Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following management's discussion and analysis of the Company's financial condition and results of operations (the "MD&A") contain forward-looking statements that involve risks, uncertainties and assumptions including, among others, statements regarding our capital needs, business plans and expectations. In evaluating these statements, you should consider various factors, including the risks, uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the SEC and, including, without limitation, this Form 10-Q Quarterly Report for the six months ended December 31, 2018, and our Form 10 Registration Statement, as amended containing our audited financial statements for the fiscal year ended June 30, 2018 and related notes contained therein. These factors, or any one of them, may cause our actual results or actions in the future to differ materially from any forward-looking statements made in this document. Refer to "Note About Forward-Looking Statements" as disclosed in our Form 8-K filed with the SEC on January 4, 2019 and Risk Factors under Item 2.01 of such Form 8-K.
General
We were incorporated in the State of Nevada under the name "Ultra Care, Inc." on January 30, 2007. Effective February 17, 2009, we completed a merger with our wholly-owned subsidiary, TechMedia Advertising, Inc. As a result, we have changed our name from "Ultra Care, Inc." to "TechMedia Advertising, Inc."
In addition, effective February 17, 2009, we effected a forward stock split or our authorized, issued and outstanding common stock on a basis of one (1) old share for twenty-two (22) new shares. As a result, our authorized capital increased from 50,000,000 shares of common stock to 1,100,000,000 shares of common stock.
Our head and principal office is located at 6, Shenton Way #21-08 OUE Downtown, Singapore 068809. Our registered agent in the State of Nevada is Nevada Agency and Transfer Company located at 50 West Liberty Street, Suite 880, Reno, Nevada 89501.
On December 16, 2016, we entered into a binding and definitive share exchange agreement (the "Share Exchange Agreement") with IBASE Technology Private Limited ("IBASE"), a company organized under the laws of Singapore, and all of the shareholders of IBASE, whereby we agreed to acquire 100% of the issued and outstanding shares in the capital of IBASE in exchange for the issuance of an aggregate of 18,998,211 post-reverse stock split shares of our common stock to the shareholders of IBASE on a pro rata basis in accordance with each IBASE shareholders' percentage of ownership in IBASE.
On March 31, 2017, we entered into an extension agreement (the "Extension Agreement") to the Share Exchange Agreement with IBASE and all of the shareholders of IBASE, whereby the parties agreed to extend the Closing Date (as defined in the Share Exchange Agreement) to March 31, 2018 and the Latest Closing Date (also as defined in the Share Exchange Agreement) to April 30, 2018.
On September 22, 2017, we effected a reverse stock split of our authorized and outstanding shares of common stock on a basis of one (1) new share of common stock for each five (5) old shares of common stock. As a result of the reverse stock split, our authorized capital decreased from 1,100,000,000 shares of common stock with a par value of $0.001 per share to 220,000,000 shares of common stock with a par value of $0.001 per share, and correspondingly our issued and outstanding capital decreased from 48,327,371 shares of common stock to 9,665,474 shares of common stock.
On March 31, 2018, we entered into an amended share exchange agreement (the "Amended Share Exchange Agreement") with IBASE and all of the shareholders of IBASE, whereby the parties agreed to further amend the Closing Date to be on or before December 15, 2018 and the Latest Closing Date to be December 31, 2018, subject to any extensions of 15 days per extension as mutually agreed to by the parties, as well as to reflect the convertible note financing (the "Convertible Notes") of IBASE of up to US$3,500,000, which upon closing of the Amended Share Exchange Agreement the Convertible Notes will automatically convert into shares of our common stock at a price of US$0.90 per share (up to a maximum of 3,888,889 shares of our common stock).
The closing of the Amended Share Exchange Agreement occurred on December 28, 2018. Pursuant to the terms of the Amended Share Exchange Agreement, we acquired all of the issued and outstanding shares of capital stock of IBASE from the shareholders of IBASE in exchange for the issuance of 18,998,211 shares of our common stock to the shareholders of IBASE on a pro rata basis in accordance with each IBASE shareholders' percentage ownership in IBASE. In addition, we issued an aggregate of 1,821,410 shares of our common stock to the holders of Convertible Notes representing an aggregate of $1,639,269.
As a result of the closing of the share exchange agreement, IBASE has become our direct wholly-owned subsidiary and the shareholders of IBASE became our shareholders. This transaction is commonly referred to as a Reverse Take-Over ("RTO") and effectively upon closing, the IBASE shareholders held approximately 66% of our post-closing outstanding shares, not including any shares issued upon the conversion of convertible notes in IBASE as discussed above.
Description of Business
IBASE is in the business of being a solution provider of cloud-enabled real estate and facility management, financial management, security and enterprise turn-key systems/solutions for business-to-government, business-to-business and business-to-consumer. IBASE's web-based management solution UBERIQTM has been adopted by multiple enterprises internationally. The IBASE software technology is comprehensive and represents cutting edge technology made simple to use.
IBASE's solutions help generate positive gains and returns in the following areas:
| | • | Financial & Tax management |
| | • | Property management |
| | • | Lease, rental and MCST* management |
| | • | Facility and asset management |
| | • | MyTenantWorld Web Portal |
| | • | Mobile applications |
*MCST - stands for Management Corporation Strata Title. It is a company or individual appointed to manage a real estate property that a company or individual owns. Management of real estate property involves the maintaining of good security, upkeep of commercial facilities, regulating rules, etc. IBASE's solution aims to improve the operational challenges.
Results of Operations
The following table sets forth our results of operations for the three and six month periods ended December 31, 2018 and 2017:
| | | Three months
ended
December 31,
2018
$
(Restated) | | | Three months
ended
December 31,
2017
$
(Restated) | | | Six months ended
December 31,
2018
$
(Restated) | | | Six months ended
December 31,
2017
$
(Restated) | |
| | | | | | | | | | | | | |
| Revenue | | 195,892 | | | 305,573 | | | 570,065 | | | 542,146 | |
| Cost of sales | | 206,007 | | | 117,060 | | | 595,516 | | | 279,008 | |
| | | | | | | | | | | | | |
| Gross Profit (Loss) | | (10,115 | ) | | 188,513 | | | (25,451 | ) | | 263,138 | |
| | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Consulting fees | | 254,208 | | | 90,000 | | | 494,208 | | | 180,000 | |
| Depreciation | | 2,887 | | | 3,642 | | | 5,608 | | | 5,847 | |
| Directors' fees | | 65,589 | | | 66,596 | | | 131,538 | | | 132,889 | |
| General and administrative | | 18,413 | | | 77,283 | | | 30,296 | | | 139,520 | |
| Professional fees | | 29,107 | | | 15,206 | | | 60,033 | | | 49,309 | |
| Rent | | 15,388 | | | 15,624 | | | 30,861 | | | 31,178 | |
| Salaries and benefits | | 44,790 | | | 87,184 | | | 99,919 | | | 172,972 | |
| | | | | | | | | | | | | |
| Total Expenses | | 430,382 | | | 355,535 | | | 852,463 | | | 711,715 | |
| Loss from Operations | | (440,497 | ) | | (167,022 | ) | | (877,914 | ) | | (448,577 | ) |
| | | | | | | | | | | | | |
| Other Income | | - | | | 17,055 | | | - | | | 17,055 | |
| Loss before Income Taxes | | (440,497 | ) | | (149,967 | ) | | (877,914 | ) | | (431,522 | ) |
| Income tax expense | | - | | | (1,895 | ) | | - | | | (1,895 | ) |
| Net Loss | | (440,497 | ) | | (151,862 | ) | | (877,914 | ) | | (433,417 | ) |
| | | | | | | | | | | | | |
| Foreign currency translation gain | | 9,815 | | | 2,257 | | | 12,116 | | | 32,599 | |
| Comprehensive Loss | | (430,682 | ) | | (149,605 | ) | | (865,798 | ) | | (400,818 | ) |
| | | | | | | | | | | | | |
| Loss Per Share, Basic and Diluted | | (0.02 | ) | | (0.01 | ) | | (0.05 | ) | | (0.02 | ) |
Three Months Ended December 31, 2018 Compared to Three Months Ended December 31, 2017
Revenues: We had revenues of $195,892 and cost of sales of $206,007 for the three month period ended Dec. 31, 2018 as compared to revenues of $305,573 and cost of sales of $117,060 for the three month period ended Dec. 31, 2017. The decrease in sales of $109,681 was due to the change in revenue recognition under ASC 605 vs ASC 606 as well as the timing of revenue recognition of various project billings. The increase in cost of sales was due to increased labor costs as a result of project accounting adjustments and resource outsourcing.
Consulting fees: Consulting fees were $254,208 and $90,000 for the three month periods ended Dec. 31, 2018 and 2017, respectively. The increase in consulting fees of $164,208 was due to ongoing expenses for the reverse merger consultancy services.
Directors' fees: Directors' fees were $65,589 and $66,596 for the three month periods ended Dec. 31, 2018 and 2017, respectively. The decrease in Directors' fees of $1,007 was due to SGD/USD exchange rate differences. The effective Directors' fees for the same three month period remains unchanged.
General and administrative expenses: General and administrative expenses were $18,413 and $77,283 for the three month periods ended Dec. 31, 2018 and 2017, respectively. The decrease in general and administrative expenses of $58,870 was due to a reduction in one-off payments for HR, advertising & promotion, insurance, stationery and staff training costs.
Professional fees: Professional fees were $29,107 and $15,206 for the three month periods ended Dec. 31, 2018 and 2017, respectively. The increase in professional fees of $13,901 was due to more involvement of the US/Canadian professional firms for the reverse merger process and activities.
Rent: Rent expenses were $15,388 and $15,624 for the three month periods ended Dec. 31, 2018 and 2017, respectively. The rent expenses remain relatively unchanged.
Salaries and benefits expenses: Salaries and benefits expenses were $44,790 and $87,184 for the three month periods ended Dec. 31, 2018 and 2017, respectively. The decrease in salaries and benefits expenses of $42,394 was due to the increase of allocation of salary and benefits to cost of sales, offset by the increase of headcount to support new business initiatives and plans.
Net income/loss: The net loss was $440,497 for the three month period ended Dec. 31, 2018 as compared to a net loss of $151,862 for the three month period ended Dec.31, 2017. The increase in net loss of $288,635 resulted primarily from the decrease in revenue and the increase in consulting fees and professional fees, which were slightly offset by decreases in directors' fees, general and administrative expenses, rent and salaries and benefits.
Six Months Ended December 31, 2018 Compared to Six Months Ended December 31, 2017
Revenues: We had revenues of $570,065 and cost of sales of $595,516 for the six month period ended Dec. 31, 2018 as compared to revenues of $542,146 and cost of sales of $279,008 for the six month period ended Dec. 31, 2017. The increase in sales of $27,919 was due to the change in method for recognizing revenue for certain projects as a result of the change in the revenue recognition standard from ASC 605 to ASC 606 during the six month period ended Dec. 31, 2018. The increase in cost of sales was due to increased labor costs as a result of project accounting adjustments and resource outsourcing. The purchase of hardware and 3rd party warranty extension for the hardware, for a key customer, was also a contributing factor.
Consulting fees: Consulting fees were $494,208 and $180,000 for the six month periods ended Dec. 31, 2018 and 2017, respectively. The increase in consulting fees of $314,208 was due to ongoing expenses for the reverse merger consultancy services.
Directors' fees: Directors' fees were $131,538 and $132,889 for the six month periods ended Dec. 31, 2018 and 2017, respectively. The decrease in Directors' fees of $1,351 was due to SGD/USD exchange rate differences. The effective Directors' fees for the same six month period remains unchanged.
General and administrative expenses: General and administrative expenses were $30,296 and $139,520 for the six month periods ended Dec. 31, 2018 and 2017, respectively. The decrease in general and administrative expenses of $109,224 was due to a reduction in one-off payments for HR, advertising & promotion, insurance, stationery and staff training costs.
Professional fees: Professional fees were $60,033 and $49,309 for the six month periods ended Dec. 31, 2018 and 2017, respectively. The increase in professional fees of $10,724 was due to more involvement of the US/Canadian professional firms for the reverse merger process and activities.
Rent: Rent expenses were $30,861 and $31,178 for the six month periods ended Dec. 31, 2018 and 2017, respectively. The rent expenses remain relatively unchanged.
Salaries and benefits expenses: Salaries and benefits expenses were $99,919 and $172,972 for the six month periods ended Dec. 31, 2018 and 2017, respectively. The decrease in salaries and benefits expenses of $73,053 was due to the increase of allocation of salary and benefits to cost of sales, offset by the increase of headcount to support new business initiatives and plans.
Net income/loss: The net loss was $877,914 for the six month period ended Dec. 31, 2018 as compared to a net loss of $433,417 for the six month period ended Dec.31, 2017. The increase in net loss of $444,497 resulted primarily from the increase in costs of sales and the increase in consulting fees and professional fees, which were slightly offset by the decrease in general and administrative expenses and salaries and benefits expenses.
Liquidity and Capital Resources
The following table sets out our cash and working capital as of Dec. 31, 2018 and June 30, 2018:
| | As of Dec. 31, 2018
(unaudited) | As of June 30, 2018
|
| Cash reserves | 71,217 | $128,868 |
| Working capital (deficit) | ($738,798) | $133,425 |
As at Dec. 31, 2018, our current assets were $282,220 and our current liabilities were $1,021,018 resulting in a working capital deficit of $738,798. Our current assets as at Dec. 31, 2018 consisted of cash of $71,217, accounts receivable (net of allowance of $15,517) of $78,943, contract assets of $38,787 and prepaid expenses and deposits of $93,273. Our current liabilities as at Dec. 31, 2018, consisted of accounts payable and accrued liabilities of $384,392, deferred revenue of $120,199 and due to related parties of $516,427.
As at June 30, 2018, our current assets were $899,007 and our current liabilities were $765,582 resulting in a working capital of $133,425. Our current assets as at June 30, 2018, consisted of cash of $128,868, accounts receivable (net of allowance of $18,872) of $121,742, deferred contract costs of $448,653 and prepaid expenses and deposits of $199,744. Our current liabilities as at June 30, 2018 consisted of accounts payable and accrued liabilities of $108,726, deferred revenue of $421,178 and due to related parties of $235,678.
During the six months ended Dec. 31, 2018, we received an aggregate of $232,747 (2017: $560,363) pursuant to the issuance of convertible notes, which converted on December 28, 2018 along with all other outstanding convertible notes into 1,821,410 shares of our common stock at a price of $0.90 per share, representing an aggregate of $1,639,269 upon the closing of the Amended Share Exchange Agreement. The convertible notes were non-interest bearing. In addition, during the six months ended Dec. 31, 2018 we received proceeds from advances from related parties of $81,691.
Our stockholders' deficit as at Dec. 31, 2018 was $592,874 as compared to our stockholders' deficit of $1,258,069 at June 30, 2018.
Our plan of operations over the next twelve months is to focus on the following:
| Task | Start | Finish | Duration |
| Research & Development ($300,000) | Nov. 1, 2018 | Oct. 30, 2019 | 52 weeks |
•Establish a R&D team to develop innovative products and run pilot projects for the industry (e.g. Big Data Analytics, Artificial Intelligence, Machine Learning, IoT Integrations, Service Platforms, etc.) | | | |
| Branding Exercise ($200,000) | | | |
• Evaluate & Appoint Branding Consultant | Nov. 1, 2018 | Nov. 28, 2018 | 4 weeks |
| | | | |
• Execution of Branding Strategies | Nov. 29, 2018 | May 15, 2019 | 24 weeks |
| Sales & Marketing ($125,000) | | | |
•Recruitment of Chief Marketing Officer | Nov. 1, 2018 | Dec. 26, 2018 | 8 weeks |
| | | | |
•Chief Marketing Officer to establish business collaborations and strategic partnerships (e.g. Channel Partnerships & resellers for local and overseas markets) | Dec. 27, 2018 | Oct. 30, 2019 | 44 weeks |
| Technology Team ($300,000) | | | |
• Review compensation schemes for existing technical team | Nov. 1, 2018 | Dec. 12, 2018 | 6 weeks |
| | | | |
• Additional (replacements) headcounts to enhance technology capabilities | Dec. 13, 2018 | Feb. 5, 2020 | 60 weeks |
| HR Management ($80,000) | | | |
• Engage a HR Consultant to review existing Human Resource Management Processes and Practices | Nov. 1, 2018 | Jan. 23, 2019 | 12 weeks |
| | | | |
• Execute strategies to improve HR Process and Policies and evaluate and appoint outsourcing companies | Jan. 24, 2019 | July 10, 2019 | 24 weeks |
| | | | |
• Outsourcing of Human Resource Management Processes | July 11, 2019 | Dec. 25, 2019 | 24 weeks |
| Investor Relations & Strategic Financial Advisors ($120,000) | | | |
• Engagement of Investor Relations Consultants to support financing activities | Nov. 1, 2018 | Oct. 30, 2019 | 52 weeks |
| | | | |
• Engagement of Strategic Financial Advisors to support operation strategies | Nov. 1, 2018 | Oct. 30, 2019 | 52 weeks |
Therefore, based on the above, we anticipate that we will require a total of approximately $1,125,000 for our plan of operations over the next twelve months. At December 31, 2018, we had cash of $71,217 and a working capital deficit of $738,798. Accordingly, we will be required to obtain additional financing in order to pursue our plan of operations for and beyond the next twelve months. We are currently examining ways to finance the anticipated expenditures and operations through equity and/or debt financings, but we currently do not have any firm commitments for financing at this time. We cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund the build out of the IBASE business going forward. In the absence of such financing, we will not be able to continue our planned expenditures to grow the IBASE business and we may need to curtail the anticipated plan of operations and our business plan may fail.
Statement of Cashflows
During the six month period ended Dec. 31, 2018, our net cash decreased by $57,651 (2017: $453,494), which included net cash used in operating activities of $249,069 (2017: $1,038,398), net cash used in investing activities of $136,520 (2017: $10,082) and net cash provided by financing activities of $314,438 (2017: $560,363).
Cash Flow used in Operating Activities
Operating activities during the six month period ended Dec. 31, 2018 used cash of $249,069 compared to $1,038,398 in the six months ended Dec. 31, 2017. Cash used in operating activities decreased in 2018 as a result of a decrease in accounts receivable of $42,799, a decrease in prepaid expenses and deposits of $106,471, a decrease in contract assets of $199,460, an increase in accounts payable and accrued liabilities of $186,920, a decrease in deferred revenue/contract liabilities of $87,587, and a net loss during the period of $877,914.
Cash Flow used in Investing Activities
During the six month period ended Dec. 31, 2018, investing activities used cash of $3,248 for the purchase of property and $133,272 for software development for a total of $136,520, as compared to $10,082 for the purchase of property and equipment during the six month period ended Dec. 31, 2017.
Cash Flow provided by Financing Activities
During the six month period ended Dec. 31, 2018, financing activities provided cash from the proceeds of notes payable of $232,747 and proceeds from advances from related parties of $81,691 for a total of $314,438, as compared to cash from the proceeds of notes payable of $560,363 for the six month period ended Dec. 31, 2017.
Off-balance sheet arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Subsequent events
There are no subsequent events to report.
Critical Accounting Policies and Use of Estimates
Our condensed and consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles in the United States ("GAAP") and in conformity with the instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the operating results to be attained in the entire fiscal year.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our financial statements:
(a) Principles of Consolidation and Basis of Presentation
Our unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, IBASE Technology International Pte. Ltd. ("IBASE International"). All significant inter-company transactions and balances have been eliminated in consolidation.
The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information. These condensed consolidated financial statements do not include all disclosures normally provided in annual financial statements and should be read in conjunction with the annual financial statements as at and for the year ended June 30, 2018. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results expected for the fiscal year.
(b) Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of the satisfaction of performance obligations, including percentage-of-completion; useful lives of tangible and intangible assets; allowances for doubtful accounts, when technological feasibility is achieved for new software to be leased or sold; and the potential outcome of future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
(c) Revenue
Adoption of New Accounting Guidance on Revenue Recognition
On July 1, 2018, the Company adopted Accounting Standard Codification 606, Revenue from Contracts with Customers ("ASC 606") using the modified retrospective approach applied to any contracts that were not completed as of July 1, 2018. Results for reporting periods beginning after July 1, 2018 are presented under the new guidance, while prior periods continue to be reported in accordance with previous accounting guidance. The Company determined that a cumulative effect adjustment of $179,527 ($0.55 per weighted average share, basic and diluted) to decrease the deficit at July 1, 2018, was necessary upon adoption as there were significant revenue recognition differences identified between the new and previous accounting guidance. Under the new standard, the Company recognizes revenue over time for customized software projects, rather than at a point in time. The adoption of ASC 606 would also have affected the following balances:
| | | As at July 1, 2018 | |
| | |
As Previously
Stated | | | New
Revenue
Standard
Adjustment | | |
As Stated
Under
ASC 606 | |
| | $ | | | $ | | | $ | |
| | | | | | | | | | |
| Deferred contract costs | | 448,653 | | | (448,653 | ) | | - | |
| Contract assets | | - | | | 238,247 | | | 238,247 | |
| Deferred revenue | | 421,178 | | | (391,566 | ) | | 29,612 | |
The Company recognizes revenue based on the five criteria for revenue recognition established under ASC 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Product Revenue and Service and Other Revenue
Product revenue includes sales of customized software products that can also include underlying licenses, training, and data migration.
Service and other revenue includes sales from cloud-based solutions that provide customers with software, services, and platforms. Service and other revenue also includes sales from consulting, maintenance, and hosting services.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities, if any.
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Management assesses the business environment, customers' financial condition, historical collection experience, accounts receivable aging, and customer disputes to determine whether collectability is reasonably assured. If collectability is not considered reasonably assured at the time of sale, the Company does not recognize revenue until collection occurs.
The Company enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation, generally on a relative basis using its standalone selling price.
For on-premises licenses, the Company recognizes revenue at a point in time when control passes to the customer. For custom licenses that require modification and development based on customer requirements and provide for cost plus reasonable margin throughout the contract, the Company recognizes revenue over time using the input method. For subscription hosting services, the Company recognizes revenue over the period the services are provided.
Revenue Service Types
The Company has four main revenue sources - the sale of customized software products, the sale of software licenses, the sale of subscription cloud services, and the sale of product support and incidental change orders. Accordingly, the Company recognizes revenue for each source as described below:
The Sale of Customized Software Products - Revenue for custom software or significant enhancement to software are projects whereby, the development of the custom software leads to an identifiable asset with no alternative use to the Company, the Company also has an enforceable right to payment under the contract, and revenue is recognized based on the percentage-of-completion using an input model with a master budget of man-days. At the end of each reporting period, the Company reviews its estimated budgeted time to completion and adjusts the percentage of completion accordingly.
Sale of Software - Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase licenses or subscribe to licenses, which provide customers with similar functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. Revenue from licenses that require Company resources during the service period are recognized over the term of the license.
Subscription Hosting Services, which allow customers to use hosted software over the contract period without taking possession of the software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period. When cloud services require a significant level of integration and interdependency with software and the individual components are not considered distinct, all revenue is recognized over the period in which the cloud services are provided.
Sale of Product Support and Incidental Change and Maintenance Orders - The Company recognizes revenue from the sale of product support and incidental change orders when it has completed the performance obligation specified in the contract.
Significant Judgments
Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine the standalone selling price ("SSP") for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately. The Company uses a range of amounts to estimate SSP when selling each of the products and services separately and needs to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by revenue source and timing of transfer of goods or services. Refer to Note 9 for disaggregated revenue information.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing/ milestone invoicing to customers. The Company records a contract asset when revenue is recognized prior to invoicing, or a deferred revenue/contract liability when revenue is recognized subsequent to invoicing.
Under the previous revenue recognition standard, the Company deferred costs incurred that related to unrecognized revenues.
Unfulfilled Performance Obligations
Unfulfilled performance obligations represent amounts expected to be earned on executed contracts. As at December 31, 2018, the Company had approximately $400,000 in unfulfilled performance obligations. The Company expects to satisfy 70% of the performance obligations in fiscal year 2020.
(d) Cost of Sales
Cost of sales includes: amounts paid to external consultants for custom software sales and other direct costs, including salaries for software engineering and project management staff and payroll related costs.
(e) Employee Benefits
The Company remits contributions to the Central Provident Fund Scheme in Singapore which is a defined contribution pension scheme. These contributions are recognized as compensation expense in the period in which the related service is performed.
(f) Research and Development
Research and development expenses include payroll and employee benefits, other payroll-related expenses associated with product development, third-party development and other programming costs. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, as defined under ASC 985-20 "Costs of Software to be Sold, Leased or Marketed". Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products. Technological feasibility is established once a detailed program design is in place, the Company has established that the necessary skills, hardware, and software technology are available to the entity to produce the product, the completeness of the detail program design and its consistency with the product design have been confirmed by documenting and tracing the detail program design to product specifications, and the detail program design has been reviewed for high-risk development issues (for example, novel, unique, unproven functions and features or technological innovations), and any uncertainties related to identified high-risk development issues have been resolved through coding and testing. As at July 1, 2018, the Company determined technological feasibility was met on the software being developed. During the six months ended December 31, 2018, the Company capitalized approximately $133,000 of software development costs consisting of payroll and other costs.
(g) Reclassifications
Certain of the prior year figures have been reclassified to conform to the current year`s presentation including the payroll costs associated with project management and software engineering, which have been reclassified from general salaries and benefits to cost of sales. The reclassification adjustments had no effect on the Company's comprehensive loss for the six months ended December 31, 2018.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-3, "Financial Instruments - Credit Losses" ("Topic 326"). a new standard to replace the incurred loss impairment methodology under current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective for the Company beginning July 1, 2023, with early adoption permitted beginning July 1, 2019. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings/ deficit as of the effective date to align the Company's credit loss methodology with the new standard. The Company is currently evaluating the impact of this standard on the consolidated financial statements, including accounting policies, processes, and systems.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the U.S. Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements
Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. Under the direction of our Chief Executive Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) there continue to be material weaknesses in the Company's internal controls over financial reporting, that the weaknesses constitute a "deficiency" and that this deficiency could result in misstatements of the foregoing accounts and disclosures that could result in a material misstatement to the financial statements for the current period that would not be detected, and (ii) accordingly, our disclosure controls and procedures were not effective as of December 31, 2018.
Changes in Internal Controls over Financial Reporting
There were no material changes in the Company's internal control over financial reporting during our fiscal quarter ended December 31, 2018, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, affiliates or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During our fiscal quarter ended December 31, 2018, we issued the following securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act"):
| | • | On October 1, 2018, IBASE issued $25,000.00 in convertible notes to one individual pursuant to a private placement, which notes mature three years from the date of issuance and subject to an automatic earlier conversion pursuant to the Share Exchange Agreement whereby the notes will be converted into shares of common stock of the Company at a conversion price of $0.90 per share upon completion of the Share Exchange Agreement. IBASE relied on exemptions from registration under Regulation S promulgated under the Securities Act for the issuance as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States. |
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| | • | On October 3, 2018, IBASE issued $50,000.00 in convertible notes to two individuals pursuant to a private placement, which notes mature three years from the date of issuance and subject to an automatic earlier conversion pursuant to the Share Exchange Agreement whereby the notes will be converted into shares of common stock of the Company at a conversion price of $0.90 per share upon completion of the Share Exchange Agreement. IBASE relied on exemptions from registration under Regulation S promulgated under the Securities Act for the issuance as the securities were issued to the individuals through offshore transactions which were negotiated and consummated outside of the United States. |
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| | • | On October 4, 2018, IBASE issued $30,000.00 in convertible notes to one individual pursuant to a private placement, which notes mature three years from the date of issuance and subject to an automatic earlier conversion pursuant to the Share Exchange Agreement whereby the notes will be converted into shares of common stock of the Company at a conversion price of $0.90 per share upon completion of the Share Exchange Agreement. IBASE relied on exemptions from registration under Regulation S promulgated under the Securities Act for the issuance as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States. |
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| | • | On October 31, 2018, IBASE issued $75,000.00 in convertible notes to two individuals pursuant to a private placement, which notes mature three years from the date of issuance and subject to an automatic earlier conversion pursuant to the Share Exchange Agreement whereby the notes will be converted into shares of common stock of the Company at a conversion price of $0.90 per share upon completion of the Share Exchange Agreement. IBASE relied on exemptions from registration under Regulation S promulgated under the Securities Act for the issuance as the securities were issued to the individuals through offshore transactions which were negotiated and consummated outside of the United States. |
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| | • | On November 3, 2018, IBASE issued $23,958.00 in convertible notes to one individual pursuant to a private placement, which notes mature three years from the date of issuance and subject to an automatic earlier conversion pursuant to the Share Exchange Agreement whereby the notes will be converted into shares of common stock of the Company at a conversion price of $0.90 per share upon completion of the Share Exchange Agreement. IBASE relied on exemptions from registration under Regulation S promulgated under the Securities Act for the issuance as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States. |
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| | • | On December 5, 2018, IBASE issued $29,583.00 in convertible notes to three individuals pursuant to a private placement, which notes mature three years from the date of issuance and subject to an automatic earlier conversion pursuant to the Share Exchange Agreement whereby the notes will be converted into shares of common stock of the Company at a conversion price of $0.90 per share upon completion of the Share Exchange Agreement. IBASE relied on exemptions from registration under Regulation S promulgated under the Securities Act for the issuance as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States. |
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| | • | On December 28, 2018, pursuant to the closing of the Amended Share Exchange Agreement, we issued 18,998,211 shares of our common stock to the shareholders of IBASE on pro rata basis in accordance with each IBASE shareholders' percentage ownership in IBASE. In addition, we issued an aggregate of 1,821,410 shares of our common stock to the holders of Convertible Notes representing an aggregate of $1,639,269. We relied on exemptions from registration under Rule 903 of Regulation S promulgated under the Securities Act for the issuances as the securities were issued to the individuals through offshore transactions which were negotiated and consummated outside of the United States. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are included with this Quarterly Report:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | QORNERSTONE INC. |
| | | |
| | By: | /s/ Ernest Ong |
| | | Ernest Ong |
| | | President, Chief Executive Officer, and Director (Principal Executive Officer) |
| | | Date: September 27, 2022 |
| | | |
| | | |
| | By: | /s/ Willie Lian |
| | | Willie Lian |
| | | Chief Financial Officer and Director (Principal Financial Officer) |
| | | Date: September 27, 2022 |
