LIVING 3D HOLDINGS, INC. - Quarter Report: 2018 September (Form 10-Q)
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-01900
Living 3D Holdings, Inc.
(Exact name of registrant as specified in its charter)
Nevada | 870451230 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Rm. 1801-02, Office Tower Two, Grand Plaza, 625 Nathan Road, Mongkok, Kowloon. Hong Kong |
(Address of principal executive offices) |
(852) 3563-9280 |
(Registrant’s telephone number, including area code) |
________________________________________________________________ |
(Former name, former address and former fiscal year, if changed since last report) |
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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
| Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class |
| Outstanding at November 14, 2018 |
Common Stock, $.001 par value |
| 70,697,043 |
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| FORM 10-Q LIVING 3D HOLDINGS, INC. SEPTEMBER 30, 2018 TABLE OF CONTENTS |
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Consolidated Statements of Operations2
Consolidated Statement of Changes in Shareholders’ Deficit3
Consolidated Statements of Cash Flows4
Notes to Unaudited Consolidated Financial Statements5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.9
Item 3. Quantitative and Qualitative Disclosures about Market Risk14
Item 4. Controls and Procedures14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.16
Item 3. Defaults upon Senior Securities.16
Item 4. Mine Safety Disclosures.16
Living 3D Holdings, Inc. | |||||
Consolidated Balance Sheets | |||||
(Stated in US dollars) | |||||
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| September 30, 2018 |
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| December 31, 2017 |
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| (Unaudited) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents | $ | 2,362 |
| $ | 50,668 |
Accounts receivable |
| 3,414 |
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| 7,257 |
Prepaid expense and other receivable |
| 29 |
|
| - |
Total Current Assets |
| 5,805 |
|
| 57,925 |
Website development costs, net |
| 115,385 |
|
| 153,846 |
Property and equipment, net |
| 917 |
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| 2,097 |
TOTAL ASSETS | $ | 122,107 |
| $ | 213,868 |
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LIABILITIES & SHAREHOLDERS’ DEFICIT |
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Current Liabilities |
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Account payable | $ | 5,128 |
| $ | 5,128 |
Accrued liabilities and other payables |
| 141,599 |
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| 184,069 |
Due to related parties |
| 491,737 |
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| 441,197 |
Total Current Liabilities |
| 638,464 |
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| 630,394 |
TOTAL LIABILITIES | $ | 638,464 |
| $ | 630,394 |
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SHAREHOLDERS’ DEFICIT |
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Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or outstanding | $ | - |
| $ | - |
Common stock, $0.001 par value, 290,000,000 shares authorized, 70,697,043 shares issued and outstanding at September 30, 2018 and December 31, 2017 |
| 70,697 |
|
| 70,697 |
Additional paid-in capital |
| (69,215) |
|
| (69,215) |
Accumulated deficit |
| (517,839) |
|
| (418,008) |
TOTAL SHAREHOLDERS’ DEFICIT |
| (516,357) |
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| (416,526) |
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | 122,107 |
| $ | 213,868 |
The accompanying notes are an integral part of these unaudited consolidated financial statements | |||||
1
Living 3D Holdings, Inc. Consolidated Statements of Operations (Stated in US dollars) (Unaudited)
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| For The Three Months Ended September 30, |
| For The Nine Months Ended September 30, | ||||||
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| 2018 |
| 2017 |
| 2018 |
| 2017 | |
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| (As Restated) |
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| (As Restated) | |
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Revenue | $ | 390 | $ | 1,667 | $ | 3,414 | $ | 8,205 | |
Cost of Revenue |
| 16,738 |
| - |
| 32,870 |
| 5,128 | |
Gross Profit (Loss) |
| (16,348) |
| 1,667 |
| (29,456) |
| 3,077 | |
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Operating Expenses |
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General and administrative expenses |
| 15,821 |
| 17,067 |
| 70,375 |
| 99,371 | |
Total Operating Expenses |
| 15,821 |
| 17,067 |
| 70,375 |
| 99,371 | |
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Net Loss | $ | (32,169) | $ | (15,400) | $ | (99,831) | $ | (96,294) | |
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Basic and Diluted Loss per Common Share |
$ | (0.00) | $ | (0.00) | $ | (0.00) | $ | (0.00) | |
Weighted Average Common Shares; Basic and Diluted |
| 70,697,043 |
| 30,697,043 |
| 70,697,043 |
| 30,257,483 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements
2
Living 3D Holdings, Inc. | |||||||||
Consolidated Statement of Changes in Shareholders’ Deficit | |||||||||
(Stated in US dollars) (Unaudited) | |||||||||
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Common Stock |
| Additional |
| Accumulated |
| Total Shareholders’ | ||
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Deficit |
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Balance as of December 31, 2017 | 70,697,043 | $ | 70,697 | $ | (69,215) | $ | (418,008) | $ | (416,526) |
Net loss for the period | - |
| - |
| - |
| (99,831) |
| (99,831) |
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Balance as of September 30, 2018 | 70,697,043 | $ | 70,697 | $ | (69,215) | $ | (517,839) | $ | (516,357) |
The accompanying notes are an integral part of these unaudited consolidated financial statements
3
Living 3D Holdings, Inc. | ||||
Consolidated Statements of Cash Flows | ||||
(Stated in US dollars) (Unaudited) | ||||
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| For the Nine Months Ended September 30, | ||
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| 2018 |
| 2017 |
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| (As Restated) |
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss | $ | (99,831) | $ | (96,294) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization expenses |
| 39,641 |
| 1,179 |
Changes in operating assets and liabilities |
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Accounts receivable |
| 3,843 |
| (2,949) |
Prepaid expense and other receivable |
| (29) |
| - |
Accrued liabilities and other payables |
| 50,481 |
| 94,781 |
Account payable |
| - |
| 5,128 |
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
| (5,895) |
| 1,845 |
CASH FLOWS FROM FINANCING ACTIVITIES |
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Repayments to related party |
| (128,136) |
| (2,192) |
Proceeds from related party |
| 85,725 |
| - |
Capital contribution of subsidiary |
| - |
| 1,282 |
CASH USED IN FINANCING ACTIVITIES |
| (42,411) |
| (910) |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| (48,306) |
| 935 |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | $ | 50,668 | $ | 667 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 2,362 | $ | 1,602 |
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NON-CASH TRANSACTIONS |
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Operating expenses paid by related parties | $ | 92,951 | $ | 75,806 |
Website development costs paid by related party | $ | - | $ | 153,846 |
Issuance of common stock in connection with acquisition of subsidiary | $ | - | $ | 30,000 |
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Supplementary Disclosure for Cash Flow Information: |
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Income taxes paid | $ | - | $ | - |
Interest paid | $ | - | $ | - |
The accompanying notes are an integral part of these unaudited consolidated financial statements
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Living 3D Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
NOTE 1 - DESCRIPTION OF BUSINESS AND ORGANIZATION
Living 3D Holdings, Inc. (“we”, “our”, the “Company”) is a Nevada corporation.
On November 30, 2015, Jimmy Kent-Lam Wong, the Company's former CEO, former director and principal shareholder, entered into a stock purchase agreement to sell 54.35% of the Company's outstanding shares, or 37,883,841 shares, of common stock, to Man Wah Stephen Yip. Simultaneously, Living 3D Holdings, Inc. entered into a shares sale and purchase agreement with Jimmy Kent-Lam Wong, pursuant to which the Company agreed to sell its entire ownership interest in all the Company’s subsidiaries as of September 30, 2015, namely Living 3D (Hong Kong) Limited, 3D Capital Holdings Inc. Columbia College Hollywood International Limited and Living 3D Technology Group Limited to Jimmy Kent-Lam Wong for a total consideration of $100 effective October 1, 2015.
On December 30, 2016, the Company entered into a share acquisition and exchange agreement (the "Share Acquisition and Exchange I") with Sugar Technology Group Holdings Corporation, a company incorporated in the British Virgin Islands (the “BVI”) on February 26, 2016 and has a wholly owned subsidiary, XYZMILL.COM Limited, which was incorporated on May 9, 2016. Sugar Technology Group Holdings Corporation and its subsidiary are collectively referred as Sugar. Under the Share Acquisition and Exchange I, the Company will issue an aggregate of 30,000,000 shares of its common stock at par value of $0.001 each to all of the shareholders of Sugar in exchange for all of the issued and outstanding stock of Sugar. The Share Acquisition and Exchange I was closed on January 5, 2017 and the 30,000,000 shares of the Company’s common stock were issued on January 4, 2017. As a result of the Share Acquisition and Exchange I, Sugar became the Company’s wholly-owned subsidiary. The acquisition of Sugar by the Company has been accounted for as business combination between entities under common control since the Company and Sugar are controlled by the same group of shareholders before and after the reorganization.
Sugar is engaged in computer software development with major operations in Hong Kong and Mainland China. The Company focuses on the research and development of e-commerce platform, mobile game and virtual reality application. The e-commerce platform seeks to integrate web application with product manufacturing which will increase the productivity and efficiency of the operation. Along with the ever-increasing usage of the internet, our O2O e-commerce platform is expected to bring in more business opportunities to the manufacturer.
With a view of diversifying its existing business, the Company has entered another share acquisition and exchange agreement (the "Share Acquisition and Exchange II") on December 4, 2017 with Hong Kong Cryptocurrency Exchange Limited (the “HKCCEX”), a company incorporated in Hong Kong Special Administrative Region on April 19, 2017. Under the Share Acquisition and Exchange II, the Company will issue an aggregate of 40,000,000 shares of its common stock at par value of $0.001 each to the shareholder of HKCCEX in exchange for all of the issued and outstanding stock of HKCCEX. The Share Acquisition and Exchange II was closed on December 28, 2017 and the 40,000,000 shares of the Company’s common stock were issued on the same day. As a result of the Share Acquisition and Exchange II, HKCCEX became the Company’s wholly-owned subsidiary. The acquisition of HKCCEX by the Company has been accounted for as business combination between entities under common control since the Company and HKCCEX are controlled by the same group of shareholders before and after the reorganization.
As a result, the Company accounted for the operations of HKCCEX on a retrospective basis in the Company’s consolidated financial statements from the inception date of HKCCEX on April 19, 2017. Accordingly, the consolidated statement of operations for the three and nine months ended September 30, 2017 and the consolidated statement of cash flows for the nine months ended September 30, 2017 have been retrospectively stated in this report to reflect HKCCEX’s accounts at their historical amount as of those dates.
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The Company, through its subsidiary, HKCCEX, a FinTech company, focuses on developing no-frills software solution that facilitate the wide spread adoption of cutting edge technological ideas.
For the sake of clarity, this report follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. For example, the name of our Chief Executive Office will be presented as "Man Wah Stephen Yip," even though, in Chinese, his name would be presented as "Yip Man Wah Stephen".
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PREPARATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are prepared in accordance with generally accepted accounting principles used in the United States of America. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation.
Certain information and footnote disclosures normally included in financial statements prepared in conjunction with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted as permitted by the rules and regulations of the United States Securities and Exchange Commission ("SEC"). The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's latest annual report on Form 10-K filed with the SEC. The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the Form 10-K for the fiscal year ended December 31, 2017, have been omitted.
B. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company accounts for revenue arising from contracts with customers in accordance with Accounting Standards Update (ASU or Update) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which was adopted on January 1, 2018 using the full retrospective method. The adoption of ASC 606 did not impact the Company’s previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.
Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. 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: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price, which is allocated to the respective performance obligation, when the performance obligation is satisfied.
Generally, the Company has two revenue streams from its operations. 1) Revenue derived from the provision of website, game or advertising design services which is recognized at a point in time when the services have been
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delivered and the customer has obtained control of promised services. 2) Revenue derived from the contracts with customers to grant the right to use the web base trading system of cryptocurrency in exchange for the commission based on the trading transactions of the end users which is recognized at a point in time when the cryptocurrency trading transactions occur.
NOTE 3 – GOING CONCERN
The Company first generated revenue in 2010 and is still in the early stages of establishing a market for the products it sells. The Company has a working capital deficit of $632,659 as of September 30, 2018 and has limited cash flow from operations for the nine months ended September 30, 2018. The Company suffered recurring losses from operations. The Company is primarily funded by its Chief Executive Officer ("CEO") and principal shareholder. The Company will have to raise additional capital, including through the sale of equity securities, to support its operation and expansion.
These conditions and uncertainties raise substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4 – RELATED PARTY TRANSACTIONS
The related parties consist of the following:
Man Wah Stephen Yip, the Company’s CEO, a director and principal shareholder;
So Ka Yan, the Company’s Secretary, a director, principal shareholder and the wife of Man Wah Stephen Yip;
Wai Tak Edward Lau, the Company’s director;
Due to Related Parties
Due to related parties consists of the following:
| Man Wah Stephen Yip |
|
So Ka Yan |
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Total |
Balance at December 31, 2017 | $ 123,420 |
| $ 317,777 |
| $ 441,197 |
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Expenses paid on behalf of the Company | 24,749 |
| 68,202 |
| 92,951 |
Advances to the Company | - |
| 85,725 |
| 85,725 |
Less: Repayments received from the Company | - |
| (128,136) |
| (128,136) |
Balance at September 30, 2018 | $ 148,169 |
| $ 343,568 |
| $ 491,737 |
The amounts due to related parties represent expenses paid on behalf and advances received to support the operation of the Company. They are unsecured, bear no interest and are repayable on demand.
Office Furnished by Related Party
The Company’s office in Hong Kong consists of approximately 400 square feet located at Room S, 2/F, Block D East Sun Industrial Center, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong. This office is furnished to the Company by the CEO at no charge.
The Company has another office which is situated at 10th Floor, Si Toi Commercial Building, 32 Queen Street, Sheung Wan, Hong Kong. This office is furnished to the Company by Wai Tak Edward Lau, who was newly appointed as a director of the Company on February 7, 2018, at no charge.
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Service Provided by Related Party
Harris Yeung, a personal assistant of CEO, provided non-compensated book keeping service to the Company during the nine months ended September 30, 2018 and for the year ended December 31, 2017.
NOTE 5 – CONCENTRATION OF CREDIT RISKS AND MAJOR CUSTOMERS
The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:
For the nine months ended September 30, 2018, customers B and E accounted for 75% and 25% of the total revenue, respectively.
For the nine months ended September 30, 2017, customers A and B accounted for 64% and 36% of the total revenue, respectively.
At September 30, 2018, customers B and E accounted for 75% and 25 % of the accounts receivable, respectively. At December 31, 2017, customers B and D accounted for 41% and 59% of the accounts receivable, respectively.
For the nine months ended September 30, 2018, the Company’s cost of revenue primarily consisted of amortization of website development costs. For the nine months ended September 30, 2017, all the cost of revenue is related to fees paid to one subcontractor.
At September 30, 2018 and December 31, 2017, the same subcontractor accounted for 100% of account payable.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.
Factors that could cause or contribute to our actual results to differ materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (i) our short operating history, limited revenue and history of losses; (ii) our independent registered certified public accountants have expressed a going concern opinion; (iii) our ability to raise additional working capital that we may require and, if available, that such working capital will be on terms acceptable to us; (iv) our ability to implement our business plan; (v) uncertainties regarding our ability to generate revenues and penetrate our market; (vi) economic and general risks relating to business; (vii) our ability to manage our costs of production; (viii) our ability to protect our intellectual property through patents and other intellectual property protection; (ix) our dependence on key personnel; (x) increased competition or our failure to compete successfully; (xi) our ability to keep pace with technological advancements in our industry; (xii) our ability to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as required; (xiii) our nonpayment of dividends and lack of plans to pay dividends in the future; (xiv) future sale of a substantial number of shares of our common stock that could depress the trading price of our common stock, if it trades, lower our value and make it more difficult for us to raise capital; (xv) our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock; (xvi) our ability to have our common stock trade in an active public market; (xvii) the price of our stock, if it trades, is likely to be highly volatile because of several factors, including a relatively limited public float; and (xviii) indemnification of our officers and directors.
General
The following discussion should be read in conjunction with our Financial Statements and notes thereto. The following discussion contains forward-looking statements, including, but not limited to, statements concerning our plans, anticipated expenditures, the need for additional capital and other events and circumstances described in terms of our expectations and intentions. You are urged to review the information set forth under the captions for factors that may cause actual events or results to differ materially from those discussed below.
Overview
Living 3D Holdings, Inc. is a FinTech company with focus on developing no-frills software solutions that facilitate the wide spread adoption of cutting edge technological ideas. Our flagship product is a B2B cryptocurrency web based trading system featuring newsfeed, live quote, integrated CRM, agent management and accounting system. This web based trading system is then customized and provided to companies with previous experience in the financial, trading or similar fields allowing them to capture a new and existing market with minimum change to their current Modus Operandi. These companies have user right to the customized web based trading system, which allow their end-customers to trade cryptocurrency as registered users. These companies mainly reside in Hong Kong and Singapore with many operating online with target pockets in the global market. We provide technical support to ensure that our web based trading system and customers work within the confines of their respective legal system, and we are very sensitive to any reaction of the legal system as a whole with regards to the regulation of cryptocurrency. We provide our web based trading system with AML and KYC compliance support which we deem as an inalienable part of the web based trading system and management protocol, and we conduct thorough training sessions with our
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customers to ensure compliance and also the documentation and consequences of non-compliance.
Recent Development. On December 4, 2017, the Company entered into a share acquisition and exchange agreement (the "Share Acquisition and Exchange II") with HKCCEX, a company incorporated in the Hong Kong Special Administrative Region. Under the Share Acquisition and Exchange II, the Company issued an aggregate of 40,000,000 shares of its common stock at par value of $0.001 each to the sole shareholder of HKCCEX in exchange for all of the issued and outstanding stock of HKCCEX. The Share Acquisition and Exchange II was closed on December 28, 2017. As a result of the Share Acquisition and Exchange II, HKCCEX became the Company’s wholly-owned subsidiary.
The Company, through its subsidiary, HKCCEX, a FinTech company, focuses on developing no-frills software solution that facilitate the wide spread adoption of cutting edge technological ideas.
The Company’s development of the web based trading system on cryptocurrency was fully completed in January 2018 and the Company granted customers the right to use the trading system starting April 2018.
The following discussion summarizes the material changes in our results of operations and our financial condition for the three and nine months ended September 30, 2018 and 2017. The Consolidated Statements of Operations is included in the Financial Statements attached to this report. Please refer to the Consolidated Statements of Operations.
Results of Operations for the three months ended September 30, 2018 and 2017
Results from Operations
Revenue. For the three months ended September 30, 2018 and 2017, revenues were $390 and $1,667 respectively, a decrease of $1,277. The revenue for the three months ended September 30, 2018 represented commission earned on the trading of cryptocurrency by the end users on our web based trading system, whereas the revenue for the three months ended September 30, 2017 was derived from website development.
Since our business development efforts in the computer software, and in particular the e-commerce trading platform were not sufficiently mature to render us as a commercially viable player in that industry, the Company has slowed down the related activities and shifted its business from the research and development of e-commerce trading platform to the development of the web based trading system on cryptocurrency.
The Company is still in the early stage of development and its sales fluctuate. The Company has granted the right to use its web based trading system to a customer in the middle of April 2018 and managed to generate minimal income therefrom. Management believes that the revenue of the Company will increase substantially when more customers can be acquired in the later part of the year.
Cost of Revenue. The cost of revenue for the three months ended September 30, 2018 amounted to $16,738 represented substantially the amortization of its web based trading system. The Company started to amortize its web based trading system since January 2018 over a period of three years. As the Company has put into use and granted the right to use the web based trading system to its customer in April 2018, the company has classified the amortization as the cost of revenue instead of general and administrative expenses as in the first quarter in 2018.
The Company incurred no such cost of revenue for the three months ended September 30, 2017.
Gross Profit. For the three months ended September 30, 2018, the gross profit was $(16,348) compared with $1,667 for the same period in 2017. The decrease was because of the increase in cost of revenue as discussed above.
Management is of the opinion that the web based trading system has not been fully utilized and that the gross profit will improve gradually over time when the Company can acquire more customers in the later part of the year.
General and Administrative Expenses. For the three months ended September 30, 2018 and 2017, general
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and administrative expenses were $15,821 and $17,067 respectively, a decrease of $1,246. The decrease in such expenses was primarily attributable to the decrease in legal and professional fee.
Net Loss. For the three months ended September 30, 2018, the net loss was $(32,169) and, for the same period ended September 30, 2017, the net loss was $(15,400), an increase of $16,769. The increase of net loss between the periods was explained by the increase in cost of revenue which was partially offset by the decrease in the general and administrative expenses as discussed above.
Results of Operations for the nine months ended September 30, 2018 and 2017
Results from Operations
Revenue. For the nine months ended September 30, 2018 and 2017, revenues were $3,414 and $8,205 respectively, a decrease of $4,791. The decrease in revenue was attributable to the decrease in sales. The Company has shifted to the business of the development of a web based trading system which was granted to a customer the right to use in April 2018. The Company has managed to generate minimal revenue therefrom. As the Company’s business in cryptocurrency web based trading system is still in the early stage of development and its sales fluctuate. Management believes that the revenue of the Company will increase substantially when some more customers can be acquired in the later part of the year.
Cost of Revenue. The cost of revenue for the nine months ended September 30, 2018 and September 30, 2017 amounted to $32,870 and $5,128 respectively, an increase of $27,742. The increase in the cost of revenue can mainly be attributable to the increase in the amortization of the web based trading system which was put into operation in April 2018, details of which has been discussed above.
Gross Profit. For the nine months ended September 30, 2018, the gross profit was $(29,456) compared with $3,077 for the same period in 2017. The decrease was because of the increase in cost of revenue.
General and Administrative Expenses. For the nine months ended September 30, 2018 and 2017, general and administrative expenses were $70,375 and $99,371, respectively, a decrease of $28,996. The decrease in such expenses was primarily attributable to the decrease in consultancy fee for the development of the web based trading system of cryptocurrency as all the costs at the planning stage were expensed as incurred. No such costs were incurred during the nine months ended September 30, 2018. This decrease was partially offset by the increase in the amortization of our web based trading system in cryptocurrency. The web based trading system is to be amortized over a period of three years on a straight-line method, starting from January 2018 when it is ready for use. The amortization has been allocated to the cost of revenue starting April 2018 when the web based trading system was put into use. No such expense was incurred for the nine months ended of September 30, 2017.
Net Loss. For the nine months ended September 30, 2018, the net loss was $(99,831) and, for the same period ended September 30, 2017, the net loss was $(96,294), an increase of $3,537. The increase of net loss between the periods was explained by increase in cost of revenue which was partially offset by the decrease in general and administrative expenses as discussed above.
Liquidity and Capital Resources. Cash and cash equivalents as of September 30, 2018 and December 31, 2017 were $2,362 and $50,668 respectively. The decrease was mainly attributable by the repayments to related party. There were no substantial movements in the funds used in operating activities as merely all the expenses of the Company were paid by Man Wah Stephen Yip and So Ka Yan on behalf of the Company.
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Liquidity and Capital Resources
Current and Expected Liquidity
Historically, we have financed operations primarily through the issuance of debt. In the near future, as additional capital is needed, we expect to rely primarily on loans from our major shareholder and the sale of equity securities.
Our cash flows provided by operating activities decreased by $7,740 from $1,845 at September 30, 2017 to $(5,895) at September 30, 2018, due principally to the decrease in accounts receivable of $3,843, and an increase in accrued liabilities and other payables of $ 50,481 offset by the net loss of $99,831 and depreciation and amortization expenses of $39,641.
Our cash flows used in financing activities increased by $41,501, from $910 at September 30, 2017 to $42,411 at September 30, 2018, due principally to an increase in repayments to related party of $125,944 offset by the increase in proceeds from related party of $85,725.
We will require substantial additional capital to develop a market for web based trading system in cryptocurrency and implement our business plan. We plan to pursue financing from private investors and institutions in and outside the PRC. We do not have any commitments for additional financing. Such new financing could include equity, which would likely be dilutive to our shareholders, or debt, which would likely restrict our ability to borrow from other sources. In addition, such securities may contain rights, preferences or privileges senior to the rights of our current shareholders.
There can be no assurance that additional funds will be available on terms acceptable to us or at all. If adequate funds are not available, we may have to materially curtail our operations. Any inability to raise adequate funds could have a material adverse effect on our business, results of operation and financial condition.
Due to the uncertainties related to these matters, there exists substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.
Capital Commitments
We had no material commitments for capital expenditures.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of September 30, 2018.
Critical Accounting Policies and Estimates
Accounting Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results when ultimately realized could differ from those estimates.
Fair Value of Financial Instruments. The carrying amounts of financial instruments, including cash, other receivables, accounts payable and accrued liabilities and other payables, approximates their fair value due to the relatively short-term nature of these instruments.
Management believes it is not practical to determine the fair value of due to related party because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market
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terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs.
Property and Equipment. The Company’s property and equipment consists primarily of a motor vehicle and is initially recognized at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses. Depreciation of motor vehicle is calculated using the straight-line method to allocate its depreciable amount over its estimated useful life of three years.
Revenue Recognition. The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. 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: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price, which is allocated to the respective performance obligation, when the performance obligation is satisfied.
Website Development Costs. The Company accounts for website development costs in accordance with Accounting Standards Codification 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day to day operation of the website are expensed as incurred.
All capitalized costs associated with the website will be subject to straight-line amortization over its expected useful life of three years when the website is ready for its intended use.
The Company reviews its website development costs for impairment whenever events or changes in circumstances indicate that the carrying amount of the website development costs may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the website development costs to the estimated undiscounted future cash flows expected to result from the use of the website development costs and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the website development costs, the Company would recognize an impairment loss based on the fair value of the website development costs.
Foreign Currency Translation. The reporting currency of the Company is the USD. The functional currency of Sugar and HKCCEX is the Hong Kong Dollar (“HKD”). For financial reporting purposes, the financial statements of Sugar and HKCCEX which are prepared in Hong Kong Dollar are translated into United States Dollars. Balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using the average exchange rate prevailing during the reporting period. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. Adjustments resulting from the translation, if any, are included in accumulated other comprehensive income (loss) in the owners' equity
We follow FASB ASC 80-30, "Foreign Currency Translation", for both the translation and re-measurement of balance sheet and income statement items into U.S. dollars. Resulting translation adjustments are reported as a separate component of accumulated comprehensive income (loss) in shareholders' equity. In fact, the exchange rate for HKD to US dollars has varied by very little during the periods reported. A consistent exchange rate of 7.80 HKD per each US dollar has been used. Since there have been no greater fluctuations in the exchange rate, there is no gain or loss from foreign currency translation and no resulting other comprehensive income or loss
Income Taxes. Income tax expense is based on reported income before income taxes. We account for income taxes using the 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
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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 as income in the period that includes the enactment date. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Related Parties. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal shareholders of the Company, its management, members of the immediate families of principal shareholders of the Company and its management and 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. A party which can significantly influence the management or operating policies of the transacting parties or if it has 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 is also a related party.
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision of our Chief Executive Officer and with the participation of our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level to ensure that the information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, including this report, were recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and was accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material
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weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending December 31, 2018: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; (ii) adopt sufficient written policies and procedures for accounting and financial reporting; and (iii) appoint additional independent directors that can serve as members of an audit committee. The remediation efforts will be largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2018 that have materially affected or are reasonably likely to materially affect, such controls.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
There are no claims, actions, suits, proceedings or investigations that are currently pending or, to our knowledge, threatened by or against us, or with respect to our operations or assets, by or against any of our officers, directors or affiliates.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
(c)Exhibits.
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31.1 | |
31.2 | |
32 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LIVING 3D HOLDINGS, INC. |
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/s/ Man Wah Stephen Yip Name: Man Wah Stephen Yip Title: Chief Executive Officer and Chairman of the Board of Directors |
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/s/ Sze Cheong Eric Ng Name: Sze Cheong Eric Ng Title: Chief Financial Officer and Director |
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Index to Exhibits
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31.1 | |
31.2 | |
32 |
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