DUO WORLD INC - Quarter Report: 2017 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

or

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION FROM ______ TO ______.

Commission File Number: 0-55698

DUO WORLD, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number: (870) 505-6540

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 13, 2017, there were 41,116,654 outstanding shares of the Registrant’s Common Stock, $.001 par value.

INDEX

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Duo World, Inc. and Subsidiaries

Consolidated Financial Statements

September 30, 2017

(Unaudited)

CONTENTS

Duo World, Inc. and Subsidiaries

Consolidated Balance Sheets

The accompanying notes are an integral part of these consolidated financial statements.

Duo World, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Duo World, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Note 1 - Organization and Nature of Operations

Duo World Inc. (hereinafter referred to as “Successor” or “Duo”) a reporting company, was organized under the laws of the state of Nevada on September 19, 2014. Duo Software (Pvt.) Limited (hereinafter referred to as “DSSL” or “Predecessor”), a Sri Lanka based company, was incorporated on 22nd September 2004, in the Democratic Socialist Republic of Sri Lanka, as a limited liability company. Duo Software (Pte.) Limited (hereinafter referred to as “DSS” or “Predecessor”), a Singapore based company, was incorporated on June 05, 2007 in the Republic of Singapore as a limited liability company. DSS also includes its wholly owned subsidiary, Duo Software India (Private) Limited (India) which was incorporated on August 30, 2007, under the laws of India.

On December 03, 2014, Duo Software (Pvt.) Limited (DSSL) and Duo Software Pte. Limited (DSS) executed a reverse recapitalization with Duo World Inc. (Duo). Duo (Successor) is a holding company that conducts operations through its wholly owned subsidiaries DSSL and DSS (Predecessors) in Sri Lanka, Singapore and India. The consolidated entity is referred to as “the Company”. The Company, having its development center in Colombo, has been in the space of developing products and services for the subscription-based industry. The Company’s application (“Duo Subscribe”, “Duo Contact”, “DigIn”, “FaceTone”, “CloudCharge” and “SmoothFlow”) provide solutions in the space of Data Analytics, Customer Life Cycle Management, Subscriber Billing and Work Flow.

Note 2 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and disclosures necessary for a comprehensive presentation of consolidated financial position, results of operations, or cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair consolidated financial statements presentation.

The unaudited interim consolidated financial statements should be read in conjunction with the Company’s Annual Report, which contains the audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the year ended March 31, 2017. The interim results for the period ended September 30, 2017 are not necessarily indicative of results for the full fiscal year.

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $692,488 and $854,361 for the three and six months ended September 30, 2017, respectively, net cash provided by operations of $147,845 and $38,942 in six months ended September 30, 2017 and 2016, respectively, a working capital of $17,076 and a working capital deficit of $907,817 as of September 30, 2017 and March 31, 2017 respectively, outstanding statutory dues towards employee provident fund and employee trust fund of $335,644 and $269,781 as of September 30, 2017 and March 31, 2017, respectively, and a stockholders´ deficit of $437,360 and $1,416,833 as of September 30, 2017 and March 31.2017, respectively.

Operating losses during the three and six months ended September 30, 2017 were mainly due to a one-time expenditure incurred for professional fee relating to investment advisory services.

Furthermore, the Company has entered into contracts with the clients for the products launched during the year 2016-17 and our management is believes that these projects should generate sufficient revenues to offset the operating losses in the recent future; however, management cannot guarantee such results.

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Note 3 - Summary of Significant Accounting Policies

Basis of Consolidation

Duo World Inc. is the parent company of its 100% subsidiaries Duo Software (Pvt.) Limited (DSSL) and Duo Software Pte Limited (DSS). Duo Software Pte. Limited is the parent company of its 100% subsidiary Duo Software India (Private) Limited (India). All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-confirming events. Accordingly, the actual results could differ from those estimates. The most significant estimates relate to the timing and amounts of revenue recognition, the recognition and disclosure of contingent liabilities and the collectability of accounts receivable.

Risks and Uncertainties

The Company’s operations are subject to significant risk and uncertainties including financial, operational, competition and potential risk of business failure. Product revenues are concentrated in the application software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies, could adversely affect operating results.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with various high quality financial institutions and we monitor the credit ratings of those institutions. The Company’s sales are primarily to the companies located in Sri Lanka, Singapore, Indonesia and India. The Company performs ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the diversity, both by geography and by industry, of the customer base. Accounts receivable are due principally from the companies under stated contract terms.

Provisions

A provision is recognized when the Company has present obligations as a result of a past event. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and reliable estimate can be made of amount of the obligation. Provisions are not discounted at their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Accounts Receivable and Provision for Doubtful Accounts

The Company recognizes accounts receivable in connection with the products sold and services provided and have strong policies and procedures for the collection of receivables from its clients. However, there are inevitably occasions when the receivables due to the Company cannot be collected and, therefore, have to be written off as bad debts. While the debt collection process is being pursued, an assessment is made of the likelihood of the receivable being collectable. A provision is, therefore, made against the outstanding receivable to reflect that component that may not become collectable. The Company is in the practice of provisioning for doubtful debts based on the period outstanding as per the following:

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of September 30, 2017 and March 31, 2017, there were no cash equivalents.

Foreign Currency Translation

The functional currencies of the Company’s foreign subsidiaries are their local currencies. For financial reporting purposes, these currencies have been translated into United States Dollars ($) and/or USD as the reporting currency. All assets and liabilities denominated in foreign functional currencies are translated into U.S. dollars at the closing exchange rate on the balance sheet date and equity balances are translated at historical rates. Revenues, costs and expenses in foreign functional currencies are translated at the average rate of exchange during the period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of shareholders’ deficit as “accumulated other comprehensive income (loss)”. Gains and losses resulting from foreign currency transactions are included in the statement of operations and comprehensive income / (loss) as other income (expense).

Fixed assets

Fixed assets (including leasehold improvements) are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed utilizing the straight-line method over the estimated useful lives of the related assets. The estimated salvage value is considered as NIL. Amortization of leasehold improvements is computed utilizing the straight-line method over the estimated benefit period of the related assets, which may not exceed 15 years, or the lease term, if shorter. Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred. In case of sale or disposal of an asset, the cost and related accumulated depreciation are removed from the consolidated financial statements.

Useful lives of the fixed assets are as follows:

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Impairment of Long-Lived Assets

The Company reviews long-lived assets, such as property, plant, and equipment 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 measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of by sale would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs related to the sale, and are no longer depreciated. The assets and liabilities of a group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Fair Value Measurements and Fair Value of Financial Instruments

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability.

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

Revenue Recognition, Deferred& Accrued Revenue

The Company recognizes revenue from the sale of software licenses and related services in accordance with ASC Topic 605, Revenue Recognition. ASC Topic 605 sets forth guidance as to when revenue is realized or realizable and earned, which is generally, when all of the following criteria are met:

The Company typically licenses its products on a per server, per user basis with the price per customer varying based on the selection of the products licensed, the number of site installations and the number of authorized users. Currently, Duo is offering two products from which it generates its revenue; they are “Duo Subscribe” and “FaceTone”. Duo sells its software license along with software implementation and annual maintenance services under an agreement with various clients. The Company raises invoices on a key milestone basis, as defined in the agreement. Revenue recognition is based on stage of completion basis. Revenues from consulting and training services are typically recognized as the services are performed.

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

The Company offers annual maintenance programs on its licenses that provide for technical support and updates to the Company’s software products. Maintenance fees are bundled with license fees in the initial licensing period and charged separately for renewals of annual maintenance in subsequent years. Fair value for maintenance is based upon either renewal rates stated in the contracts or separate sales of renewals to customers. Revenue is recognized ratably, or daily, over the term of the maintenance period, which is typically one year.

For the six months ended September 30, 2017 and 2016, the Company received only cash as consideration for sale of licenses and related services rendered.

For the six months ended September 30, 2017 and 2016, the Company had following concentrations of revenue with customers:

Deferred Revenue - Deferred revenue represents advance payments for software licenses, services, and maintenance billed in advance of the time revenue is recognized. As at September 30, 2017 and March 31, 2017, deferred revenue was $10,654 and $16,420, respectively.

Accrued Revenue/Unbilled Accounts Receivable - Accrued revenue/Unbilled accounts receivable primarily occur due to the timing of the respective billings, which occur subsequent to the end of each reporting period. As at September 30, 2017 and March 31, 2017, unbilled/accrued revenues were $65,663 and $70,174, respectively.

Cost of Revenue

Cost of revenue mainly includes purchases, product implementation costs, amortization of product development, developer support and implementation, and consultancy fees related to the products offered by Duo. The aggregate cost related to the software implementations, including support and consulting services pertaining to the revenue recognized during the reporting period, is recognized as Cost of Revenue.

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Product research and development

Product research and development expenses consist primarily of salary and benefits for the Company’s development and technical support staff, contractors’ fees and other costs associated with the enhancements of existing products and services and development of new products and services. Costs incurred for software development prior to technological feasibility are expensed as product research and development costs in the period incurred. Once the point of technological feasibility is reached, which is generally upon the completion of a working prototype that has no critical bugs and is a release candidate development costs are capitalized until the product is ready for general release and are classified within “Intangibles assets” in the accompanying consolidated balance sheets. The Company amortizes capitalized software development costs using the greater of the ratio of the products’ current gross revenues to the total of current gross revenues and expected gross revenues or on a straight-line basis over the estimated economic life of the related product, which is typically four years.

During the six months ending on September 30, 2017 and 2016, product research and development cost of $139,020 and $196,595, respectively, were capitalized as “Intangible assets”. Product research and development costs of the “SaaS” version of “FaceTone” were also capitalized during the six months ended September 30, 2017.

Advertising Costs

The Company expenses advertising costs as incurred. No advertising expenses were incurred during the six months ended September 30, 2017 and 2016.

Comprehensive Income

The Comprehensive Income Topic of the FASB Accounting Standards Codification establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income from April 1, 2013 through September 30, 2017, includes only foreign currency translation gains (losses), and is presented in the Company’s consolidated statements of comprehensive income.

Changes in Accumulated Other Comprehensive Income (Loss) by Component during the periods ending on September 30, 2017 and March 31, 2017 were as follows:

Recent Accounting Pronouncements

The Company has reviewed accounting pronouncements that were issued as of September 30, 2017 and believes that these pronouncements are not applicable to the Company, or that they will not have a material impact on the Company’s financial position or results of operations.

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Note 4 – Accounts Receivable

Following is a summary of accounts receivable as at September 30, 2017 and March 31, 2017;

At September 30, 2017 and March 31, 2017, the Company had following concentrations of accounts receivable with customers:

Note 5 – Prepaid Expenses and Other Current Assets

Following is a summary of prepaid expenses and other current assets as at September 30, 2017 and March 31, 2017;

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Note 6 – Property and Equipment

Following table illustrates net book value of property and equipment as at September 30, 2017 and March 31, 2017;

Depreciation and amortization expense for the Six months ended September 30, 2017 and 2016 was $14,143 and $49,650, respectively.

Note 7 – Intangible Assets

Intangible assets comprise of capitalization of certain costs pertaining to product development, which meet the criteria as set forth above under Note 3. Following table illustrates the movement in intangible assets as at September 30, 2017 and March 31, 2017:

Note 8 – Short Term Borrowings

Following is a summary of short-term borrowings as at September 30, 2017 and March 31, 2017;

Bank overdraft facility, obtained from Pan Asia Banking Corporation PLC, contains an average interest rate of 15.55% per annum.

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Note 9 – Due to Related Parties

Due to Related Parties – Short term

From time to time, the Company receives advances from related parties such as officers, directors or principal shareholders in the normal course of business. Loans and advances received from related parties are unsecured and non-interest bearing. Balances outstanding to these persons for less than 12 months are presented under current liabilities in the accompanying consolidated financial statements. As of September 30, 2017 and March 31, 2017, the Company owed directors $572,047 and $361,785, respectively.

Due to Related Parties – Long term

Balances outstanding to related parties for more than 12 months are presented under long-term liabilities in the accompanying consolidated financial statements. As of September 30, 2017 and March 31, 2017, the Company owed directors $1,177,373 and $1,168,866, respectively.

Note 10 – Taxes Payable

The taxes payable comprise of items listed below as at September 30, 2017 and March 31, 2017;

Note 11 – Accruals and Other Payables

Following is a summary of accruals and other payables as at September 30, 2017 and March 31, 2017;

Note 12 – Cost of Revenue

Following is the summary of cost of revenue for the six months ending September 30, 2017 and 2016;

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Note 13 – General and Administrative Expenses

Following is the summary of general and administrative expenses for the six months ending September 30, 2017 and 2016;

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Note 14 – Selling and Distribution Expenses

Following is the summary of selling and distribution expenses for the six months ending on September 30, 2017 and 2016;

Note 15 - Equity

As at September 30, 2017, the Company had 90,000,000 authorized shares of common stock having a par value of $0.001. The shares of Common Stock are designated with the following rights:

During the six months ended September 30, 2017, the Company issued following common shares:

As at September 30, 2017, the Company had 10,000,000 authorized series “A” preferred shares having a par value of $0.001 per share. The preferred shares are designated with the following conversion rights:

During the six months ended September 30, 2017, the Company has not issued any new preferred shares.

Duo World Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

September 30, 2017

(Unaudited)

Note 16 - Commitments and Contingencies

The Company consults with legal counsel on matters related to litigation and other experts both within and outside the Company with respect to matters in the ordinary course of business. The Company does not have any contingent liabilities in respect of legal claims arising in the ordinary course of business.

Duo entered into a lease commitment for its Sri Lanka office amounting to $119,119 with Happy Building Management Company for a period of 3 years in 2016. Duo entered into another lease commitment for its Indian office amounting to $1,248 on April 1, 2017 with Regus Office Center Services Pvt. Limited for a period of 1 year.

Guarantee provided by the company existed on the balance sheet date are as follows:

The company has not provided any guarantees other than those mentioned above.

Note 17 - General

Figures have been rounded off to the nearest dollar and the comparative figures have been rearranged / reclassified, wherever necessary, to facilitate comparison.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Forward - Looking Statement

The following discussion and analysis of the results of operations and financial condition of Duo World, Inc. should be read in conjunction with the unaudited financial statements, and the related notes. References to “we,” “our,” or “us” in this section refers to the Company and its subsidiaries. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Certain matters discussed herein may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following:

Should one or more of these risks or uncertainties materialize or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated.

Our MD&A is comprised of the following sections:

A. Business Overview

B. Critical Accounting Policies

C. Results of operations for the three months ended September 30, 2017 and September 30, 2016

D. Results of operations for the six months ended September 30, 2017 and September 30, 2016

E. Financial condition as at September 30, 2017 and March 31, 2017

F. Liquidity and capital reserves

G. Milestones for next twelve months

Duo World, Inc. (hereinafter referred to as “Successor” or “Duo”), a reporting Company since September 26, 2016, was organized under the laws of the state of Nevada on September 19, 2014. Duo Software (Pvt.) Limited (hereinafter referred to as “DSSL” or “Predecessor”), a Sri Lanka based company, was incorporated on September 22, 2004, in the Democratic Socialist Republic of Sri Lanka, as a limited liability company. Duo Software (Pte.) Limited (hereinafter referred to as “DSS” or “Predecessor”), a Singapore based company, was incorporated on June 5, 2007 in the Republic of Singapore as a limited liability company. DSS also includes its wholly-owned subsidiary, Duo Software India (Private) Limited (India), which was incorporated on August 30, 2007, under the laws of India.

Effective December 3, 2014, DSSL and DSS executed a reverse recapitalization with Duo. Duo (“Successor”) is a holding company that conducts operations through its wholly-owned subsidiaries, DSSL and DSS (“Predecessors”) in Sri Lanka, Singapore and India. The consolidated entity is referred to as the “Company.” The Company, having its development center in Colombo, Sri Lanka, specializes in the space of Communication and Collaboration Platform & Customer Life Cycle Management, Subscriber Management Billing, Business Intelligence and Workflow Management in the Asia Pacific Region. Driven by innovation, Duo World has served the enterprises in many ways, including efficiency, cost reduction, revenue optimization and continuous value addition to their product or service offerings. Duo World has been in the business of developing products and services for the subscription based industry.

Our authorized capital consists of 100,000,000 shares, including 90,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares of preferred stock, $0.001 par value.

We prepare our consolidated financial statements in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of the matters that are inherently uncertain.

Revenue Recognition

The Company recognizes revenue from the sale of software licenses and related services in accordance with ASC Topic 605, Revenue Recognition. ASC Topic 605 sets forth guidance as to when revenue is realized or realizable and earned, which is generally, when all of the following criteria are met:

The Company typically licenses its products on a per server, per user basis with the price per customer varying based on the selection of the products licensed, the number of site installations and the number of authorized users. Currently, Duo is offering two products from which it generates its revenue; they are” “Duo Subscribe” and “FaceTone.” Currently company is not marketing its old product “Duo CLM” and also it has updated Duo CLM” customers with “FaceTone” which is the new version introduced replacing “Duo CLM”. Duo sells its software licenses of FaceTone along with software implementation and annual maintenance services under an agreement with various clients. The Company raises invoices on key milestone basis as defined in the agreement with the customer. Revenue recognition is based on stage of completion.

The Company offers annual maintenance programs on its licenses that provide for technical support and updates to the Company’s software products. Maintenance fees are bundled with license fees in the initial licensing period and charged separately for renewals of annual maintenance in subsequent years. Fair value for maintenance is based upon either renewal rates stated in the contracts or separate sales of renewals to customers. Revenue is recognized ratably, or daily, over the term of the maintenance period, which is typically one year.

Provisions

A provision is recognized when the Company has present obligations as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and reliable estimates can be made of amount of the obligation. Provisions are not discounted at their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Quantitative and Qualitative Disclosure about Market Risk

We are exposed to financial market risks, primarily changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices.

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. All of our revenues are normally generated in U.S. dollars or Sri Lankan rupees. Our expenses are generally denominated in the currencies in which our operations are located, which are primarily in Asia and to a lesser extent in the U.S. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not engaged in any foreign currency hedging strategies. As our international operations grow, we plan to generate revenues in foreign currencies and we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.

Inflation

We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last three fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

The Company had revenues amounting to $170,326 and $312,390, respectively, for three months ended September 30, 2017 and September 30, 2016. Following is a breakdown of revenues for both periods:

Total revenue for the three months ended September 30, 2017 decreased by 45% when compared to September 30, 2016. The decrease is mainly due to the drop in revenue generated by the legacy products, DuoCLM and DuoSubscribe. This is as a result of the Company’s decision to phase out the legacy products.

The Company does not market or sell DuoCLM and DuoSubscribe, as the newer products are being introduced to the market. FaceTone is an advanced version of DuoCLM and it is generating a lot of interest in the market because of its superior features and flexibility. During the three months ended September 30, 2017, revenue from FaceTone increased by 635% signifying the favorable market for the new product.

During the three months ended September 30, 2017, the Company was able to attract number of high profile and profitable customers for the product “FaceTone”. Most of these sales leads are at agreement finalization stage, and revenue would be recognized in the subsequent quarters.

Fully owned subsidiary of Duo World Inc., Duo Software won a ‘Merit Award’ at the Asia Pacific ICT Alliance (APICTA) Awards, held in December 2016 in Taipei, just months after winning ‘Gold’ and ‘Merit’ Awards at the National Best Quality Software Awards (NBQSA) for the new products.

For the three months ended September 30, 2017 and September 30, 2016, the Company had the following concentrations of revenues with customers:

The total cost of sales amounted to $74,919 and $66,095 for the three months ended September 30, 2017 and September 30, 2016, respectively. The following table sets forth the Company’s cost of sales breakdown for both periods:

Cost of sales has marginally increased by 13% in the three months ended September 30, 2017 when compared to the three months ended September 30, 2016. Cost of development services was the main contributor to the increase in cost of sales.

The gross income for the three months ended September 30, 2017 and September 30, 2016 amounted to $95,407 and $246,295, respectively.

The total operating expenditures amounted to $765,742 and $312,007 for the three months ended September 30, 2017 and September 30, 2016, respectively. The following table sets forth the Company’s operating expenditure analysis for both periods:

Following are the main reasons for the variances in operating expenses of the Company:

Research and Development

The Company has not incurred research and development costs during the three months ended September 30, 2017, as all of our products have passed through the research and development phase. Whereas during the three months ended September 30, 2016, the Company incurred $12,615 as research and development expense.

General and Administrative Cost

During the three months ended September 30, 2017, general and administrative cost increased by $47,542 when compared to the same period in 2016.

The main contributor for the increase was $42,750 paid as consultancy fee to the Investor Relations firm during the three months ended September 30, 2017.

Salaries and benefits

Salaries and benefits decreased by 17% during the three months ended September 30, 2017 as the total number of staff was reduced when compared to the same period in 2016. The Company moved toward outsourcing of non-core activities and this lead to a general decrease in the number of permanent staff.

Selling and distribution

During the period ended September 30, 2017, marketing expenses marginally decreased by 15% as the Company only marketed one product (FaceTone) and that too within Sri Lanka only, as a test market before the product is marketed in other countries.

Professional services – Investment advisory

Company incurred a cost of $438,598 on account of agreement signed in July 2017, for the procurement of investment advisory services over a period of one year.

Depreciation and Amortization expense

Depreciation and amortization expense had decreased by 27% during the 3 months ended September 30, 2017, when compared to the three months ended September 30, 2016.

Allowance for bad debts

Allowance for bad debts has marginally increased by $2,815 during the three months ended September 30, 2017, when compared to the three months ended September 30, 2016.

The loss from operations for the three months ended September 30, 2017 and September 30, 2016 amounted to $670,335 and $65,712, respectively.

The Company’s other income and (expense) for the three months ended September 30, 2017 and September 30, 2016 amounted to $(22,153) and $21, respectively. The following table sets forth the Company’s other income and (expense) analysis for both periods:

Other expenditures increased by $22,174 in the three months ended September 30, 2017, when compared to the three months ended September 30, 2016. The main reasons for this increase were the increase in interest cost and foreign exchange losses.

The loss before provision for income taxes for the three months ended September 30, 2017 and September 30, 2016 amounted to $692,488 and $65,691, respectively.

The net loss for the three months ended September 30, 2017 and September 30, 2016 amounted to $692,488 and $65,691, respectively.

The Company’s comprehensive loss for the three months ended September 30, 2017 and September 30, 2016 amounted to $711,383 and $60,114, respectively.

At September 30, 2017 and March 31, 2017, the Company had 41,116,654 and 38,567,467 common shares issued and outstanding, respectively. The weighted average number of shares for the three months ended September 30, 2017 and September 30, 2016 was 39,682,783 and 38,567,467, respectively. The loss per share for both periods was $(0.02) per share and $(0.00) per share, respectively.

The Company had revenues amounting to $381,138 and $641,117, respectively, for six months ended September 30, 2017 and September 30, 2016. Following is a breakdown of revenues for both periods:

Total revenue for the six months ended September 30, 2017 has decreased by 41% when compared to six months ended September 30, 2016. This decrease is mainly due to the reduction in revenue generated by DuoSubscribe and DuoCLM as the company stopped marketing the two legacy software products.

FaceTone, the advanced version of DuoCLM, has already attracted the potential market due to its unique features and flexibility. It is evidenced by the increase of revenue generated by FaceTone by $84,878 during the six months ended September 30, 2017 when compared to the same period ended September 30, 2016.

For the six months ended September 30, 2017 and September 30, 2016, the Company had the following concentrations of revenues with customers:

The total cost of sales amounted to $161,669 and $142,324 for the six months ended September 30, 2017 and 2016, respectively. The following table sets forth the Company’s cost of sales breakdown for both periods:

Cost of sales marginally increased by $19,345 during the six months ended September 30, 2017 when compared to the six months ended September 30, 2016. Cost of development services and the increase in the cost of support services were the main contributors to the increase in cost of sales.

The gross income for the six months ended September 30, 2017 and 2016 amounted to $219,469 and $498,793, respectively.

The total operating expenditures amounted to $1,039,690 and $843,813 for the six months ended September 30, 2017 and 2016, respectively. The following table sets forth the Company’s operating expenditure analysis for both periods: