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This Form 10-Q contains forward-looking statements rather than historical facts that involve risks and uncertainties. You can identify these statements by the use of forward- looking words such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. Such forward-looking statements discuss our current expectations of future results of operations or financial condition. However, there may be events in the future that we are unable to accurately predict or control and there may be risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements, which could have a material adverse effect on our business, operating results and financial condition. The forward-looking statements included herein are only made as of the date of the filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
BASIS OF PRESENTATION
The following discussion should be read in conjunction with the financial information included elsewhere in this Quarterly Report on Form 10-Q (this "Report"), including our unaudited condensed consolidated financial statements and the related notes and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSEC onMarch 30, 2022 , Quarterly Report on Form 10-Q for the three months endedMarch 31, 2022 , as filed with theSEC onMay 17, 2022 , and other reports that we file with theSEC from time to time.
References in this Quarterly Report on Form 10-Q to “us”, “we”, “our” and
similar terms refer to
Overview
We acquire and operate e-commerce platforms and mobile applications through our direct and indirect wholly or majority-owned subsidiaries, including but not limited toSociety Technology LLC ,SOPA Technology Pte Ltd ,SOPA Cognitive Analytics Pte Ltd ,SOPA Technology Co Ltd ,HOTTAB Pte Ltd andHOTTAB Vietnam Co Ltd. Along withHOTTAB Asset Vietnam Co Ltd (currently wholly-owned by one employee ofHOTTAB Vietnam Co Ltd and contractually operated byHOTTAB Vietnam Co Ltd ),Leflair Incorporated ,Push Delivery Pte Ltd ,New Retail Experience Incorporated ("NREI"), andDream Space Co., Ltd ("Dream Space"),Gorilla Networks Pte Ltd ("Gorilla Net"),Gorilla Mobile Pte Ltd ("Gorilla Mob"). These fourteen companies form theSociety Pass Group (the "Group"). The Group currently markets to both consumers and merchants inVietnam ,Philippines andSingapore while maintaining an administrative headquarters inSingapore and a software development center, which was located inIndia but is transitioning to a location in SEA. InFebruary 2021 , we acquired an online lifestyle platform of Leflair branded assets (the "Leflair Assets"). We acquired NREI and Dream Space inFebruary 2022 and have integrated the Leflair Assets, NREI and Dream Space into theSociety Pass corporate structure and ecosystem.Society Pass Incorporate acquired Gorilla Net and Gorilla Mob inMay 2022 underSociety Pass Incorporated . We continue to expand our e-commerce ecosystem throughout the rest of SEA by making selective acquisitions of leading e-commerce companies and applications with particular focuses on the VIP countries (Vietnam ,Indonesia andPhilippines ) of SEA. Our business currently comprises of the following five verticals: lifestyle, grocery and food delivery, merchant software, telecommunication reseller, and loyalty. Lifestyle includes Leflair App and Leflair.com website; Grocery and food delivery ("F&B") includes Pushkart App, Pushkart.ph website, Handycart App, and Handycart.vn website. The merchant software segment includes #HOTTAB Biz App, #HOTTAB POS App and Hottab.net website. Telecommunication reseller business includes Gorilla App and Gorilla.com website. The loyalty vertical includes Society Pass App and SoPa.asia website. In addition, in the third quarter we acquired companies in the travel and digital media verticals. These current four and prospective e-commerce interfaces are collectively referred to in this Quarterly Report as the "Platform". 59 Our loyalty-focused and data-driven e-commerce marketing platform interfaces connect consumers with merchants in the F&B and lifestyle sectors, assisting local brick-and-mortar businesses to access new customers and markets to thrive in an increasingly convenience-driven economy. Our Platform integrates with both global and country-specific search engines and applications and accepts international address and phone number data, providing a consumer experience that respects local languages, address formats and customs. OurStrategic Partners (as defined below) work with us to penetrate local markets, while our Platform allows effortless integration with existing technological applications and websites. Leflair.com website and Leflair App are marketed inVietnam . Pushkart.ph website and Pushkart App are marketed inPhilippines . Handycart.vn website and Handycart App are marketed inVietnam . Gorilla App and Gorilla.com website are marketed inSingapore . Branded as "#HOTTAB", our merchant software business helps merchants increase revenues and streamline costs with an online and multilingual store front, fully integrated POS software solution, joint marketing program, payment infrastructure, loyalty administration, customer profile analytics, and SME financing packages. Through #HOTTAB Biz App, #HOTTAB POS and Hottab.net merchant administration website interfaces, #HOTTAB functions both online and offline and facilitates transactions, orders, voucher redemption, and rewards. Merchants only need a smart device in order to quickly access our #HOTTAB product ecosystem. In addition, our Customer Care department provides attentive after-sales service.
The Hottab.net admin website and #HOTTAB Biz App, #HOTTAB POS APP are marketed
in both
SoPa.asia website and Society Pass App are marketed in
As of
and over 5,500 registered merchants on our Platform.
Impact of the COVID-19 Pandemic and other Global Events
The current outbreak of COVID-19 has globally resulted in loss of life, business shutdowns, restrictions on travel, and widespread cancellation of social gatherings. The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted at this time, including:
• new information which may emerge concerning the severity of the disease in
• the duration and spread of the outbreak;
• the severity of travel restrictions imposed by geographic areas in which we
operate, mandatory or voluntary business closures;
• regulatory actions taken in response to the pandemic, which may impact
merchant operations, consumer and merchant pricing, and our product
offerings;
• other business disruptions that affect our workforce;
• the impact on capital and financial markets; and
• action taken throughout the world, including in markets in which we operate,
to contain the COVID-19 outbreak or treat its impact.
In addition, the current outbreak of COVID-19 has resulted in a widespread global health crisis and adversely affected global economies and financial markets, and similar public health threats could do so in the future. Such events have impacted, and could in the future impact, demand for merchants and consumer purchase patterns, which in turn, could adversely affect our revenue and results of operations. 60 Since the onset of the COVID-19 pandemic in March andApril 2020 , all our POS merchant clients are affected by COVID-19 measures for F&B to temporary stop restaurant dine ins.
• Some of our restaurant clients ceased operations permanently and many were
closed since
• Our largest POS client, a hotel chain for which we provide POS services to
their F&B business in their hotels, ceased operations in two out of nine hotels
since
• The Company faces challenges to onboard new clients but at the same time losing
many existing ones.
With the ongoing pandemic, Company faces challenges in our operation as follows;
• Disruption of operation in
staffs have to work from home.
• The coordination of rebooting of company’s recent asset acquisition of NREI and
Dream Space, which are the F&B Delivery platforms in operate in
• Application of licenses are delayed as government agencies take longer time to
review and process time.
• HR process to hire personnel are generally slow due to people not willing to
leave their current job, company have to spend more time and resource The spread of COVID-19 has caused us to modify our business practices, including employee travel, employee work locations in certain cases, and cancellation of physical participation in certain meetings, events and conferences and further actions may be taken as required or recommended by government authorities or as we determine are in the best interests of our employees, customers, and other business partners. We are monitoring the global outbreak of the pandemic, in SEA, especiallyVietnam and are taking steps in an effort to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and the governmental and community reactions thereto. See "Risk Factors--Our business may be materially adversely affected by the recent coronavirus (COVID-19) outbreak.
The Russian-Ukraine war and the supply chain disruption have not affected any
specific segment of our business.
Financial Condition
Results of Operations
The following table sets forth certain operational data for the three and six
months ended
Three months ended Six months ended
June 30, June 30,
2022 2021 2022 2021
Revenue,net $ 499,062 $ 7,783 $ 944,152 $ 17,289
Cost of revenue (499,200 ) (86,562 ) (959,083 ) (104,857 )
Gross loss (138 ) (78,779 ) (14,931 ) (87,568 )
Less operating expenses:
Sales and marketing expenses (253,290 ) (41,284 ) (449,392 ) (42,184 ) Software development costs (17,320 ) (36,828 ) (36,868 ) (66,989 ) Impairment loss - - (528,583 ) (200,000 ) General and administrative expenses (7,345,364 ) (4,167,802 ) (13,186,062 ) (6,121,899 ) Total operating expenses (7,615,974 ) (4,245,914 ) (14,200,905 ) (6,431,072 ) Loss from operations (7,616,112 ) (4,324,693 )
(14,215,836 ) (6,518,640 )
Other income (expense): Interest income 6,027 10 6,072 16 Interest expense (384 ) (12,157 ) (4,429 ) (24,214 )
Loss on settlement of litigation - -
- (550,000 ) Other income 24,672 992 38,293 1,747 Total other expense 30,315 (11,155 ) 39,936 (572,451 ) Loss before income taxes (7,585,797 ) (4,335,848 )
(14,175,900 ) (7,091,091 ) Income taxes (797 ) (6,903 ) (2,099 ) (8,640 ) NET LOSS$ (7,586,594 ) $ (4,342,751 ) $ (14,177,999 ) $ (7,099,731 ) 61 Revenue. We generated revenues of$499,062 and$7,783 during the three months endedJune 30, 2022 and 2021 respectively. During the six month endedJune 30, 2022 and 2021 we generated revenue of$944,152 and$17,289 respectively. The significant increase in revenue for three months and six month periods was mainly due to increase in the sales from our online platforms and newly acquired subsidiaries.
During the six months ended
exceeded 10% of the Company’s revenues:
Six months ended June 30, 2022 June 30, 2022
Percentage Accounts
Customer Revenues of revenues receivable
Customer A $ 783,141 82.94 % $ 34,062
Customer B $ 109,567 11.60 % $ (11,818 )
Six months ended June 30, 2021 June 30, 2021
Percentage Accounts
Customer Revenues of revenues receivable
Customer A $ 14,797 85.59 % $ -
For the three months ended
for 10% or more of the Company’s revenues and its outstanding receivable
balances at year-end dates, are presented as follows:
Three months ended June 30, 2022
Percentage
Customer Revenues of revenues
Customer A $ 392,739 78.70 %
Customer B $ 73,876 14.80 %
Three months ended June 30, 2021
Percentage
Customer Revenues of revenues
Customer A $ 7,009 88.11 %
Customer is located in
Cost of Revenue. Cost of revenue was$499,200 and$86,562 during three months endedJune 30, 2022 , and 2021 respectively. During the period of six months endedJune 30, 2022 and 2021, we incurred cost of revenue was$959,083 and$104,857 respectively. Cost of revenue increased primarily as a result of the increased sales and the cost of logistic. 62 Major vendors
For the six months ended
10% or more of the Company’s hardware purchases and software costs:
Six months ended June 30, 2022 June 30, 2022
Vendors Purchases Percentage of purchases Accounts payable
Vendor A $ - - $ -
Six months ended June 30, 2021 June 30, 2021
Percentage Accounts
Vendors Purchases of purchases payable
Vendor A $ 12,436 11.86 % $ -
For the three months ended June 30, 2022 and 2021, the vendors who accounts for
10% or more of the Company's hardware purchases and software cost its
outstanding payable balances as at year-end dates, are presented as follows:
Three months ended June 30, 2022
Vendors Purchases Percentage of purchases
Vendor A $ - -
Three months ended June 30, 2021
Percentage
Vendors Purchases of purchases
Vendor A $ 12,436 14.37 %
Our one major vendor is located in
Gross Loss. We recorded a gross loss of$138 and$78,779 for three months endedJune 30, 2022 and 2021 respectively. During the six months endedJune 30, 2022 and 2021, we recorded a gross loss of$14,931 and$87,568 respectively. The decrease in gross loss is due to increased revenue from e-commerce and our newly acquired telecommunication reseller business. Sales and Marketing Expenses ("S&M"). We incurred S&M expenses of$253,290 and$41,284 for the three months endedJune 30, 2022 and 2021 respectively. During the six months endedJune 30, 2022 and 2021, we have incurred S&M expenses of$449,392 and$42,184 respectively. The increase in S&M expense in 2022 is primarily attributable to the increased in sales activity and the related promotion expenses related needed for new merchants joining our e-commerce platform. Further, there was an increase in marketing cost in 2022 to attract the attention of customers to our e-commerce platform. Software Development Cost ("SDC"). We incurred SDC expenses of$17,320 and$36,828 for three months endedJune 30, 2022 and 2021 respectively. During the six months endedJune 30, 2022 and 2021, we incurred SDC expenses of$36,868 and$66,989 respectively. The decrease in SDC in 2022 is primarily attributable to the restructuring of our technology development team. Impairment Charge ("IC"). We incurred impairment charges of$528,583 and$200,000 for the six months endedJune 30, 2022 , and 2021, respectively. No impairment charge was incurred for the three months endedJune 30, 2022 and 2021. The increase is primarily attributable to the impairment of goodwill related to the acquisition of the NREI ecommerce asset in the first quarter of 2022 which was expensed in the same period due to the short life term of the asset and the quantum of consideration. General and Administrative Expenses ("G&A"). We incurred G&A expenses of$7,345,364 and$4,167,802 for the three months endedJune 30, 2022 and 2021 respectively. During the six months endedJune 30, 2022 and 2021, we incurred G&A expenses of$13,186,062 and$6,121,899 respectively. The increase in G&A is primarily attributable to the increased professional costs associated with cost related to business acquisition and the Company's filing for listing on theNasdaq Stock Exchange and stock based compensation for services. 63 Loss on settlement of litigation. OnMay 21, 2021 , the Company agreed to settle a litigation matter for$550,000 in cash. The settlement was paid in two tranches, with both tranches paid in the second quarter of 2021. In connection with the settlement, the Company recognized litigation settlement expense in the amount of$550,000 in the period endedJune 30, 2021 . There was no such expenses incurred in the comparative period endedJune 30, 2022 .
Income Tax Expense. Our income tax expenses for the three months ended
30,2022
2021 was
Net Loss. As a result of the items noted above, for the three months endedJune 30, 2022 , we incurred a net loss of$7,586,594 as compare to the same period endedJune 30,2021 of$4,342,751 . During the six months endedJune 30, 2022 the Group incurred a loss of$14,177,999 , as compared to$7,099,731 for the same period endedJune 30, 2021 . The increase in net loss in both periods is primarily attributable to increased general and administrative expenses.
Liquidity and Capital Resources
As ofJune 30, 2022 , we had cash and cash equivalents of$28,012,846 , accounts receivable of$51,891 , deposits, prepayments and other receivables of$4,549,753 and inventories of$336,476 .
As of
accounts receivable of
For the six months endedJune 30, 2022 , the Company's stockholders' equity was$34,587,713 which increased as a result of additional paid-in-capital partially offset by an increase in accumulated deficit. For the six months endedJune 30, 2022 , the Company incurred net loss of$14,177,999 and net cash used by operating activities of$5,448,474 . Net cash used by investing activities was$227,873 . Net cash provided by financing activities was$10,351,413 , resulting principally from the$10,402,891 net proceeds from a public offering and$412,890 of net proceeds from the C1 warrants exercised during the period endedJune 30, 2022 , partially offset by repayment of theFirst Insurance Funding loan in the amount of$464,368 during 2022. While the Company believes that it will be able to continue to grow the Company's revenue base and control expenditures, there is no assurance it will be able to do so. The Company continually monitors its capital structure and operating plans and evaluates various potential funding alternatives that may be needed in order to finance the Company's business development activities, general and administrative expenses and growth strategy. We expect to continue to rely on cash generated through financing from public offerings or private offerings of our or one or more of our subsidiaries' securities, to finance our operations and future acquisitions. The Company believes that it has sufficient liquidity to continue its current business plans and operations. Six Months Ended June
30,
2022
2021
Net cash (used in) operating activities$ (5,448,474 ) $ (1,513,720 ) Net cash (used in) investing activities (227,873 ) (200,000 ) Net cash provided by financing activities 10,351,413
1,322,505
Effect on exchange rate change 73,003
27,182
Net change in cash and cash equivalents 4,748,069 (364,033 ) Cash and cash equivalent at beginning of period 23,264,777 506,666 Cash and cash equivalent at end of period 28,012,846
142,633
For the six months ended
was
partially offset by non-cash stock based compensation for services of
impairment loss of
64 For the six months endedJune 30, 2021 , net cash used in operating activities was$1,513,720 , which consisted primarily of net loss of$7,099,731 , partially offset by non-cash stock based compensation for services of$3,507,275 , a loss on settlement of litigation of$550,000 , depreciation and amortization of$1,604,451 and a non-cash impairment loss of$200,000 .
We expect to continue to rely on cash generated through financing from public
offerings or private offerings of our or one or more of our subsidiaries’
securities, to finance our operations and future acquisitions.
For the six months ended
primarily as a result of the purchase of property, plant, and equipment.
For the six months ended
for a deposit paid related to the Leflair asset acquisition.
Net Cash Provided By Financing Activities.
For the six months endedJune 30, 2022 , net cash provided by financing activities was$10,351,413 , consisting primarily of funds raised from a public offering and Series C-1 warrants exercised partially offset by repayment of the First Insurance Funding Loan.
For the six months ended
activities was
shareholders for Series C Preferred Stock and warrants exercised.
Critical Accounting Policies and Estimate
• Basis of presentation
The Company has prepared the accompanying condensed financial statements pursuant to the rules and regulations of theSecurities and Exchange Commission (the "SEC") for interim financial reporting. These financial statements are unaudited and, in our opinion, include all adjustments consisting of normal recurring adjustments and accruals necessary for a fair presentation of our condensed balance sheets, statements of operations and other comprehensive loss, statements of stockholders' deficit and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2022 due to various factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted inthe United States ("GAAP") have been omitted in accordance with the rules and regulations of theSEC . These condensed financial statements should be read in conjunction with the 2021 audited financial statements and accompanying notes filed with theSEC . 65 •Emerging Growth Company We are an "emerging growth company" under the JOBS Act. For as long as we are an "emerging growth company," we are not required to: (i) comply with any new or revised financial accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies, (ii) provide an auditor's attestation report on management's assessment of the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (iii) comply with any new requirements adopted by thePublic Company Accounting Oversight Board ("PCAOB") requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer or (iv) comply with any new audit rules adopted by the PCAOB afterApril 5, 2012 , unless theSEC determines otherwise. However, we have elected to "opt out" of the extended transition period discussed in (i) and will therefore comply with new or revised accounting standards on the applicable dates on which the adoption of such standards are required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of such extended transition period for compliance with new or revised accounting standards is irrevocable.
• Use of estimates and assumptions
In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the years reported. Actual results may differ from these estimates. If actual results significantly differ from the Company's estimates, the Company's financial condition and results of operations could be materially impacted. Significant estimates in the period include the allowance for doubtful accounts on accounts receivable, incremental borrowing rate used to calculate right of use assets and lease liabilities, valuation and useful lives of intangible assets, valuation of impairment of long-lived assets, valuation of common stock and stock warrants, stock option valuations, imputed interest on due to related parties, inventory valuation, revenue recognition, business acquisition allocation of purchase consideration, and deferred tax valuation allowance.
• Basis of consolidation
The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
• Business combinations
The Company follows Accounting Standards Codification ("ASC") ASC Topic 805,
Business Combinations ("ASC 805") and ASC Topic 810-10-65, Consolidation. ASC
Topic 805 requires most identifiable assets, liabilities, non-controlling
interests, and goodwill acquired in a business combination to be recorded at
"fair value." The statement applies to all business combinations, including
combinations among mutual entities and combinations by contract alone. Under ASC
Topic 805, all business combinations are accounted for by applying the
acquisition method. Accounting for goodwill requires significant management
estimates and judgment. Management performs periodic reviews of the carrying
value of goodwill to determine whether events and circumstances indicate that an
impairment in value may have occurred. A variety of factors could cause the
carrying value of goodwill to become impaired. A write-down of the carrying
value of goodwill could result in a non-cash charge, which could have an adverse
effect on the Company's results of operations.
• Noncontrolling interest
The Company accounts for noncontrolling interest in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total shareholders' equity on the consolidated balance sheets and the consolidated net loss attributable to the its noncontrolling interest be clearly identified and presented on the face of the consolidated statements of operations and comprehensive loss. 66 • Segment Reporting ASC Topic 280, "Segment Reporting" establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organization structure as well as information about geographical areas, business segments and major customers in consolidated financial statements. The Company currently operates in four reportable operating segments: (i) e-commerce, (ii) Merchant POS, (iii)Online Grocery and Food Groceries Deliveries and (iv) Telecommunications Reseller.
• Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments. As ofJune 30 2022 andDecember 31, 2021 , the cash and cash equivalent was amounted to$28,012,846 and$23,264,777 , respectively. The Company currently has bank deposits with financial institutions in theU.S. which exceedFDIC insurance limits.FDIC insurance provides protection for bank deposits up to$250,000 , so there were uninsured balance of$10,780,926 and$13,699,082 in parent entity as ofJune 30, 2022 andDecember 31, 2021 , respectively. In addition, the Company has uninsured bank deposits of$16,966,211 and$9,315,695 with a financial institution outside theU.S as ofJune 30, 2022 andDecember 2021 , respectively. All uninsured bank deposits are held at high quality credit institutions.
• Accounts receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from completion of service. Credit is extended based on evaluation of a customer's financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. At the end of fiscal year, the Company specifically evaluates individual customer's financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company considers the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As ofJune 30, 2022 andDecember 31, 2021 , the allowance for doubtful accounts amounted to$-0 -
and$0 , respectively. • Inventories Inventories are stated at the lower of cost or net realizable value, cost being determined on a first-in-first-out method. Costs include hardware equipment and peripheral costs which are purchased from the Company's suppliers as merchandized goods. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. During the three and six months endedJune 30, 2022 and 2021, the Company recorded an allowance for obsolete inventories of$-0 - and$0 , respectively. The inventories was amounted to$336,476 and$221,068 atJune 30, 2022 andDecember 31, 2021 , respectively. • Prepaid Expenses Prepaid expenses represent future expenses paid in advance, until the associated benefits are realized, the future expense remains at current asset within the next twelve months and non-current asset after twelve months.. Since prepaid expenses are categorized as "current and non-current" assets, the benefits associated with the products or services paid for upfront are expected to be used for the next twelve months and thereafter. Once the benefits of the assets are gradually realized, the prepaid expense is reduced as the asset is expensed off on the statement of operations. 67
• Property, plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and
accumulated impairment losses, if any. Depreciation is calculated on the
straight-line basis over the following expected useful lives from the date on
which they become fully operational and after taking into account their
estimated residual values:
Expected useful lives
Computer equipment 3 years
Office equipment 5 years
Renovation 5 years
Expenditures for repairs and maintenance are expensed as incurred. When assets
have been retired or sold, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
results of operations.
• Impairment of long-lived assets
In accordance with the provisions of ASC Topic 360, "Impairment or Disposal of
Long-Lived Assets", all long-lived assets such as plant and equipment and
intangible assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
evaluated by a comparison of the carrying amount of an asset to its estimated
future undiscounted cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets exceed the
fair value of the assets. There has been no impairment charge for the periods
presented.
• Revenue recognition
The Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from
Contracts with Customers (Topic 606) ("ASU 2014-09"). Under ASU 2014-09, the
Company applies the following five steps in order to determine the appropriate
amount of revenue to be recognized as it fulfills its obligations under each of
its agreements:
• identify the contract with a customer;
• identify the performance obligations in the contract;
• determine the transaction price;
• allocate the transaction price to performance obligations in the contract; and
• recognize revenue as the performance obligation is satisfied.
The Company generates its revenues from a diversified a mix of e-commerce activities (B2C), grocery and food delivery (B2C), telecommunication reseller (B2C) and the services providing to merchants for their business growth (B2B), which are operated under four business segments of e-Commerce (previously mentioned as Consumer Facing Business), grocery and food delivery, telecommunication reseller, and Merchant POS (previously mentioned as Merchant Facing Business). The Company's performance obligation includes providing the connectivity among merchants and consumers, generally through an online ordering platform. The platform allows merchants to create account, place menu and track their sale reports on the merchant facing application. The platform also allows the consumers to create account and make orders from merchants on the consumer facing application. The platform allows delivering company to accept online delivery request and ship order from merchant to consumer. The Company has online lifestyle platform to enable the consumers to purchase high-end brands of all categories under its own brand name of "Leflair". Under the deployment of the Company's smart search engine, consumers search or review their favorite brands among hundreds of choices in Apparel, Bags & Shoes, Accessories, Health & Beauty, Home & Lifestyle, International, Women, Men and Kids & Babies categories. The platform also allows consumers to order from hundreds of vendor choices with personalized promotions based on purchase history and location. The platform has also partnered up with aVietnam -based delivery company, Tikinow, to offer seamless delivery of product from merchant to consumer's home or office at the touch of a button. Consumers can place orders for delivery or collect at the Company's logistics center. 68 Other online platforms include brand name of "Handcart" and "Pushkart" to enable the consumers to purchase grocery and food from difference local grocery and food merchants and deliver to them in their area. The Company also has online telecommunication reseller platform operate under brand name of "Gorilla" to enable the consumers to subscribe local mobile data and overseas internet data in different subscription package.
e-Commerce mainly offers lifestyle platform under the brand name of “Leflair”,
as follows:-
1) Customer placed orders on the website / app, sales orders report will be
generated in the system. The Company will inform its business partners proceed
to packaging to the logistic partner warehouse and therefore, logistic partner
delivered to the end customer. The sales is recognized when the delivery is
completed by the shipper to the end customer. Sale of products are offered
with a limited right of return ranging from 3 to 30 days, from the date of
purchase and not subject to no product warranty. The Company is considered as
a principal in this e-commerce transaction and reported revenue in gross basis
as the Company takes the responsibility for fulfillment, retaining the risk
for collection, and establishing the price of the products.
During the six months ended
the revenue of
During the three months ended
the revenue of
Merchant POS offers both software and hardware products and services, as
follows:-
Software sales consist of:
1) Subscription fees consist of the fees that the Company charge merchants to get
on the Merchant Marketing Program.
2) The Company provides optional add-on software services which includes
Analytics and Chat box capabilities at a fixed fee per month.
3) The Company collects commissions when they sell third party hardware and
equipment (cashier stations, waiter tablets and printers) to merchants.
During the six months ended
During the three months ended
Hardware sales - the Company generally is involved with the sale of on-premise appliances and end-point devices. The single performance obligation is to transfer the hardware product (which is to be installed with its licensed software integral to the functionality of the hardware product). The entire transaction price is allocated to the hardware product and is generally recognized as revenue at the time of delivery because the customer obtains control of the product at that point in time. It is concluded that control generally transfers at that point in time because the customer has title to the hardware, physical possession, and a present obligation to pay for the hardware. Payments for hardware contracts are generally due 30 to 90 days after shipment of the hardware product. The Company records revenues from the sales of third-party products on a "gross" basis pursuant to ASC Topic 606-10 Revenue Recognition - Revenue from Contracts with Customers, when the Company controls the specified good before it is transferred to the end customer and have the risks and rewards as principal in the transaction, such as responsibility for fulfillment, retaining the risk for collection, and establishing the price of the products. If these indicators have not been met, or if indicators of net revenue reporting specified in ASC Topic 606-10 are present in the arrangement, revenue is recognized net of related
direct costs. 69 Software subscription fee - The Company's performance obligation includes providing connectivity to software, generally through a monthly subscription, where the Company typically satisfies its performance obligations prior to the submission of invoices to the customer for such services. The Company's software sale arrangements grant customers the right to access and use the software products which are to be installed with the relevant hardware for connectivity at the outset of an arrangement, and to be entitled to both technical support and software upgrades and enhancements during the term of the agreement. The term of the subscription period is generally 12 months, with the automatic renewal of another one year, and the subscription license service is billed monthly, quarterly or annually. Sales are generally recorded in the month the service is provided. For clients who are billed on an annual basis, deferred revenue is recorded and amortized over the life of the contract. Payments are generally due 30 to 90 days after delivery of the software licenses.
The Company records its revenues, net of value added taxes (“VAT”), which is
levied at the rate of 10% on the invoiced value of sales.
Grocery and food delivery consists of online grocery under brand name “Pushkart”
and food delivery service under brand name “Handycart” as follows:
Customers place order of grocery and food through online platform of "Pushkart" and "Handcart" respectively. Upon received order by the grocery and food merchant, the platform will assign third party delivery man to pick up and deliver the grocery and food to the customers. Revenue are thus recognized at the point of the grocery and food delivered and paid by the customer in cash.
During the six months ended
During the three months ended
Telecommunication resellerprovides local mobile data plan and overseas internet
data plan under brand name of “Gorilla” as follows:
Local mobile plan - customers subscribe their desired monthly local mobile plan through online platform of "Gorilla" after customer account registration completed. The Company will proceed to register the Sim card and arrange delivery to the customer. Upon the Sim card activation, the system will capture the data usage of each customers at the end of each month, prorated by the package data capacity and monthly subscription rate for revenue recognition. Unused data will be converted toRewards Point and carry forward to next month for subsequent revenue recognition point. With this, the company also recognize revenue fromRewards Point redemption for subscription offset, voucher redemption, extra data purchase, at the point of transaction accepted through the customer account in the online platform. Overseas internet data plan - customers place order of their desired overseas internet data plan through online platform of "Gorilla" or third party partner platforms. The revenue is recognize at the point of time when the Sim card delivered and activated.
During the six months ended
During the three months ended
Contract assets
In accordance with ASC 606-10-45-3, contract asset is when the Company's right to payment for goods and services already transferred to a customer if that right to payment is conditional on something other than the passage of time. The Company will recognize a contract asset when it has fulfilled a contract obligation but must perform other obligations before being entitled to payment.
There were no contract assets at
Contract liabilities
In accordance with ASC Topic 606-10-45-2, a contract liability is Company's obligation to transfer goods or services to a customer when the customer prepays consideration or when the customer's consideration is due for goods and services that the Company will yet provide whichever happens earlier. Contract liabilities represent amounts collected from, or invoiced to, customers in excess of revenues recognized, primarily from the billing of annual subscription agreements. The value of contract liabilities will increase or decrease based on the timing of invoices and recognition of revenue. The Company's contract liability balance was$4,618 and$25,229 atJune 30, 2022 andDecember 31, 2021 , respectively. 70
• Software development costs
In accordance with the relevant FASB accounting guidance regarding the development of software to be sold, leased, or marketed, the Company expenses such costs as they are incurred until technological feasibility has been established, at and after which time these costs are capitalized until the product is available for general release to customers. Once the technological feasibility is established per ASC Topic 985-20, the Company capitalizes costs associated with the acquisition or development of major software for internal and external use in the balance sheet. Costs incurred to enhance the Company's software products, after general market release of the services using the products, is expensed in the period they are incurred. The Company only capitalizes subsequent additions, modifications or upgrades to internally developed software to the extent that such changes allow the software to perform a task it previously did not perform. The Company also expenses website costs as incurred. Research and development expenditures in the development of its own software are charged to operations as incurred. Based on the software development process, technological feasibility is established upon completion of a working model, which also requires certification and extensive testing. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release are immaterial. For the six months endedJune 30, 2022 and 2021, the software development costs were$36,868 and$66,989 , respectively. For the three months endedJune 30, 2022 and 2021, the software development costs were$17,320 and$36,828 , respectively.
• Cost of sales
Cost of sales under online ordering consist of the cost of merchandizes ordered by the consumers and the related shipping and handling costs, which are directly attributable to the sales of online ordering.
Cost of sales under software sales consist of the cost of software and payroll,
which are directly attributable to the sales of software.
Cost of sales under hardware sales consist of the cost of hardware and payroll,
which are directly attributable to the sales of hardware.
Cost of sales under grocery and food delivery consist of the cost of outsource delivery and outsource payment gateway, which are directly attributable t the sales of grocery and food delivery.
Cost of sales under telecommunication data reseller consist of the cost of
primary telecommunication service, which are directly attributable to the sales
of telecommunication data.
• Shipping and handling costs
No shipping and handling costs are associated with the distribution of the
products to the customers which are borne by the Company’s suppliers or
distributors for merchant POS business.
Except for e-Commerce business, the shipping and handling costs billed to
customers are recorded in sales. Shipping costs incurred by the Company are
recorded in cost of sales.
• Sales and marketing
Sales and marketing expenses include payroll, employee benefits and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was$253,290 and$449,392 for the three and six months endedJune 30, 2022 , respectively. Advertising expense was$41,284 and$42,184 for the three and six months endedJune 30
2021, respectively. • Product warranties The Company's provision for estimated future warranty costs is based upon historical relationship of warranty claims to sales. Based upon historical sales trends and warranties provided by the Company's suppliers, the Company has concluded that no warranty liability is required as ofJune 30, 2022 andDecember 31, 2021 . To date, product allowance and returns have been minimal and, based on its experience, the Company believes that returns of its products
will continue to be minimal. 71 • Income tax The Company adopted the ASC 740 Income Tax provisions of paragraph 740-10-25-13, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the condensed consolidated financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13. The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary. The Company and its wholly-owned foreign subsidiary, is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The company recognizes liabilities for anticipated tax audit issues based on the Company's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.
• Uncertain tax positions
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the ASC 740 provisions of Section 740-10-25 for the six months endedJune 30 2022 and 2021.
• Foreign currencies translation and transactions
The reporting currency of the Company is United States Dollar ("US$") and the
accompanying consolidated financial statements have been expressed in US$. In
addition, the Company's subsidiary is operating in the Republic of Vietnam ,
Singapore India and Philippines and maintains its books and record in its local
currency, Vietnam Dong ("VND"), Singapore Dollar ("SGD"), Indian Rupee ("INR")
and Philippines Pesos ("PHP"), respectively, which are the functional currency
as being the primary currency of the economic environment in which their
operations are conducted. In general, for consolidation purposes, assets and
liabilities of its subsidiaries whose functional currency is not US$ are
translated into US$, in accordance with ASC Topic 830-30, "Translation of
Financial Statement", using the exchange rate on the balance sheet date.
Shareholders' equity is translated using the historical rates. Revenues and
expenses are translated at average rates prevailing during the period. The gains
and losses resulting from translation of financial statements of foreign
subsidiaries are recorded as a separate component of accumulated other
comprehensive loss within the statements of changes in shareholder's equity.
72
Translation of amounts from SGD into US$ has been made at the following exchange
rates for the six months ended
Schedule of Foreign currencies translation and transactions
June 30, 2022 June 30, 2021
Period-end SGD:US$ exchange rate
Period average SGD:US$ exchange rate
Translation of amounts from VND into US$ has been made at the following exchange
rates for the six months ended
June 30, 2022 June 30, 2021
Period-end VND:US$ exchange rate
Period average VND:US$ exchange rate
Translation of amounts from INR into US$ has been made at the following exchange
rates for the six months ended
June 30, 2022 June 30, 2021
Period-end INR:US$ exchange rate
Period average INR:US$ exchange rate
Translation of amounts from PHP into US$ has been made at the following exchange
rates for the six months ended
June 30, 2022 June 30, 2021
Period-end PHP:US$ exchange rate
Period average PHP:US$ exchange rate
Translation gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated, as the case may be, at the rate on the date of the transaction and included in the results of operations as incurred.
• Comprehensive income
ASC Topic 220, "Comprehensive Income", establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying condensed consolidated statements of changes in shareholders' equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
• Earnings per share
Basic per share amounts are calculated using the weighted average shares outstanding during the year, excluding unvested restricted stock units. The Company uses the treasury stock method to determine the dilutive effect of stock options and other dilutive instruments. Under the treasury stock method, only "in the money" dilutive instruments impact the diluted calculations in computing diluted earnings per share. Diluted calculations reflect the weighted average incremental common shares that would be issued upon exercise of dilutive options assuming the proceeds would be used to repurchase shares at average market prices for the periods. For the three and six months endedJune 30, 2022 and 2021, diluted weighted-average common shares outstanding is equal to basic weighted-average common shares, due to the Company's net loss position. Hence, no common stock equivalents were included in the computation of diluted net loss per share since such inclusion would have been antidilutive. 73
Schedule of computation of diluted net loss per share:
Three Months Ended
2022
2021
Net loss attributable to Society Pass Incorporated$ (7,504,324 ) $ (4,342,751 ) Weighted average common shares outstanding - Basic and diluted 24,347,607
7,413,600
Net loss per share - Basic and diluted$ (0.31 )
$ (0.59 ) Six Months Ended June 30, 2022 2021 Net loss attributable to Society Pass Incorporated$ (14,052,702 ) $ (7,099,731 ) Weighted average common shares outstanding - Basic and diluted 23,126,643
7,413,600
Net loss per share - Basic and diluted$ (0.61 )
The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact:
Schedule of Common stock issued
Six months Six months
ended June 30 , ended June 30,
2022 2021
Series A Convertible Preferred Stock (a) -
8,000
Series B Convertible Preferred Stock -
764,400
Series B-1 Convertible Preferred Stock -
48,000
Series C Convertible Preferred Stock -
113,100
Series C-1 Convertible Preferred Stock -
2,186,400
Options to purchase common stock (b) 1,945,270
–
Warrants granted to underwriter 3,793,929
–
Warrants granted with Series C-1 Convertible Preferred Stock (c) - 1,178,700 Total: 5,739,199 4,298,600
(a) The Series A the conversion formula is aggregate Stated Value divided by IPO
price (State Value for each Series A preferred shares is
8,000 shares of Series A Preferred Stock issued and outstanding (10,000
shares are designated Series A). The conversion formula would be
(the aggregate stated value) divided by IPO price.
(b) The Board of Directors have approved a 10-years option at an exercise price
of
(c) The expiry date of warrants granted with Series C-1 was expired on
2022.
74
• Leases
The Company adopted Topic 842, Leases ("ASC 842") to determines if an
arrangement is a lease at inception. Operating leases are included in operating
lease right-of-use ("ROU") assets and operating lease liabilities in the
condensed consolidated balance sheets. Finance leases are included in property
and equipment, other current liabilities, and other long-term liabilities in the
condensed consolidated balance sheets.
ROU assets represent the right to use an underlying asset for the lease term and
lease liabilities represent the Company's obligation to make lease payments
arising from the lease. Operating lease ROU assets and liabilities are
recognized at commencement date based on the present value of lease payments
over the lease term. As most of the Company's leases do not provide an implicit
rate, the Company generally use the incremental borrowing rate based on the
estimated rate of interest for collateralized borrowing over a similar term of
the lease payments at commencement date. The operating lease ROU asset also
includes any lease payments made and excludes lease incentives. The lease terms
may include options to extend or terminate the lease when it is reasonably
certain that the Company will exercise that option. Lease expense for lease
payments is recognized on a straight-line basis over the lease term.
In accordance with the guidance in ASC 842, components of a lease should be
split into three categories: lease components (e.g. land, building, etc.),
non-lease components (e.g. common area maintenance, consumables, etc.), and
non-components (e.g. property taxes, insurance, etc.). Subsequently, the fixed
and in-substance fixed contract consideration (including any related to
non-components) must be allocated based on the respective relative fair values
to the lease components and non-lease components.
When a lease is terminated before the expiration of the lease term, irrespective
of whether the lease is classified as a finance lease or an operating lease, the
lessee would derecognize the ROU asset and corresponding lease liability. Any
difference would be recognized as a gain or loss related to the termination of
the lease. Similarly, if a lessee is required to make any payments or receives
any consideration when terminating the lease, it would include such amounts in
the determination of the gain or loss upon termination.
As of
asset of
• Retirement plan costs
Contributions to retirement plans (which are defined contribution plans) are charged to general and administrative expenses in the accompanying consolidated statements of operation as the related employee service is provided.
• Share-based compensation
Pursuant to ASU 2018-07, the Company follows ASC Topic 718, Compensation-Stock
Compensation ("ASC 718"), which requires the measurement and recognition of
compensation expense for all share-based payment awards (employee or
non-employee), are measured at grant-date fair value of the equity instruments
that an entity is obligated to issue. Restricted stock units are valued using
the market price of the Company's common shares on the date of grant. The
Company uses a Black-Scholes option model to estimate the fair value of employee
stock options at the date of grant. As of June 30, 2022 , those shares issued and
stock options granted for service compensations were vested 180 days later based
on share issuance date, and therefore these amounts are thus recognized as
expense during the six months ended June 30, 2022 and 2021, the stock-based
compensations are recorded in the General and administrative expenses within the
Consolidated Statements of Operations and Other Comprehensive Loss."
75
• Common stock awards
The Company grants common stock awards to employees and non-employees in
exchange for services provided. The Company measures the fair value of these
awards using the fair value of the services provided or the fair value of the
awards granted, whichever is more reliably measurable. The fair value
measurement date of these awards is generally the date the performance of
services is complete. The fair value of the awards is recognized on a
straight-line basis as services are rendered. The share-based payments related
to common stock awards for the settlement of services provided is recorded in
the general and administrative expenses and charged to the same account as if
such settlements had been made in cash. The fair value of the Common Stock
Awards to the Company's director was estimated using a Black-Scholes Option
Pricing Model.
• Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its Preferred stock and common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using a Black-Scholes Option Pricing Model as of the measurement date. The Company uses a Black-Scholes option model to estimate the fair value of compensation warrants. Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense over the requisite service period, or at the date of issuance, if there is
not a service period. • Related parties
The Company follows the ASC 850-10,
related parties and disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties include a) affiliates of theCompany; b ) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting ;parties might be prevented from fully pursuing its own separate interests. The condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
• Commitments and contingencies
The Company follows the ASC 450-20, Commitments to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company orun -asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings orun -asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. 76 If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company's financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company's business, financial position, and results of operations or cash flows.
• Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards
Codification for disclosures about fair value of its financial instruments and
has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification
("Paragraph 820-10-35-37") to measure the fair value of its financial
instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards
Codification establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value
measurements and related disclosures, paragraph 820-10-35-37 of the FASB
Accounting Standards Codification establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into
three (3) broad levels. The fair value hierarchy gives the highest priority to
quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The three (3) levels of fair
value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting
Standards Codification are described below:
Level 1 Quoted market prices available in active markets for identical assets or
liabilities as of the reporting date.
Level 2 Pricing inputs other than quoted prices in active markets included in
Level 1, which are either directly or indirectly observable as of the
reporting date.
Level 3 Pricing inputs that are generally observable inputs and not corroborated
by market data.
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. If the inputs used to measure the
financial assets and liabilities fall within more than one level described
above, the categorization is based on the lowest level input that is significant
to the fair value measurement of the instrument.
The carrying amounts of the Company's financial assets and liabilities, such as cash and cash equivalents, accounts receivable, deposits, prepayments and other receivables, contract liabilities, accrued liabilities and other payables, amounts due to related parties, approximate their fair values because of the short maturity of these instruments. 77
Critical Accounting Policies and Estimate
• Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial
Accounting Standard Board ("FASB") or other standard setting bodies and adopted
by the Company as of the specified effective date. Unless otherwise discussed,
the Company believes that the impact of recently issued standards that are not
yet effective will not have a material impact on its financial position or
results of operations upon adoption.
Accounting Standards Adopted
InAugust 2020 , the FASB issued ASU 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning afterDecember 15, 2021 and early adoption is permitted, but no earlier than fiscal years beginning afterDecember 15, 2020 , including interim periods within those fiscal years. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements The Company has evaluated and the adoption of this standard does not have a material impact on its financial position, results of operations or cash flows. InMay 2021 , the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40). ASU 2021-04 clarifies and reduces diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU provides guidance to clarify whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. ASU 2021-04 is effective for annual beginning afterDecember 15, 2021 , including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements The Company has evaluated and the adoption of this standard does not have a material impact on its financial position, results of operations or cash flows.
Accounting Standards Issued, Not Adopted
InJune 2016 , the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This ASU requires measurement and recognition of expected credit losses for financial assets. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU 2016-13 is effective for the Company beginningJanuary 1, 2023 . Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the potential effect of this standard on its financial statements. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements, but does not believe that it will have a material affect on its consolidated financial statements. InMarch 2020 , the FASB issued ASU 2020-03, "Codification Improvements to Financial Instruments": The amendments in this update are to clarify, correct errors in, or make minor improvements to a variety of ASC topics. The changes in ASU 2020-03 are not expected to have a significant effect on current accounting practices. The ASU improves various financial instrument topics in the Codification to increase stakeholder awareness of the amendments and to expedite the improvement process by making the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The ASU is effective for smaller reporting companies for fiscal years beginning afterDecember 15, 2022 with early application permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements, but does not believe that it will have a material affect on its consolidated financial statements. 78
InOctober 2021 , the FASB issued guidance which requires companies to apply Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. Public entities must adopt the new guidance for fiscal years beginning afterDecember 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact and timing of adoption of this guidance, however, it appears that more revenue will be recorded under this new requirement than was previously allowed. No other new accounting pronouncements were issued or became effective in the period that had, or are expected to have, a material impact on our condensed consolidated Financial Statements.
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