LOGIQ, INC. - Quarter Report: 2014 September (Form 10-Q)

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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SERATOSA INC.

Notes to interim Financial Statements

 (Unaudited)

1. BASIS OF PRESENTATION – GOING CONCERN

The Company specializes in providing e-commerce solutions and services that facilitate multi-channel B2C (business-to-consumer) and B2B (business-to-business) transactions.  Its solutions and services enable e-commerce transactions with speed and efficiency, and allow an interactive and engaging customer experience as well as targeted marketing and advertising.

The Company’s revenues are generated from one-time integration fees for the implementation of e-commerce solutions as well as recurring license and service fees including revenue shares.  The Company currently hosts three existing e-commerce solutions.

These financial statements of Seratosa Inc. (the “Company”) have been prepared on a going-concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.

The Company experienced losses since January 1, 2011 and has negative working capital as of September 30, 2014, which raises substantial doubt about the Company's ability to continue as a going concern.  The ability of the Company to meet its commitments as they become payable is dependent on the ability of the Company to obtain necessary financing or achieving a profitable level of operations.  There are no assurances that the Company will be successful in achieving these goals.

The Company believes that it can continue to receive revenues from its customers.  The Company expects to continue utilizing its efficient cost structure by sourcing personnel in Asia for servicing its customers.  In order to accelerate the growth of the Company, it will also consider raising additional funding from investors.

These financial statements do not give effect to adjustments to the amounts and classifications to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.

We have prepared the unaudited condensed financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim periods.  The unaudited condensed financial statements included herein reflect all normal recurring adjustments, which are, in the opinion of our management, necessary to state fairly the results of operations and financial position for the periods presented.  The results for the three month period ended September 30, 2014 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2014 or for any interim or future period.

These unaudited condensed financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and

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SERATOSA INC.

Notes to interim Financial Statements

 (Unaudited)

expenses during the reporting period.  Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Actual results could differ from those estimates.

CERTAIN RISKS AND UNCERTAINTIES

The Company relies on leased hardware and software from third parties to offer its e-commerce solutions and services.  Management believes that alternate sources are available; however, disruption or termination of these relationships could adversely affect our operating results in the near-term.  

CASH AND CASH EQUIVALENTS

Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased.  

RECLASSIFCATION

Certain prior year amounts have been reclassified to conform with the current year presentation.

STOCK-BASED COMPENSATION

The Company accounts for stock based compensation by recognizing the fair value of stock compensation as an expense in the calculation of net income (loss). The Company recognizes stock compensation expense in the period in which the employee is required to provide service, which is generally over the vesting period of the individual equity instruments. Stock options issued in lieu of cash to non-employees for services performed are recorded at the fair value of the options at the time they are issued and are expensed as service is provided.

LOSS PER SHARE

Basic earnings (loss) per share of common stock is computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period.  Diluted earnings (loss) per share of common stock is computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period, including vested and unvested stock options that are in the money.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash, accounts payable and other current liabilities. The carrying values of financial instruments reflected in these financial statements approximate their fair values due to the short-term maturity of the instruments.

REVENUE RECOGNITION

The Company recognizes revenue from providing hosting and integration services and licensing the use of its technology platform to its customers.  The Company recognizes revenue when all of the following conditions are satisfied:  (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer (for licensing, revenue is recognized when the Company’s technology is used to provide hosting and integration services); (3) the amount of fees to be paid by the customer is fixed or

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SERATOSA INC.

Notes to interim Financial Statements

 (Unaudited)

determinable; and (4) the collection of fees is probable.  We account for our multi-element arrangements, such as instances where we design a custom website and separately offer other services such as hosting, which are recognized over the period for when services are performed.

COST OF SERVICE

Cost of service results from sourcing technical and engineering personnel in Asia on an hourly or project basis in order to develop e-commerce solutions and provide ongoing hosting services to individual customers.  The Company utilizes an outsourced staffing firm with offices in Asia.

CAPITALIZATION OF SOFTWARE

The Company accounts for internal-use software and website development costs, including the development of its partner marketplaces in accordance with ASC 350-50 (Intangibles – Website cost).  The Company capitalizes internal costs consisting of payroll and direct payroll-related costs of employees who devote time to the development of internal-use software, as well as any external direct costs. It amortizes these costs over their estimated useful lives, which typically range between three to five years. The Company’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on management’s judgment as to the product life cycle.  Development cost of various platforms is being expensed.  The Company cannot separate internal cost on a reasonably cost-effective basis between maintenance and upgrades, and cannot assess the ongoing value of its various projects, thus all project costs are expensed as such costs are incurred.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued ASU 2011-05, Presentation on Comprehensive Income. ASU 2011-05 provides guidance that allows companies the option of how to present the components of, and a total, for net income, the components of, and a total, for other comprehensive income, and a total for comprehensive income as either one continuous statement of comprehensive income or in two separate but consecutive statements. There will no longer be the option to present items of other comprehensive income in the statement of stockholders' equity.

There were various other accounting standards and interpretations recently issued, none of which is expected to have a material impact on the Company's financial position, operations or cash flows.

3. STOCKHOLDERS’ DEFICIT

Common Shares

Authorized common shares of the Company consist of 10,000,000,000 shares with a par value of $0.00001 each.

Employee Stock Option Plan

The Company has a stock option and incentive plan, the “Stock Option Plan”. The exercise price for all equity awards issued under the Stock Option Plan is based on the fair market value of the common share price which is the closing price quoted on the OTCQB on the last trading day before the date of grant.

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SERATOSA INC.

Notes to interim Financial Statements

 (Unaudited)

The stock options generally vest on a monthly basis over a two-year to three-year period, and have a five year life.

The Stock Option Plan allows for the issuance of stock options, stock awards, or other incentives.  An aggregate of 25,000,000 shares are authorized under the Stock Option Plan.  As of September 30, 2014, there are 24,750,000 shares reserved for future grants under the Stock Option Plan.

Stock-Based Compensation

A summary of the Company’s stock option activity during the three months ended September 30, 2014 is presented below:

All options outstanding are fully vested as of September 30, 2014.  No new options were granted during the three months ended September 30, 2014.

The 250,000 options outstanding as of September 30, 2014 have a weighted average remaining contractual term of 1.0 years.

4. RELATED PARTY TRANSACTIONS

Accounts payable and other accruals include $21,000 of accrued salaries due to the Company’s Chief Executive Officer as of September 30, 2014 compared to $18,000 as of June 30, 2014.

5. SUBSEQUENT EVENTS

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

This quarterly report on Form 10-Q and other reports that we file with the SEC contain statements that are considered forward-looking statements. Forward-looking statements give the Company’s current expectations, plans, objectives, assumptions or forecasts of future events.  All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding the Company’s future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plans,” “potential,” “projects,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” and similar expressions.  These statements are based on the Company’s current plans and are subject to risks and uncertainties, and as such the Company’s actual future activities and results of operations may be materially different from those set forth in the forward-looking statements.  Any or all of the forward-looking statements in this periodic report may turn out to be inaccurate and as such, you should not place undue reliance on these forward-looking statements.  The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs.  The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions due to a number of factors, including:

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dependence on key personnel;

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competitive factors;

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degree of success of research and development programs;

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the operation of our business; and

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general economic conditions in the Asia-Pacific Region.

These forward-looking statements speak only as of the date on which they are made, and except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.  In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this periodic report.

Use of Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:

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“Seratosa” the “Company,” “we,” “us,” or “our,” are to the business of Seratosa Inc., a Delaware corporation;

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“SEC” are to the Securities and Exchange Commission;

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“Securities Act” are to the Securities Act of 1933, as amended;

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“Exchange Act” are to the Securities Exchange Act of 1934, as amended;

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 “U.S. dollars,” “dollars” and “$” are to the legal currency of the United States.

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You should read the following plan of operation together with our financial statements and related notes appearing elsewhere in this quarterly report and the most recent Form 10-K and Form 10-Q.  This plan of operation contains forward-looking statements that involve risks, uncertainties, and assumptions.  The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors.  

Overview

Seratosa specializes in providing e-commerce solutions and services that facilitate multi-channel B2C (business-to-consumer) and B2B (business-to-business) transactions.  Its solutions and services enable e-commerce transactions with speed and efficiency, and allow an interactive and engaging customer experience as well as targeted marketing and advertising.

The Company’s revenues are generated from one-time integration fees for the implementation of e-commerce solutions as well as recurring license and service fees.  The Company currently hosts the following existing e-commerce solutions:

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4-GS, Ltd. is a B2B e-commerce platform that optimizes supply chain sourcing for international enterprise customers through B2B Search Engine Optimization (SEO), e-catalog and inventory management systems and a transaction platform.

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ZBL Cybermarketing, Ltd. is a Search Engine Marketing (SEM) and Search Engine Optimization (SEO) provider and utilizes the Company’s e-commerce solutions to identify and engage targeted consumer segments and optimize purchase conversions.

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iMedia, Ltd. is a mobile advertising platform that enables online vendors to reach and engage its customer audience through mobile ads and apps.  

Liquidity and Capital Resources

Our registered independent auditors for the year ended December 31, 2013 have issued a going concern opinion as per our most recent Form 10-K.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital or generate revenues to pay our bills.  We believe that we can generate revenues as a provider of e-commerce solutions and services.  Our other source for cash at this time is investments by others in the Company.  We may need to raise cash to fully implement our projects and stay in business.

On September 30, 2014, we had negative working capital of $101,343 compared with negative working capital of $138,995 on December 31, 2013. The increase in working capital is due to our reduced net loss.  Operating activities generated $7,107 in cash in the three months ended September 30, 2014.  Investing activities provided $0 in the three months ended September 30, 2014.  Financing activities provided $0 in the three months ended September 30, 2014.

We may not have enough working capital to complete our plan of operations.  If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements, convertible debentures or loans.  There is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms.  If we require additional capital and are unable to raise it, we may have to suspend or cease operations.

Revenue Recognition

We earned revenue from providing hosting and integration services to 4-GS, Ltd., ZBL Cybermarketing, Ltd. and i-Media, Ltd.  For all customers, we provide e-commerce solutions with our engineering team

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and personnel in Asia.  We charge 4-GS, ZBL Cybermarketing and i-Media monthly integration and hosting fees plus additional professional fees for project management and consulting.  The fee arrangement with those three companies is covered under the strategic partnership agreement with Soconison Technology Ventures, dated July 11, 2011.  Soconison Technology Ventures is a shareholder in 4-GS, ZBL Cybermarketing and i-Media.  

Results of Operation

Service Revenue

Service Revenue was $383,821 and $366,550 for the three months ended September 30, 2014 and 2013, respectively.  The increase is due to recognizing higher revenue from our customers.

Cost of Service

Cost of Service was $398,240 and $401,930 for the three months ended September 30, 2014 and 2013, respectively.  The decrease was caused by lower personnel costs required for the development and hosting of e-commerce solutions for our customers.  

Operating Expenses

General and administrative:  General and administrative expenses were $175,435 and $253,730 for the three months ended September 30, 2014 and 2013, respectively.  The decrease was caused by more effective cost management.   

Net Loss

The Company had a net loss of $190,687 and $289,944 for the three months ended September 30, 2014 and 2013, respectively.  The decrease in net loss was due to increased revenue and more effective cost management.   

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company” (as defined by §229.10(f)(1)), the Company is not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-415(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports

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that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during our fiscal quarter of the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS

The Company, as a “smaller reporting company” (as defined by §229.10(f)(1)), is not required to provide the information required by this Item.

ITEM 2. RECENT UNREGISTERED SALES OF EQUITY SECURITIES

None

ITEM 3. EXHIBITS

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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.

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EXHIBIT INDEX