NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
|
|
1.
|
Organization
and Basis of Presentation
|
Technovative
Group, Inc. (the “Company,” or “TEHG,” formerly Horizon Energy Corp.) was incorporated in the state of
Wyoming on August 12, 2010 under the name “Glacier Point Corp.” On December 6, 2010, the Company filed an amendment
with the State of Wyoming to change the name from “Glacier Point Corp.” to “Solar America Corp.” On September
4, 2013, the Company filed an amendment with the State of Wyoming to change the name from “Solar America Corp.” to
“Horizon Energy Corp.”
Effective
on February 26, 2015, the Company amended its Articles of Incorporation to: (i) change the Company’s name from “Horizon
Energy Corp.” to “Technovative Group, Inc.” and (ii) implement a 1-for-20 reverse stock split of its issued
and outstanding common stock, par value $.001 per share.
On
April 24, 2015, TEHG, Technovative Group Limited (“TGL”) and the sole stockholder of TGL who owns 100% of
the equity interests of TGL (the “TGL Stockholder”) entered into and consummated transactions pursuant to a Share
Exchange Agreement (the “Share Exchange Agreement,” such transaction referred to as the “Share Exchange Transaction”),
whereby the Company issued to the TGL Stockholder an aggregate of 100,000 shares of its Series A Preferred Stock, par value $0.001
per share (“Series A Preferred Stock”), in exchange for 100% of the TGL equity interest held by the TGL Stockholder.
Pursuant to the Share Exchange Agreement, the 100,000 shares of Series A Preferred Stock will automatically convert into 51,500,000
shares of common stock, par value $0.001 per share (“Common Stock”) upon the effectiveness of a 1-for-10 reverse stock
split to be conducted by TEHG after the Share Exchange Transaction. As a result of the Share Exchange Transaction, TGL became our
direct wholly-owned subsidiary and TGL’s subsidiary, Technovative Asia Limited (“TAL”) became our indirect subsidiary.
TGL
is a Samoa company incorporated on October 14, 2014. TAL is a Hong Kong company incorporated on November 21, 2014.
The
Company is a website creation and e-commerce enablement provider for the online presence needs of small to mid-size business retailers.
On
October 26, 2016, the Company acquired 100% of the outstanding common shares of Innorei Group (Samoa) Limited (“IRG Samoa”),
a holding company of Innorei Group Sdn. Bhd. (“IRG Malaysia”) IRG Malaysia was a mobile solutions apps development
and information technology service provider. The Company issued 8,000,000 common stock to the vendor at February 22, 2017 as consideration.
On April 24, 2018, IRG Samoa transferred all the outstanding common shares of IRG Malaysia to TGL, and the Company dissolved IRG
Samoa.
On
December 27, 2017, the Company has entered into a Share Transfer Agreement with several individuals, who are Shareholders of Guangzhou
City Hedu Information Technology Co., Ltd (“Hedu”), a People’s Republic of China (“PRC”) company,
in exchange for entering into a loan agreement and a series of contractual agreements (the “VIE Agreements”),
through the Company’s wholly owned foreign entity, Zhike (Shenzhen) Marketing Technology Co., Ltd (“Zhike”).
Zhike was incorporated by the Company in the PRC on August 15, 2017. Pursuant to the VIE Agreements, Hedu becomes a Variable Interest
Entity (the “VIE”) of the Company, via Zhike, and as such, the Company shall control all of Hedu’s business
affairs and economic interests through Zhike. Hedu specializes in blockchain and big data analytics technologies.
Basis
of presentation
The accompanying unaudited condensed consolidated
financial statements of the Company are prepared by management on the accrual basis of accounting and in accordance with principles
generally accepted in the United States of America (“GAAP”) for interim financial information as contained in the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and in conjunction with rules
and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed
or excluded pursuant to SEC rules and regulations. Accordingly, the unaudited condensed consolidated financial statements do not
include all of the information and footnotes required by GAAP for complete financial statements. The unaudited condensed consolidated
financial statements include accounts and related adjustments, which are, in the opinion of management, of a normal recurring nature
and necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim
period. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2018. These unaudited condensed consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2017.
The condensed consolidated balance sheet
as of December 31, 2017 contained herein has been derived from the audited financial statements as of December 31, 2017, but does
not include all disclosures required by GAAP.
The unaudited condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Use of estimates
The preparation of the unaudited
condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Goodwill
The Company allocates
goodwill from business combinations to reporting units based on the expectation that the reporting unit is to benefit from
the business combination. The Company evaluates its reporting units on an annual basis and, if necessary, reassigns goodwill
using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level on an annual
basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the
business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant
portion of a reporting unit. Application of the goodwill impairment test requires judgments, including the identification of
reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and the
determination of the fair value of each reporting unit. The Company first assesses qualitative factors to determine whether
it is more likely than not that goodwill is impaired. If the more likely than not threshold is met, the Company performs a
quantitative impairment test. As of September 30, 2018 the Company concluded that there was no impairment of goodwill.
Revenue recognition
Revenue is recognized when persuasive
evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and
collectability is reasonably assured. Revenue is recorded on a gross basis, net of surcharges and value added tax (“VAT”).
Income
taxes
The Company accounts for income taxes using
the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax
rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance
to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all,
of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income
or loss in the period that includes the enactment date.
The Company follows the accounting guidance
for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions
initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon
examination by the tax authorities. As of September 30, 2018 and December 31, 2017, the Company had no significant uncertain tax
positions that qualify for either recognition or disclosure in the financial statements. Tax year that remains subject to examination
is the years ended December 31, 2017, 2016 and 2015. The Company recognizes interest and penalties related to significant uncertain
income tax positions in other expense. However, no such interest and penalties were recorded as of September 30, 2018 and December
31, 2017.
In December 2017, the United
States Government passed new tax legislation that, among other provisions, will lower the corporate tax rate from 35% to 21%.
In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income the Company may have, the
legislation affects the way the Company can use and carryforward net operating losses previously accumulated and results in a
revaluation of deferred tax assets and liabilities recorded on the balance sheet. Given that current deferred tax assets are offset
by a full valuation allowance, these changes will have no net impact on the balance sheet. However, when the Company becomes profitable,
the Company will receive a reduced benefit from such deferred tax assets.
Cash
and cash equivalents
The
Company considers all short-term highly liquid investments that are readily convertible to known amounts of cash and have original
maturities of nine months or less to be cash equivalents.
As of September 30, 2018 and December 31, 2017, substantially all of the cash and cash equivalents were
held in Hong Kong.
Fair
value of financial instruments
The
carrying values of the Company’s financial instruments, including cash and cash equivalents, deposits, prepayments and other
receivables, accounts payable and due to a director approximate their fair values due to the short-term maturity of such instruments.
The carrying amounts of borrowings approximate their fair values because the applicable interest rates approximate current market
rates.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for
estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when
there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, a customer’s payment history, its current credit-worthiness
and current economic trends. Accounts are written off after exhaustive efforts at collection.
Management
believes that the accounts receivable are fully collectible. Therefore, no allowance for doubtful accounts is deemed to be required
on its accounts receivable at September 30, 2018 and December 31, 2017.
Plant
and equipment
Plant
and equipment are recorded at cost. Significant additions or improvements extending useful lives of assets are capitalized. Maintenance
and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful
lives as follows:
|
|
Furniture, fixtures
and equipment
|
5 years
|
|
|
Leasehold improvements
|
Shorter of estimated
useful life or term of lease
|
|
|
Computer software
|
5 years
|
Stock-based Compensation
Stock-based compensation is accounted for
based on the requirements of the Share-Based Payment topic of Accounting Standards Codification (“ASC”) 718 which requires
recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity
instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting
Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award
based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50,
for share-based payments to consultants and other third-parties, compensation expense is recognized over the period of services
or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount of compensation expense
remains uncertain. The Company’s compensation expense for unvested options to non-employees is re-measured at each balance
sheet date and is being amortized over the vesting period of the options. There are no stock options outstanding as of September
30, 2018 and December
31, 2017.
Foreign Currency Translation
The reporting currency of the
Company is the U.S. dollar. The functional currency of the parent company, Technovative Group, Inc., its subsidiaries, TGL and
IRG Samoa is the U.S. dollar, the functional currency for TAL is Hong Kong dollar (“HKD”), the functional currency
of Hedu and Zhike, the main operating companies, is the Chinese Renminbi (“RMB”) and the functional currency of IRG
Malaysia is Ringgit (“MYR”). For the subsidiaries whose functional currencies are the RMB or HKD or MYR, the results
of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated
at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts
relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding
balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive income/loss. Transactions denominated in foreign currencies
are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated
in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with
any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than
the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions
are transacted in the functional currency of the operating subsidiaries. The Company does not enter into any material transaction
in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results
of operations of the Company.
For operating subsidiaries
located in the People’s Republic of China (“PRC”), asset and liability accounts at September 30, 2018 and
December 31, 2017 were translated at 6.8690 RMB to $1.00 and at 6.5067 RMB to $1.00, respectively, which were the exchange
rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rates
applied to the statements of operations for the nine months ended September 30, 2018 and 2017 were 6.5197 RMB and 6.8071 RMB
to $1.00, respectively. The exchange rates used at September 30, 2018 and December 31, 2017 for TAL were 7.8282 and 7.8129 to
$1.00, respectively. The average exchange rates used by TAL for the nine months ended September 30, 2018 and 2017 were 7.8405
and 7.7879 to $1.00, respectively. The exchange rates used at September 30, 2018 and December 2017 for IRG Malaysia were
4.1385 and 4.0614 to $1.00, respectively. The average exchanges rates used by IRG Malaysia for the nine months ended
September 30, 2018 and 2017 were 3.9909 and 4.3461, respectively. Cash flows from the Company’s operations are calculated based upon
the local currencies using the average translation rate.
Value Added Tax
The Company’s operating subsidiaries
in the Peoples’ Republic of China are subject to a value added tax (“VAT”) of 6% for providing services and 16%
for selling products. The amount of VAT liability is determined by applying the applicable tax rates to the sales invoices and
making deductions on VAT paid on purchases made with the relevant supporting invoices (input VAT). The Company reports revenue
net of VAT for all the periods presented in the unaudited condensed consolidated statements of operations and comprehensive loss.
Comprehensive income (loss)
The
Company has adopted FASB Accounting Standard Codification Topic 220 (“ASC 220”) “Comprehensive income”
(formerly known as SFAS No. 130, “Reporting Comprehensive Income”), which establishes standards for reporting and
display of comprehensive income, its components and accumulated balances. Accumulated other comprehensive income represents the
accumulated balance of foreign currency translation adjustments of the Company.
Recent
accounting pronouncements
Recent
accounting pronouncements that the Company has adopted or may be required to adopt in the future are summarized below:
We
consider the applicability and impact of all Accounting Standards Updates (“ASUs”). The ASUs not listed below were
assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position
and/or results of operations.
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which outlines a single
comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes and replaces nearly
all existing GAAP revenue recognition guidance, including industry-specific guidance. The authoritative guidance provides a five-step
analysis of transactions to determine when and how revenue is recognized. The five steps are: (i) identify the contract with the
customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations; and (v) recognize revenue when or as each performance obligation is satisfied.
The authoritative guidance applies to all contracts with customers except those that are within the scope of other topics in the
FASB ASC. The authoritative guidance requires significantly expanded disclosures about revenue recognition and was initially effective
for fiscal years and the interim periods within these fiscal years beginning on or after December 15, 2016. In August 2015, the
FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” This
standard defers for one year the effective date of ASU 2014-09. The deferral will result in this standard being effective for
fiscal years and interim periods within those fiscal years beginning after December 15, 2017. The Company adopted this standard
effective January 1, 2018. The adoption of this authoritative guidance had no material impact on our consolidated financial
statements.
February 2016,
the FASB issued ASU 2016-02, “Leases (Topic 842)”. This update requires an entity to recognize lease assets and lease
liabilities on the balance sheet and to disclose key information about the entity’s leasing arrangements. ASU 2016-02 is
effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018, with early application
permitted. A modified retrospective approach is required. The Company is in the process of evaluating the impact on its consolidated
financial statements upon adoption.
In
August 2016, the FASB issued ASU 2016-15, an update to ASC Topic 230, Statement of Cash Flows to provide guidance for areas where
there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of
cash flows. ASU 2016-15 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017,
with early adoption permitted. The adoption of this guidance had no material impact on our consolidated financial statements.
On
May 10, 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU
2017-09”), which clarifies the scope of modification accounting for share-based compensation arrangements by providing guidance
on the types of changes to the terms and conditions of share-based compensation awards to which an entity would be required to
apply modification accounting under ASC 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, with
early adoption permitted. The adoption of this guidance had no material impact on our consolidated financial statements.
In
February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). This update provides
companies with the option to reclassify stranded tax effects caused by the 2017 Tax Cuts and Jobs Act, or the 2017 Tax Act, from
accumulated other comprehensive income to retained earnings. This standard is effective for all entities for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating
the impact that the adoption of this standard will have on our consolidated financial statements and anticipate adopting the standard
for the fiscal year ending December 31, 2019.
In
March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 118”. The amendments in this ASU add SEC paragraphs pursuant to the SEC Staff Accounting Bulletin
No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that
includes December 22, 2017 - the date on which the Tax Cuts and Jobs Act was signed into law. The amendments are effective upon
addition to the FASB Accounting Standards Codification. The adoption of this guidance is not expected to have a material impact
on our consolidated financial statements.
The
Company does not believe other recently issued but not yet effective accounting standards from ASU 2018-16, if currently adopted,
would have a material effect of the unaudited condensed consolidated financial position, results of operation and cash flows.
As
shown in the unaudited condensed consolidated financial statements, the Company has generated a net loss of $1,447,616 for the
nine months ended September 30, 2018 and an accumulated deficit of $4,478,323 as of September 30, 2018. The Company also experienced
insufficient cash flows from operations and will be required continuous financial support from the shareholder. The Company will
need to raise capital to fund its operations until it is able to generate sufficient revenue to support the future development.
Moreover, the Company may be continuously raising capital through the sale of debt and equity securities.
The
Company’s ability to achieve these objectives cannot be determined at this stage. If the Company is unsuccessful in its
endeavors, it may be forced to cease operations. These unaudited condensed consolidated financial statements do not include any
adjustments that might result from this uncertainty which may include adjustments relating to the recoverability and classification
of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable
to continue as a going concern.
These
factors have raised substantial doubt about the Company’s ability to continue as a going concern. There can be no assurances
that the Company will be able to obtain adequate financing or achieve profitability. These financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
|
|
3.
|
Short-Term
Investments
|
Short-term
investments are highly liquid available-for-sale securities in accounts maintained with commercial banks within the PRC. Interest
income earned from the short-term investments for three months ended September 30, 2018 and 2017 were nil and nil, respectively.
Interest income earned from the short-term investments for nine months ended September 30, 2018 and 2017 were $1,530 and $28,
respectively. As of September 30, 2018, the Company did not have any short-term investments.
|
|
4.
|
Property
and Equipment, Net
|
|
|
|
|
As
of
|
|
|
|
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment
|
|
$
|
127,904
|
|
|
$
|
146,668
|
|
|
|
Computer software
|
|
|
15,535
|
|
|
|
-
|
|
|
|
Leasehold improvements
|
|
|
12,900
|
|
|
|
45,217
|
|
|
|
Total property and equipment
|
|
|
156,339
|
|
|
|
191,885
|
|
|
|
Less: Accumulated
depreciation
|
|
|
(51,325
|
)
|
|
|
(52,944
|
)
|
|
|
Total property
and equipment, net
|
|
$
|
105,014
|
|
|
$
|
138,941
|
|
The
depreciation expenses for the three months ended September 30, 2018 and 2017 were $4,582 and $8,929, respectively. The depreciation
expenses for the nine months ended September 30, 2018 and 2017 were $14,089 and $28,475, respectively.
|
|
5.
|
Deposits,
prepayments and other receivables
|
|
|
|
|
As of
|
|
|
|
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid share-based compensation expenses
|
|
$
|
232,818
|
|
|
$
|
-
|
|
|
|
Deposits and prepayments
|
|
|
112
|
|
|
|
-
|
|
|
|
Other receivables
|
|
|
30,000
|
|
|
|
60,718
|
|
|
|
Total deposits, prepayments and other receivables
|
|
$
|
262,930
|
|
|
$
|
60,718
|
|
The short term loan represents advances
given by an unrelated third party that are unsecured, non-interest bearing and repayable on demand.
On January 12, 2018, the Company
issued 26,134,925 shares of its common stock to the vendor as consideration of the acquisition of Hedu.
From
January 2018 to March 2018, the Company issued 1,150,000 shares of its common stock to four third parties as consideration
of certain professional and investor relation services.
On
January 18, 2018, the Company granted 100,000 shares of the Company’s common stock to a consultant, in exchange for its
investor relation services to the Company for the year 2018.
On
March 15, 2018, the Company granted 1,050,000 shares of the Company’s common stock to three consultants, in exchange for
its professional services to the Company for the year 2018.
On
July 12, 2018, the Company granted 100,000 shares of the Company’s common stock to a consultant, in exchange for its investor
relation services to the Company for the year 2018.
As
of September 30, 2018, there were 90,108,745 shares of Common Stock and no shares of preferred stock issued and outstanding.
|
8.
|
Net Loss Per Share Data
|
|
|
|
|
For
the three months ended
September 30,
|
|
|
For
the nine months ended
September 30,
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders for computing basic net loss per common share
|
|
$
|
(506,892
|
)
|
|
$
|
(174,428
|
)
|
|
$
|
(1,447,616
|
)
|
|
$
|
(634,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding – Basic and diluted
|
|
|
91,085,764
|
|
|
|
62,723,820
|
|
|
|
88,586,697
|
|
|
|
61,170,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
The
Company and its subsidiaries file separate income tax returns.
The United States of America
The
Company is incorporated in the State of Wyoming in the U.S. and is subject to a gradual U.S. federal corporate income tax. Federal
Corporate rate reduced to 21% (from brackets with a maximum tax rate of 35%) as from January 1, 2018. The State of Wyoming does
not impose any corporate state income tax.
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law making significant changes to
the Internal Revenue Code. Changes include, but are not limited to, a United States corporate tax rate decrease from 35% to 21%
effective for tax years beginning after December 31, 2017 and a one-time transition tax on the mandatory deemed repatriation of
cumulative foreign earnings as of December 31, 2017. The Company does not believe it is subject to any amounts due that may be
related to a one-time transition tax on the mandatory deemed repatriation of foreign earnings.
The
Act has caused the Company’s deferred income taxes to be revalued. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin
No. 118 (“SAB 118”), as of September 30, 2018 the Company has not recognized the provisional effects of the enactment
of the Act, but is reviewing its impact, if any. Since the Company has provided a full valuation allowance against its deferred
tax assets, the revaluation of the deferred tax assets did not have a material impact on any period presented. The ultimate impact
of the Act may differ from these estimates due to the Company’s continued analysis or further regulatory guidance that may
be issued as a result of the Act. Management will review this valuation allowance periodically and make adjustments as necessary.
Samoa
TGL
and IRG Samoa are incorporated in the Samoa. Under the current laws of the Samoa, TGL and IRG Samoa are not subject to tax on
income or capital gains. In addition, upon payments of dividends by TGL and IRG Samoa, no Samoa withholding tax is imposed.
Hong
Kong
TAL
is incorporated in Hong Kong and Hong Kong’s profits tax rate is 16.5%. TAL HK did not earn any income that was derived
in Hong Kong for the three and six months ended June 30, 2018 and 2017, and therefore, TAL HK was not subject to Hong Kong profits
tax.
The
Company is governed by the Income Tax Laws of the PRC, Inland Revenue Ordinance of Hong Kong. Under the Income Tax Laws of PRC
and Hong Kong, companies are generally subject to an income tax at an effective rate of 16.5%, respectively, on income reported
in the statutory financial statements after appropriate tax adjustments.
Malaysia
IRG
Malaysia is incorporated in Malaysia and Malaysia’s corporate tax standard rate is 24%. The Company did not generate any
income during the six months ended June 30, 2018 and 2017, and therefore not subject to any corporate tax in Malaysia.
PRC
Hedu
and Zhike are incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax
(“EIT”). The EIT rate of PRC is 25%. Effective from January 1, 2008, the PRC’s statutory income tax rate is
25%. Hedu and Zhike did not generate taxable income in the PRC for the three and six months ended June 30, 2018 and 2017.
The
Company is governed by the Income Tax Laws of the PRC, Inland Revenue Ordinance of Hong Kong. Under the Income Tax Laws of PRC
and Hong Kong, companies are generally subject to an income tax at an effective rate of 25% and 16.5%, respectively, on income
reported in the statutory financial statements after appropriate tax adjustments.
The
Company has not recognized an income tax benefit for its operating losses generated based on uncertainties concerning its ability
to generate taxable income in future periods. The tax benefit for the periods presented is offset by a valuation allowance that
Management has established against deferred tax assets arising from the net operating losses and other temporary differences,
the realization of which could not be considered more likely than not. In future periods, tax benefits and related deferred tax
assets will be recognized when Management considers realization of such amounts to be more likely than not. For the three and
six months ended September 30, 2018 and 2017, the Company incurred losses, resulting from operating activities, which result in
deferred tax assets at the effective statutory rates. The deferred tax asset has been off-set by an equal valuation allowance.
|
|
|
|
For the three months ended
September 30,
|
|
|
For the Nine months ended
September 30,
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
Loss before income taxes
|
|
$
|
(506,892
|
)
|
|
$
|
(174,428
|
)
|
|
$
|
(1,447,616
|
)
|
|
$
|
(634,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax at the income tax rate 25% (2017: 34%)
|
|
|
(126,723
|
)
|
|
|
(59,306
|
)
|
|
|
(361,904
|
)
|
|
|
(215,581
|
)
|
|
|
Valuation allowance
|
|
|
126,723
|
|
|
|
59,306
|
|
|
|
361,904
|
|
|
|
215,581
|
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Management
is reviewing its filing obligations in each of the jurisdictions the Company is required to filing in and is in the process of
bringing such filings up to date.
|
|
10.
|
Related
Parties Transactions
|
Nature
of relationships with related parties
|
|
Name
|
|
Relationships
with the Company
|
|
|
Miss
Liang Meihua (Miss Liang)
|
|
A
director of the Company
|
|
|
Mr
Leung Kam Tim (Mr Leung)
|
|
A
director of TAL
|
|
|
Miss
Kung Wai Fan Candy (Miss Kung)
|
|
Former
director of TAL
|
|
|
Mr
Huang, Kewie (Mr Huang)
|
|
Chief
Technology Officer of the Company
|
|
|
Spider
Comm Sdn Bhd
|
|
Former
common director of IRG Malaysia
|
Related
party balances and transactions
On
August 2, 2017, The Company entered into a promissory note (the “Note”) with Liang Meihua, the director of the Company
since October 21, 2016, in the principal amount of $256,410. The Note shall be due and payable within 12 months (as extended by
the holder from time to time) from the issuance date of the Note, and shall be interest free and shall not accrue any interest
and bearing interest of 5% if an event of default occurred. On the date when the Company consummates the sale for cash by the
Company of any equity or convertible securities generating aggregate gross proceeds of at least $10,000,000, the Note shall automatically
convert into fully paid and non-assessable shares of the Company’s $0.001 par value per share common stock at a conversion
price equal to the per share price of the sale for cash by the Company of any equity or convertible securities generating aggregate
gross proceeds of at least $10,000,000. If no sale for cash by the Company of any equity or convertible securities generating
aggregate gross proceeds of at least $10,000,000 is consummated prior to the maturity date, the holder of the Note shall have
the right to convert all or any portion of the outstanding and unpaid principal and interest of this Note into conversion shares
at a conversion price of $0.10 per Share. On December 18, 2017, Miss Liang forewent the right of conversion of the Note. As of
September 30, 2018 and December 31, 2017, the loan payable to Miss Liang was $256,410 and $256,410, respectively.
During
the nine months ended September 30, 2018 and 2017, the Company did not received advances from Miss Kung. On January 2, 2018, Miss
Kung transferred and assigned all her loan receivable of $254,810 from TAL to Mr Leung. As of September 30, 2018 and December
31, 2017, the loan payable balance, without interest and due on demand, to Mr Leung was $259,417 and nil, respectively.
During
the nine months ended September 30, 2018 and 2017, the Company owed advances of $58,739 and nil, respectively, for
disbursements from Mr Huang. As of September 30, 2018 and December 31, 2017, the loan payable balance, without interest and
due on demand, to Mr Huang was $58,739 and nil, respectively.
Spider
Comm Sdn Bhd
During
the three months ended September 30, 2018 and 2017, the Company incurred rental expenses of $5,116 and $5,050 respectively to
Spider Comm Sdn Bhd. During the nine months ended September 30, 2018 and 2017, the Company incurred rental expenses of $15,786
and $14,496 respectively to Spider Comm Sdn Bhd.
|
|
11.
|
Share-Based
Compensation Expenses
|
On
January 18, 2018, the Company granted 100,000 shares of the Company’s common stock to a consultant, in exchange for its
investor relation services to the Company for the year 2018. These shares were valued at $2.00 per share, the closing bid price
of the Company’s common stock on the date of grant. This compensation expense of $200,000 was recognized in the first quarter
of 2018.
On
March 15, 2018, the Company granted 1,050,000 shares of the Company’s common stock to three consultants, in exchange
for its professional services to the Company for the year 2018. These shares were valued at $1.30 per share, the closing bid
price of the Company’s common stock on the date of grant. Compensation expense of $682,500 was recognized in the first
nine months of 2018.
On
July 12, 2018, the Company granted 100,000 shares of the Company’s common stock to a consultant, in exchange for its investor
relation services to the Company for the year 2018. These shares were valued at $2.00 per share, the closing bid price of the
Company’s common stock on the date of grant. This compensation expense of $200,000 was recognized in the third quarter of
2018.
Total
share compensation expenses recognized in the general and administrative expenses of the unaudited condensed consolidated statements
of operations for the three months ended September 30, 2018 and 2017 was $200,000 and nil, respectively, and for the nine months
ended September 30, 2018 and 2017 was $1,082,500 and nil, respectively.
|
|
12.
|
Commitments
and Contingencies
|
Operating
lease
The
Company leases a number of properties under operating leases. Rental expenses under operating leases for the three months ended
September 30, 2018 and 2017 were $22,648 and $5,050 respectively. Rental expenses under operating leases for the nine months ended
September 30, 2018 and 2017 were $71,015 and $38,211, respectively.
As
of September 30, 2018, the Company was obligated under non-cancellable operating leases minimum rentals as follows:
|
|
Twelve months ending September 30,
|
|
|
|
|
|
2019
|
|
$
|
74,953
|
|
|
|
2020
|
|
|
-
|
|
|
|
Thereafter
|
|
|
-
|
|
|
|
Total minimum lease
payments
|
|
$
|
74,953
|
|
Legal
proceeding
There
has been no legal proceeding in which the Company is a party for the nine months ended September 30, 2018.
There
were no events or transactions that would require recognition or disclosure in our unaudited condensed consolidated financial
statements for the nine months ended September 30, 2018.
