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation – Overall, including private
companies that have elected the accounting alternative for leasing arrangements under common control. The amendments for the private
company accounting apply to all entities except for public business entities and non-for-profit entities as defined in the Master
Glossary of the FASB Accounting Standards Codification and employee benefit plans within the scope of Topics 960, 962, and 965
on plan accounting.
In August 2018, FASB released ASU 2018-14,
Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20) regarding Disclosure
Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. They apply to all employers that sponsor defined
benefit pensions or other postretirement plans.
In August 2018, FASB released ASU 2018-13,
Fair Value Measurement (Topic 820) regarding Disclosure Framework – Changes to the Disclosure Requirements for Fair Value
Measurement. The amendments modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement,
based on the concepts in the Concepts Statements, including the consideration on costs and benefits.
In June 2018, FASB released ASU 2018007,
Compensation – Stock Compensation to improve the Nonemployee Share-Based Payment Accounting. The amendment is as follow:
(1) Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment award
within the scope of Topic 718 are measured at grand-date fair value of the equity instruments that an entity is obligated to issue
when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit
from the instruments have been satisfied. (2) Equity-classified nonemployee share-based payment awards are measured at grant date.
The definition of grant date is amended to generally state the date at which a grantor and a grantee reach a mutual understanding
of the key terms and conditions of a share-based payment awards. (3) Consistent with the accounting for employee share-based payment
awards, an entity considers the probability of satisfying performance conditions when nonemployee share-based payment awards contain
such conditions.
In March 2018, FASB released ASU 2018-04,
Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 920) which amended the SEC Paragraphs Pursuant
to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273, and add to Regulation S-X Rule 3A-04 810-10-S99-4 that in
general, there shall be eliminated intercompany items and transactions between persons included in the (a) consolidated financial
statements being filed and, as appropriate, (b) unrealized intercompany profits and losses on transactions between persons for
which financial statements are being filed and the persons the investment in which is presented in such statements by the equity
method. If such eliminations are not made, a statement of reasons and the methods of treatment shall be made.
In February 2018, FASB released ASU 2018-03,
Technical Correction and Improvements to Financial Instruments – Overall (Subtopic 825-10) on Recognizing and Measurement
of Financial Assets and Financial Liabilities to update the ASU No. 2016-01. This amendment clarifies that: (1) an entity measuring
an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance
with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and identical or similar
investment of the same issuer. (2) For equity Securities without a Readily Determinable Fair Value, the amendment clarifies that
the adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that
the observable transaction for a similar security took place. (3) for Forward Contracts and Purchased Options, the amendment clarifies
that measuring the entire value of forward contracts and purchased options is required when observable transactions occur on the
underlying equity securities. (4) Presentation Requirements for Certain Fair Value Options Liabilities, the amendment clarifies
that when the fair value option is elected for a financial liability, the guidance in paragraph 825-10-45-5 should be applied
regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging-Embedded Derivatives,
or 825-10, Financial Instruments-Overall. (5) For Fair Value Option Liabilities Denominated in a Foreign Currency, the amendments
clarify that for financial liabilities for which the fair value option is elected, the amount of change in fair value that relates
to the instrument-specific credit risk should first be measured in the currency of denomination when presented separately from
the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability
should be remeasured into the functional currency of the reporting entity using end-of period spot rates. The amendment clarifies
that the prospective transition approach for equity securities without a readily determinable fair value in the amendments in
Update 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the
guidance in Topic 944, Financial Services-Insurance, should apply a prospective transition method when applying the amendments
related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective
transition method consistently to the entity’s entire population of equity securities for which the measurement alternative
is elected.
Management does not anticipate that the
adoption of these standards will have a material impact on the financial statements.
Effective
in January 2017, the Company adopted Accounting Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification
of Deferred Taxes, which changes how deferred taxes are classified in organizations’ balance sheets. The ASU eliminates
the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified
balance sheet. Instead, all deferred tax assets and liabilities will be required to be classified as noncurrent. The amendments
apply to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial
statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods (i.e.,
in the first quarter of 2017 for calendar year-end companies). Early adoption is permitted for all entities as of the beginning
of an interim or annual reporting period. The guidance may be applied either prospectively, for all deferred tax assets and liabilities,
or retrospectively (i.e., by reclassifying the comparative balance sheet). If applied prospectively, entities are required to
include a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required
to include quantitative information about the effects of the change on prior periods. The adoption of this ASU did not have a
significant impact on the condensed consolidated financial statements.
Management
does not anticipate that the adoption of these standards will have a material impact on the financial statements.
Effective
in January 2017, the Company adopted Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based
payments and affect all organizations that issue share-based payment awards to their employees.
Several
aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b)
classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments
also simplify two areas specific to private companies.
For
public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods
within those annual periods. Early adoption is permitted in any interim or annual period periods (i.e., in the first quarter of
2017 for calendar year-end companies).
The
adoption of these ASU’s did not have a significant impact on the consolidated financial statements.
In
May 2014, The FASB issued Accounting Standard Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).
ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes
most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 also requires entities to disclose
sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers.
During
2016, the FASB issued several Accounting Standard Updates that focuses on certain implementation issues of the new revenue recognition
guidance including Narrow-Scope Improvements and Practical Expedients, Principal versus Agent Considerations and Identifying Performance
Obligations and Licensing. An entity should apply the amendments in this ASU using one of the following two methods:
1.
Retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or,
2.
Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. If
an entity elects the latter transition method, it also should provide certain additional disclosures.
For
a public business entity, the amendments in ASU 2014-09 (including the amendments introduced through recent ASU’s) are effective
for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period (the first
quarter of fiscal year 2018 for the Company). Early application is permitted only as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within that reporting period.
The
Company is in the process of evaluating the impact of ASU 2014-09 on its revenue streams and selling contracts, if any, and on
its financial reporting and disclosures. Management is expecting to complete the evaluation of the impact of the accounting and
disclosure changes on the business processes, controls and systems throughout 2017. Since the Company did not report so far, material
revenues, management believes that the adoption of ASU 2014-09 will not have significant impact on its financial statements.
The
accompanying balance sheet as of September 30, 2018, which was derived from unaudited financial statements, and the unaudited
interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for
complete financial statements. These financial statements should be read in conjunction with the audited financial statements
and related notes for the fiscal year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K covering
that period.
The
preparation of these financial statements in conformity with accounting principles generally accepted in the United States 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. On an on-going basis, we evaluate our estimates, including those related intangible
assets, income taxes, insurance obligations and contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual
results may differ from these estimates under different assumptions or conditions. The results of operations for the periods presented
are not necessarily indicative of the results for the full fiscal year or any future period.
In
the opinion of management, the information furnished in these interim financial statements reflects all adjustments necessary
for a fair statement of the financial position and results of operations and cash flows as of and for the three and nine-month
periods ended September 30, 2018 and 2017. All such adjustments are of a normal recurring nature. The Financial Statements do
not include some information and notes necessary to conform to annual reporting requirements.
2.
Prepaid Expenses and Deposit to Vendors
Prepaid
assets represent advance payments to suppliers and purchase deposits to vendors. The Company paid in advance $44,066 and
$22,861, respectively, for professional fees, rents and other prepaid expenses during the nine months ended September 30,
2018 and twelve months ended December 31, 2017. Deposits to vendors of $45,636 and $41,150 represent mostly prepayments
to third party vendors who provide the Company with vouchers, prepaid phone credit, etc, that the Company sells through its
licensed portal. The Company deposits cash, as needed, to the vendors and once the sale is made, the vendors deduct the deposit
from their account. Each transaction is done electronically to record the purchase (to the vendors) and the sale (to the user),
and the products are then transferred to the users. Once the transaction is executed, it cannot be cancelled or refunded by the
Company to the vendors. The unused funds can only be refunded to the Company upon the termination of the agreement with the vendors,
and only after both parties settle their obligations. The Company is independent in setting up the selling price of each product.
|
|
September
30, 2018
|
|
December
31, 2017
|
Individual
components giving rise to prepaid expenses are as follows:
|
|
|
|
|
|
|
|
|
Professional
fees, rent and other prepaid expenses
|
|
$
|
44,066
|
|
|
$
|
22,861
|
|
Third
party vendor deposits
|
|
|
45,636
|
|
|
|
41,150
|
|
Total
|
|
$
|
89,702
|
|
|
$
|
64,011
|
|
3.
Stockholders’ Equity
We
are authorized to issue 500,000,000 shares of Common Stock, $0.0001 par value per share. We are authorized to issue 10,000,000
shares of Preferred Stock, $0.0001 par value per share. The Board of Directors has the authority to establish one or more series
of Preferred Stock and fix relative rights and preferences of any series of Preferred Stock. On January 2, 2018, the board of
directors authorized the issuance of a Series A Convertible Preferred Stock, of which Two Hundred Thousand (200,000)
shares are outstanding as of September 30, 2018. Each Preferred Share shall have a par value of $0.0001.
The
Company’s wholly-owned Indonesian subsidiary, PT. Kinerja Indonesia, has 20,000,000 authorized shares of capital stock,
par value $0.001 of which 18,000,000 shares were issued and outstanding at
September 30, 2018. Prior to the acquisition of the 18,000,000 shares of PT. Kinerja
Indonesia (the “PT. Kinerja Indonesia Shares”), 75% or 13.5 million the PT. Kinerja Indonesia Shares were owned by
Edwin Ng, Chairman and CEO of the Company and the remaining 25% of the PT. Kinerja Indonesia Shares were owned as follows: (i)
Mr. Henful, 1.8 million shares; (ii) Mr. Eric Wibowo, 900,000 shares; and (iii) PT. Adelyus Anugerah Abadi, 1.8 million shares.
Stock-Based
Compensation
During
the nine months ended September 30, 2018, the Company did not issue stock-based compensation.
Shares
issued for services
During
the nine months ended September 30, 2018, the Company issued 2,257,778 shares of restricted common stock for services provided.
The shares were valued at the closing price as of the date of the underlying agreements (ranging from $0.85 to $1.39) and resulted
in current recognition of $3,302,441 in consulting service expense.
Based
on agreement with Bear Creek Capital on January 29, 2018, the Company shall issue an additional 25,000 shares 120 days from the
agreement, provided the Company is still using the service of the party. Consequently, the Company recorded the stock payable
amounting to $34,000 to the party, as the shares were not issued prior to September 30, 2018.
Preferred
Stock for Cash
On
January 2, 2018, the Company issued 400,000 Series A Convertible Preferred Stock to an institutional investor for an aggregate
purchase price of $500,000. The Series A Convertible Preferred Stock was convertible into 400,000 shares of the Company’s
common stock at a conversion price of $1.25 per share. On July 11, 2018, the Company issued to the institutional investor
a total of 416,667 shares of common stock, pursuant to a notice of conversion dated July 9, 2018, in connection with the conversion
of $250,000 in principal amount of the Series A Convertible Preferred Stock, at an adjusted conversion price of $0.60, which adjustment
was subject to an agreement between the Company and the institutional investor. The Company recognized a loss on conversion in
the amount of $246,745, In addition, on January 2, 2018, the Company issued to the institutional investor Class N Warrants
exercisable to purchase an additional 400,000 shares on a cashless basis, at an exercise price of $1.25 per Share,
during a period of three (3) years from the date of the Agreement. The warrants were valued using the Black-Scholes pricing model
to estimate the relative fair value of $300,772.
Warrant
Exercise
On January 4, 2018,
Firstfire Global Opportunities Fund LLC exercised their warrants and paid $100,000 in consideration for
the issuance of 100,000 shares.
Notes
Payable Conversion
From
June 25, 2018 to September 30, 2018, Tangiers Global, LLC, Power Up Lending Group, Ltd and Crossover Capital Fund I, LLC
converted a total of $662,862 in the principal amount of their notes together with accrued interest of $48,822
into 2,408,489 shares of Common Stock based upon an average conversion price of $0.15 - 1.25. The conversion
resulted in the loss of conversion for the Company of $1,396,433.
4.
Notes Payable
On
May 9, 2017, we had a $50,000 note payable outstanding to our CEO, and control stockholder. The balance is due on demand and accrues
interest at 8% per annum.
On
November 3, 2017, the Company entered into an investment agreement (the “Investment Agreement”) with Tangiers Global
LLC (“Tangiers”) pursuant to which the Company agreed to file a registration statement with the SEC registering the
shares underlying the Investment Agreement, which permitted the Company to “put” up to ten million dollars ($10,000,000)
in shares of our Common Stock to Tangiers over a period of up to thirty-six (36) months or until $10,000,000 of such shares have
been put (the “Registration Statement”).
On
November 9, 2017, the Company executed a 10% fixed convertible promissory note payable to Tangiers in the principal amount of
$330,000. This note, due six months from the date of funding, was funded by Tangiers in the initial sum of $150,000
on November 15, 2017 and $150,000 on December 19, 2017. The note is convertible into shares of Common Stock at a conversion price
of $1.25 per share if converted within seven and one half months, or thereafter the conversion price shall be equal to the lower
of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock during the twenty (20)
trading days prior to which the Holder elects to convert all or part of the note and holder gives notice of conversion to the
Company and its transfer agent.
Tangiers converted $198,724 including principal and interest on its convertible promissory
notes into 362,043 shares on July 10, 2018 at a conversion price of $0.50 and $82,500 of principal and interest on its convertible
promissory notes into 198,317 shares on June 25, 2018 at a conversion price of $1.25.
In
connection with the Company’s Investment Agreement with Tangiers, the Company issued Tangiers a commitment fee note
in the amount of $75,000, bearing interest rate of 10% which was due on June 24, 2018. The commitment
fee note had a conversion price of $1.25, but in case of maturity default, the conversion price was subject to adjustment
to a price equal to the lower of: (i) the conversion price or (ii) 65% of the average of the two (2) lowest trading prices of
the Common Stock during the twenty (20) trading days prior to Tangiers notice to convert all or part of this $75,000 note.
On
September 14, 2018, Tangiers elected to convert $75,000 in the principal amount of the commitment fee note into 490,998
shares of Common Stock, based upon a default conversion price of $0.15
The
Tangiers fixed convertible promissory notes payable and the commitment fee note are guaranteed an interest payment of 10% of the
beginning note balance. As such, the Company had to immediately expense the balances during 2017.
On
November 1, 2017, the Company executed an 8% fixed convertible promissory note payable to Crossover Capital Fund I, LLC in the
principal amount of $115,000. The note is due eight months from the date as mentioned above. The note is convertible into shares
of Common Stock at a conversion price of $1.30 per share if converted within 8 months, or thereafter the conversion price
shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common
Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty
(20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.
As of September 30, 2018, $5,369 in interest was expensed during the nine months ended September 30, 2018.
The
note has been fully converted into 525,815 Shares of common stock as of September 30, 2018, based upon an average conversion price
of $0.28.
On
July 27, 2018, the Company executed an 8% fixed back-end convertible promissory note payable to Crossover Capital Fund
I, LLC in the principal amount of $115,000. The note is due eight months from the date as mentioned above. The note is convertible
into shares of Common Stock at a conversion price of $1.3 per share if converted within 5 months, or thereafter the conversion
price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the
Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the
twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer
agent. As of September 30, 2018, $1,638 in interest was expensed during the nine months ended September 30, 2018.
On January 12, 2018,
the Company issued a 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal amount of
$153,000, which note was is due on July 12, 2018. The note was convertible into shares of Common Stock at a conversion
price of $1.75 per share, subject to adjustment based upon the terms of the note including, among others, default in payment
at maturity or a formula based upon a discount from the trading price of the Company’s shares during a period prior to notice
of conversion. As of September 30, 2018, $13,129 in interest was expensed during the nine months ended September 30,
2018. The note has been fully converted to common stock as of September 30, 2018 into 478,533 shares of common stock, based
upon an average conversion price of $0.36 per share.
On
March 7, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in
the principal amount of $63,000. The note was due on September 7, 2018 and was convertible into shares
of Common Stock at a conversion price of $1.75 per share, subject to adjustment based upon the terms of the note. As
of September 30, 2018, $4,018 in interest was expensed during the nine months ended September 30, 2018. The note
has been fully converted into
352,782 shares of Common Stock as of September 30, 2018, at an average
price of $0.24.
On
May 1, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal amount
of $53,000, which note was due on November 1, 2018. The note is convertible into shares of Common Stock at a conversion
price of $1.75 per share, subject to adjustment based upon the terms of the note. As of September 30, 2018, $2,650 in interest
was expensed during the nine months ended September 30, 2018.
On
July 30, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal
amount of $53,000. The note is due on May 15, 2019 and is convertible into shares of Common Stock at a conversion price
of $1.75 per share, subject to adjustment based upon the terms of the note. As of September 30, 2018, $1,080 in
interest was expensed during the nine months ended September 30, 2018.
On
September 11, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal
amount of $53,000. The note is due on June 30, 2019. The note is convertible into shares of Common Stock at a conversion price
of $1.75 per share. As of September 30, 2018, $331 in interest was expensed during the nine months ended September 30,
2018.
On
June 13, 2018, the Company executed an 10% convertible promissory note payable to Crown Bridge Partners in the principal amount
of $75,000. The note is due on June 13, 2019. As of September 30, 2018, $2,240 in interest was expensed during the nine
months ended September 30, 2018. On August 21, 2018, the Company executed an 10% convertible promissory note payable to Crown
Bridge Partners in the principal amount of $25,000. The note is due on August 21, 2019. As of September 30, 2018, $274
in interest was expensed during the nine months ended September 30, 2018.
On
July 19, 2018, the Company executed an 10% convertible promissory note payable to GS Capital in the principal amount of $125,000.
The note is due on July 19, 2019. As of September 30, 2018, $2,446 in interest was expensed during the nine months ended
September 30, 2018.
In
accordance with ASC 470, the Company has analyzed the beneficial nature of the initial conversion terms of the fixed convertible
notes and determined that a beneficial conversion feature (BCF) exists because the effective conversion price was lower than the
quoted market price at the time of the issuance. As of September 30, 2018, the Company recognized amortization expenses
of $39,655 on the discount created during the twelve month-period ended December 31, 2017.
For
the nine months ended September 30, 2018, the Company has recognized $36,185 in interest expense related to the notes as
described above. In addition, during the three and nine-month periods ended September 30, 2018, the Company recognized a loss
on debt conversion of $1,270,417 and $1,396,433, respectively.
5.
Related Party Transactions; Acquisition of PT. Kinerja Indonesia
As of September 30, 2018, we had $51,779 in accounts payable due to our CEO consisting of a $50,000 loan and
$1,779 in expenses paid on behalf of the Company by our CEO. The loan is due on demand and accrues interest at 8% per annum. As
of September 30, 2018, $2,992 in interest was expensed during the nine months ended September 30, 2018. In addition, the Company
assumed the liability of $119,340 owed by our CEO on the building owned/used by PT. Kinerja Indonesia upon the closing of the acquisition.
Effective August 31, 2018, the Company completed the acquisition of PT. Kinerja Indonesia, its former affiliated
company, owned, operated and controlled by our CEO and principal shareholder. The terms of the acquisition provide for the payment
of $1,200,000 to PT Kinerja Indonesia’s previous shareholders pursuant to the terms of a promissory note due in twenty-four
(24) months, bearing the interest at the rate of 6% per annum, which note the Company can prepay at any time.
The acquisition was performed under common control accounting as the Company’s CEO and sole director
was in control of both the Company and PT. Kinerja Indonesia and was the executive officer and 75% owner of PT. Kinerja Indonesia
at the date of acquisition.
During periods prior to September
30, 2018, the Company could only recognize revenues on a “net basis” as they were not the principal in
the transactions, but as a result of the acquisition of PT. Kinerja Indonesia, the Company’s revenues can be recognized
on a “gross basis.” The net value of PT. Kinerja Indonesia at the date of the recognized acquisition period was
$16,700.
At the date of the closing of the acquisition,
PT. Kinerja Indonesia had 20 million authorized shares of capital stock, par value 0.001, of which 18 million shares were issued
and outstanding. Prior to the acquisition, 75% or 13.5 million the shares were owned by Edwin Ng, Chairman and CEO of the Company
and the remaining 25% of the shares were owned as follows: (i) Mr. Henful, 1.8 million shares; (ii) Mr. Eric Wibowo, 900,000 shares;
and (iii) PT. Adelyus Anugerah Abadi, 1.8 million shares. The latter entity is controlled by Mr. Deny Rahardjo, a resident of
Indonesia.
6.
Going Concern
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America, which contemplate continuation of the Company as a going concern. The Company has not established sufficient
revenue to cover its 2018 operating costs, and as such, has incurred an operating loss since inception. Further, as of September
30, 2018, the cash resources of the Company were insufficient to meet its current business plan. These and other factors raise
substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not
include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
7.
Subsequent Events
During
the period from October 16, 2018 to November 14, 2018, the Company received net proceeds of $420,250 from four separate
convertible note transactions with institutional lenders in the aggregate principal amount of $476,000. In addition,
effective October 31, 2018, the Company entered into a Securities Purchase Agreement with EMA Financial, LLC (“EMA”)
pursuant to which the Company executed a convertible note in the principal amount of $150,000 and issued EMA warrants to purchase
312,500 shares. To date, EMA has not yet funded the loan proceeds underlying their $150,000 convertible note.
In
connection with these convertible note transactions that occurred after September 30, 2018, the Company reserved a total of 14,038,123
shares of its common stock underlying the conversion of these notes and the exercise of the warrants, which share reserves are
subject to increase in the event of a decline in the price of the Company’s shares, from time to time.
On
October 8, 2018, the Company issued 37,500 restricted shares to Mr. Stephen Kann as partial consideration for services
to be rendered by Mr. Kann pursuant to his engagement to provide investor relation services to the Company.
On
September 13, 2018, the Company incorporated PT. Kinerja Simpan Pinjam, a new wholly-owned subsidiary, for the purpose of managing
its KFUND brand as a peer-to-peer (P2P) lending platform focusing on micro-lending activities. The Company plans to develop the
KFUND brand mainly targeting the consumer sector to facilitate micro loans ranging from $100 to $1,000 on biweekly or monthly
term. The main consumer target group are individuals who have only limited access to banking services and are not familiar with
the banking system. The Company reasonably expects that the costs of developing, lunching and funding this peer-to-peer micro
lending facility during its initial start-up period to be approximately $175,000. However, there can be no assurance that we will
not experience cost higher than estimated and/or delays in this project that could adversely impact the Company’s results
of operations and liquidity and capital resources. Until September 30, 2018, KFUND is still in preparation stage and expected
to start in December 2018 or the first quarter of 2019.
On
November 2, 2018, the Company filed a registration statement on Form S-1 for the purpose of offering a total of up to 300,000
shares of our 11% Series C Cumulative Redeemable Perpetual Preferred Stock (“Series C Preferred Stock”), at an offering
price of $25 per share. If the offering is successful, of which there can be no assurance, the gross proceeds will be $7.5 million.
The Company’s intention is to have these shares of Series C Preferred Stock subject to quotation on the OTCQB.
On
November 9, 2018, the Company, having determined not proceed with the Tangiers’ Investment Agreement, filed a Form RW to
withdraw the registration statement related to the Tangiers’ Investment Agreement.